Replacing the founders of New York-based real estate manager Cohen & Steers was never going to be an easy task. When Martin Cohen and Robert Steers established the firm in 1986, they did so with the intention of allowing investors better access to public REITs, a relatively new opportunity at the time. They launched the first closed-end real estate securities fund two years later.
Decades on, the firm has $90 billion in assets, having carved a prestigious reputation within its real estate niche. But when the two founders decided it was time to hang up their boots, so to speak, the transition to Joseph Harvey as the company’s first non-founder CEO was handled smoothly and without any of the headaches that are often associated with succession in the asset management industry.
Harvey joined the firm in 1992 as an analyst from a small investment bank, and as he remembers, the sixth employee to join the ranks. Back then, the concept of a REIT analyst didn’t really exist. But in 1992 there had been a commercial banking crisis, mostly brought on by the commercial real estate industry, leaving limited means for real estate companies to get money other than the public markets — and opening up a path for REITs to take off. Cohen & Steers continued to invest in REITs through the Global Financial Crisis, helping to recapitalize them despite the turmoil, in what Harvey describes as one of the firm’s greatest investment achievements.
Now three years into his role as CEO, Harvey spoke to II about the succession plan and how the firm’s investment process shaped his career path.
Let’s start by discussing the succession plan and how it all played out.
We were formed by the real estate industry. Many real estate companies are family-oriented companies, and so the succession plan is generally to hand things to a relative and that’s obviously not great practice. I learned early in my career that succession planning is not an event — it’s not about a person. It’s about a process and a culture which, when you get to be a certain size, starts to gain real importance.
When we decided to go public, it kicked into motion a need to organize the company differently. In a way we had to think about organizing ourselves as a perpetual life entity, which is what we are now, and start putting in place early-stage processes like talent development programs and performance reviews.
When did it first become apparent that you were being considered for the role?
It was when Marty Cohen decided to retire about 12 years ago. I was already president and CIO. That decision set in motion a whole next round of organizational planning and development exercises that sought to determine if I was the right person to partner with Bob Steers when Marty retired.
We hired a consulting firm that helped us with the organizational and development practices of bringing Cohen & Steers to the next generation. This process provided a roadmap for a lot of us to go through the next phase. At the time, I was still CIO, and that was a role that I loved, but after deciding that I would one day like to lead the company, I understood that I’d have to go through these paces and start to think about how to first organize for my own succession as CIO and then how to partner with Bob in terms of running the company together on a day-to-day basis.
It sounds like succession has been ingrained in the company at many levels for some time — is that the case?
It is, yes. But because of the life cycle of our company and the age of everybody who worked here, there was a good chunk of the time when it wasn’t that big of a deal. That changed when we went public. Marty deciding to retire made it an even bigger deal, and then when it turned out that several other people wanted to retire too, just because of our age as a company, it has since become a really big deal. The investment management business is a people business; it is investment teams that are most sensitive to this.
Even though we’ve got very well-defined processes that have been passed along from generation to generation, they’re only as good as the people that are running them. For better or for worse, we got pretty good at the whole succession process because it requires a lot of people development. It requires a lot of looking forward and developing people, putting leaders in positions where they can gain different exposures, and signaling to the world what we’re thinking and doing.
You don’t want anything to be a surprise. When we made Jon Cheigh President in December of last year, I don’t think anybody was surprised. There’s a lot that goes into it, but it starts at the basic ground level. We are constantly looking at the so-called depth chart and that helps to provide a roadmap for developing people. It is really important for there to be a fluid process transition from founders to the next generation, and part of my job is to continue to shape the executive committee, delegate decision making and find the right rhythm in that decision making loop in order to prepare for when I am not going to be here. Hopefully that's not anytime soon, but part of my job is passing along the culture that I learned from Marty and Bob; we want to keep the DNA that has made us great but shape it in a different way so the next gen can make it even better.
Many people reading this will have seen the HBO show Succession. Although it was a family feud in spirit, the show was about the fight to lead the company and centered around the internal disputes that led to that decision. It doesn’t sound like that is how things went at Cohen & Steers, but was there any internal squabbling and did you have to fight off any other candidates?
I was the sixth employee at the firm. One of the great things about being part of a small company is that you need to learn how to do everything, and that gave me exposure to a lot of different moving parts and importantly allowed me to gain the respect and the trust of a lot of people at the company — in particular because of my leadership of the investment department.
So no, it wasn’t a competition. But the company is a meritocracy and in a high-performance environment you have to earn your place every day. I look at my role as a privilege and a great opportunity to lead what has been a unique company, and because of our market position and resources, we have plenty more opportunity ahead of us.
Sometimes succession is not easy; the act of retiring is a process. I know a lot of people who retired from Cohen & Steers who probably wish they hadn’t. Sometimes you need to get professional help or coaching on how to go through these processes and we’re very willing to do that, but I’ve been very fortunate to work closely with industry pioneers like Marty and Bob. I learned very early in my career that if they say something, I better pay attention to it. They have a lot of experience and a lot of wisdom, so it is important not to blow that off. I’ve had great coaches, and that’s given me a lot of confidence to do what I do.
Was there any question of bringing someone in from elsewhere to fill the role?
Culture is such a huge part of this business. Number one, we have watched firms, competitors, peers, all lose their focus, so to speak, on delivering investment performance in favor of distribution. Something that we feel very strongly about is that this firm should be led by an investment professional, because investment performance as a product is what we win or lose with. Within that mentality it is hard at most senior levels, be it CIO, president, or CEO, to bring someone in from the outside with aligned styles and cultural dynamics.
What about Bob and Marty? They are both still around, but what involvement do they have with how things are managed?
The decision making on a day-to-day basis is executed by me and the executive committee, but Bob and Marty are the largest share owners of this company and so it’s my responsibility — and this is part of good succession planning — to make sure that they understand what the business strategy is, what we’re trying to do, what the opportunities and risks are, and to continuously communicate with them on those fronts.
That being said, I could call either one of them right now and they’d be very willing and happy to share their views, and I would listen. But part of good succession planning is to make sure that I’ve articulated what we’re doing and why and make sure that they’re on board. The board has the responsibility to make approvals on certain things that we do, but even if there’s not a necessary formal approval, it’s incumbent upon me to make sure that I’m getting people on board.
In your three years as CEO, have there been any setbacks or mishaps in those years, or any thorny issues that have come up where perhaps there hasn’t been full alignment with Bob and Marty or the board?
Considering the pressure of what we affectionately call regime change, the shift in stimulus for 10 years to the tightening of monetary policy, the past few years have been challenging. Difficulties flow into the business but we have navigated it from the top down. I believe that we’re still early in our life cycle as an asset manager, considering that — or so I believe — investors are under allocated to the things that we do based on their investment merit.
There’s a cyclical opportunity and then cyclical challenges. Hopefully we’re most of the way through this cyclical challenge phase, but our founders believe in the bigger picture of allocations going up and, by virtue of our platform, the firm continuing to have opportunities to do new things. They are very supportive of everything that we are doing.
