Are Companies Ready for the Next Downturn?

SAN FRANCISCO—Commercial real estate has enjoyed a long run in the current economic cycle and it may continue as one of the longest in a generation, one says with fingers crossed. In the first of a two-part exclusive, Matt Slepin, founder and managing partner of TerraSearch Partners, recently offered insights on how the C-suite is managing at the top of the cycle and how to be ready for what’s next.

GlobeSt.com: What internal changes can CEOs make to stay at the top/?

Slepin: Clearly, most real estate businesses operating today are strong, and leaders are both maximizing earnings and making their mark. One thing that distinguishes successful founders and CEOs is their laser-focus on the company while also commanding a 360-degree view of what’s not in the business plan per se, but may affect it now or in the future. There are improvements from inside the firm such as tuning the company resilience, the infrastructure and the people plan that will make a difference.

Resilience planning can prepare firms as best as possible, with back-up plans and back-up back-up plans, even if not fully documented. Another market down-cycle will occur, whether regional, industry-specific or more systemic. It is good to ask what plans you and your company have in place. How is your business resilient? How are you brittle?

Leadership and capital structure are twin pillars of resilience and good succession planning. How is your capital structure set up for a downturn? How is your capital structure set up to take the best advantage of today’s opportunities? Is your capital structure set up, especially if you are a private company, for the next generation to have the wherewithal to take over the firm and allow your rightful liquidity over time? Other tools need consideration as well. Business infrastructure planning should include the technological backbone, accounting and reporting systems, and human resources. Where are your weaknesses and risks? It all may seem mundane but it is the base upon which long-term, versus pure transaction, shops are built.

The people plan is a parallel core strategy with resilience, both in terms of succession in leadership and diversity of the team. The headline-grabbing revelations of sexual harassment in the workplace is making every company in every industry re-think overall diversity and employee programs. Outside consultants can help some firms take a more independent look at things. For example, during a recent review, a client was surprised at negative marks for having a talented leadership team: entirely composed of white males in the same grey-hair age group. That type of team is too stable, has no diversity and has a tendency toward the myopic. New, diverse faces on the website’s leadership page are important and equally important is cultivating a respectful, communicative atmosphere throughout an organization. It’s good for business, too. Looking more like your customer and your investor base enables a firm to be more responsive to markets and new ideas.

Succession is admittedly one of the most discussed but least-readied aspects of running a private company. Founders are often woefully in denial about their lifespans and those of their long-term trusted team members. Examine all of the key roles in your organization, including the top position, and see how prepared you are.

In your enterprise, what is the balance of the financial rewards between ownership, leadership, workers and investors? This is a question of sustainability and fairness. Are you providing key employees with the opportunity to create net worth? Is the balance between the financial rewards for you, for your key senior team, for the investors and indeed for your workers fair, appropriate and aligned?