Corporate Governance and the Commercial Real Estate Space
The CoVid19 pandemic has brought corporate governance to the forefront of the commercial real estate space. At the very outset, Corporate governance can be challenging to execute as there are no concrete markers for excellence or adequate policy to ensure its widespread practice. Corporate Governance primarily tests the ability of senior management to preempt risk, maximize shareholder value or avert a regulatory iron fist.
Some of the common discrepancies in Corporate Governance are in the areas of protection of stakeholders and independent stakeholders, vulnerability to external influences, lack of a strong risk management strategy, lack of diversity within the Board of Directors, a lack of concrete markers for excellence as well as the need for adequate policy-based support in ensuring the widespread practice of good Corporate Governance measures. How then can one implement effective corporate governance strategies to ensure the continuation of operations as well as the protection of stakeholder interests?
Take the ongoing CoVid19 pandemic, for instance. As a pandemic of great global magnitude, it has affected multiple sectors including the Commercial Real Estate space. A Corporate Governance culture governed by the early detection of risk has enabled entities to take on effective sanitization measures, preventive measures and other mitigatory measures to ensure the safety of all employees within the premises of assets. From the business point of view, a foolproof Business Continuity Plan is the need of the hour. Some of the focal points of corporate governance in commercial real estate business which are to be followed at this point in time are as follows :
Follow a model of consistent and relevant communication
Communication is a key tool to be utilized at this point to keep stakeholders informed of all decisions and to curb the spread of misinformation. Virtual tools like webinars, customer surveys and emailers are a powerful media that can be utilized at this point in time. Following a three point strategy can help streamline all communication targeted at stakeholders.
Firstly, it is important to acknowledge, to the stakeholders, the immediate impact of pandemic on the business. Secondly, as a part of business continuity, convene frequently to re-evaluate the state of the business and thirdly, devise action plans that can be measured through quantifiable targets.
Keep Liquidity on a tight rein
As real estate is a capital-intensive business it is crucial to assess liquidity needs in the near term, reimagine the capital mix of the organization and identify ways to improve liquidity by employing a careful cash flow strategy. Subsequently, there is the need to re-evaluate business assumptions in tandem with the current situation, as opportunities will remain aplenty but premature decision making will prove to be expensive. It is also imperative to continue raising cost efficient finance while taking advantage of the recent RBI repo rate cuts and simultaneously being watchful of enhancing credit ratings.
Plugging Data Privacy Loopholes
In order to ensure business continuity, employees and tenants have been following the virtual model of work in the recent times. This shift to working from home made organizations ineffably vulnerable to cyber risks like social engineering and phishing compromising the integrity of the employee and the organization alike. Stringent measures have to be taken to ensure adequate safety protocols are in place to thwart any cyber-attacks. To avert cyber risks, all our employees are working out of cloud storage by capitalizing on our robust technology infrastructure.
Supply Chain management
The mandated lockdown has brought the movement of construction materials to a standstill thereby exposing the roadblocks in the larger supply chain. The disruption created at the first rung of supply like sourcing of construction materials will have a domino effect on the rest of the construction process and can potentially impede the pace of construction. A strong corporate governance strategy would see the setting up of a local supply chain network to equip the real estate business for any future disruption..
Examining the legality of contractual claims
A major repercussion of the ongoing pandemic is to misconstrue Covid-19 as a force-majeure trigger in contracts. It is in times like these that developers must work closely with contractors, vendors and other stakeholders to assess the invocation of force majeure claims. In many cases, the revenue cycles of tenants have been kept intact by the Work from Home regime.
Recalibration of one’s strategy
In light of Covid-19, corporate strategies have to be relooked at and organizations be well-equipped with a disaster management plan such that businesses can effortlessly transition in and out of crisis management mode. To further strengthen the system, an internal mechanism needs to be established in order to build an organizational culture ensuring the creation of long term value. This allows for the seamless functioning of the business through several levels of accountability.
Incorporating Smart designs within the workplace
This pandemic should serve as a catalyst to make buildings greener and equipped with carbon-negative technologies. Smart and clean technologies are the need of the hour as they are ideal in ensuring member safety. The sector should take the lead in infusing touch-free intelligent design through automation and voice activation in order to limit skin contact. The integration of anti-microbial technology in interior designs is a much-needed addition to the current landscape of the workspace
It is pertinent to acknowledge that the industry at large is venturing into uncharted territory. Gauging the pulse of the market is imminent to mitigate the impact. Recovery from this mandated lockdown and resumption of business is contingent on good corporate governance practices and excellent crisis management strategies. Learning from the wisdom of the past, and amalgamating the essence of current trends, a successful organization is defined not simply by what it does but how it chooses to implement its vision.
In the near future, organizations should continue assessing situations and communicating with stakeholders whenever needed especially in situations involving the emergence of new information. Prudent assessments should be made in order to analyse the extent of the impact of COVID-19 related and to determine any mitigatory actions.
