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COMMENT: Do the right thing, in good time

With the senior management of a number of firms approaching retirement age, succession planning has become a hot topic, but not every firm is proceeding accordingly. 

Earlier this week, Cornerstone Real Estate Advisers named Scott Brown as its new president. Brown, who previously served as head of Americas at CBRE Global Multi Manager, is taking over the role from David Reilly, who will remain at Cornerstone as chief executive officer.

While it may seem like this news was no more than a high-profile hire, Reilly’s statement about the appointment was more telling. “After careful consideration and an extensive succession planning process, Cornerstone is delighted to have attracted a candidate of the calibre and experience of Scott to help us continue our growth, both domestically and globally,” he said. 

And Cornerstone isn’t alone. Last week, Lone Star Funds promoted André Collin to the newly created post of president, where he will be responsible for the firm’s global operations. Although Lone Star declined to confirm whether succession planning was at the heart of introducing the new role, the Dallas firm has come under scrutiny lately with regard to a successor for founder John Grayken. One of its most loyal investors, Oregon Public Employees’ Retirement Fund, indicated as much at a board meeting in May. 

Even the Wall Street Journal made a point this week to highlight succession planning in the industry. The paper pointed to The Blackstone Group – which has real estate head Jonathan Gray in line to succeed president Tony James and, ultimately, Stephen Schwarzman himself – as an example of a good approach to the issue of succession.

For most firms founded in the late 1990s or later, however, the topic of succession planning only recently has moved to the forefront of CEO and LP agendas alike. Some bosses maintain they haven’t had the time or inclination to think about succession at their firm, while others maintain that, in spite of their advancing ages, they are not going anywhere. As a result, there still are a number of firms with a fair amount of work to do in this area, particularly at some of the more entrepreneurial firms led by strong personalities. 

Whatever their reasoning, these leaders should realize succession planning is important for showing investors that general partnerships are durable and adaptable entities worthy of long-term relationships. For sure, robust succession planning is one box ticked in being a strong fiduciary. In fact, a GP can breach its fiduciary duty of care should it not have a succession plan in place. The inability to maintain stability through an orderly transition of leadership can even precipitate a firm’s demise, triggering redemptions and/or severely limiting the success of subsequent fundraisings.

Investors nowadays are spending more time reviewing the sustainability of the firms managing their money, and succession planning is a key component of that review. While some investors are voting with their wallets, most LPs probably do not have enough influence to advance their desire for better succession planning. Perhaps Oregon’s influence on Lone Star is more the exception than the rule. Nonetheless, it is up to the GP to think of its future and do the right thing.