Property organisations are backing a voluntary ethical code for the European industry
A group of leading players in the European property industry have got together to draw up proposals to promote good corporate governance in all areas of the business.
The plan – whose backers include AXA REIM, the British Property Federation, EPRA, IVG Immobilien, Heidrich & Struggles and Corio – has its roots in the German corporate governance initiative launched in 2002, following a wave of revelations of corruption in the open-ended funds industry. The German initiative set down 10 principles of good corporate governance (see panel) which, more than 60 German property-related companies have signed up to.
A discussion panel at the MIPIM property conference in Cannes last month examined whether a European corporate governance code for property was a desirable thing.
Eckart John von Freyend, chairman of listed German property company and fund manager IVG, told the audience: “Real estate differs from other asset classes in that it is not traded centrally through a common clearing institution. This implies a certain tendency towards a lack of transparency. So moves towards greater transparency and professionalism are highly appreciated by the international investment community.”
However, only a little over half of the audience declared themselves in support of a such a code. Rupert Nabarro, founder of Investment Property Databank, argued that the European industry had already made great steps towards transparency and that perhaps a formalised code – which could not be enforced – was not necessary.
The panel agreed that the European listed sector has led the way in terms of corporate governance and transparency. EPRA recently published a third update to its best practice guidelines for European listed companies.
EPRA chief executive Nick van Ommen said: “The art is to keep things simple: it is all about moral and ethical behaviour, transparency and disclosure.” He pointed out that improved corporate governance in US REITs had vastly improved the sector’s standing with investors.
An issue for the unlisted sector
The panellists agreed that corporate governance issues were more likely to arise in the unlisted funds sector, as there was less transparency in fee structures and trading of fund units, and varying degrees of alignment between investors and fund managers. However, non-listed funds body INREV was not represented at the MIPIM event.
Paul Marcuse, chief executive of AXA Real Estate Investment Managers, which has €29bn of assets under management in direct assets and unlisted funds, said: “It is important for a code to apply irrespective of whether the fund is open or closed, core, core plus or opportunistic, unlisted or listed.”
IVG’s John von Freyend argued that the German principles should form the basis of a European code of corporate governance. “These principles do not only hold true for all kinds of real estate enterprises, I think they hold true also for all countries,” he said.
| Germany’s 10 principles of corporate governance
● The indispensable basis of entrepreneurial activity in the property sector is professionalism, transparency and fairness in relation to investors, business partners, tenants, staff and the public. ● Enterprises in the property economy operate in the interests of the investors and principals and are dedicated to increasing the value of the enterprise and/or assets. ● Management must have the required suitability and sufficient experience, which ensures the continuing education of managers, junior managers and specialists. ● Expert supervisory and consultation bodies improve the decision-making quality in property deals. These bodies are appointed accordingly, and are provided with clear and comprehensive information by the management. ● Appropriate property valuations should be undertaken in accordance with recognised valuation methods by qualified, independent experts on the basis of up-to-date and objective market information. ● Property business usually involves a high capital commitment and long-term planning. For this reason, the establishment and development of an internal monitoring system and risk management is indispensable. ● Conflicts of interest between staff, management, supervisory and consultation bodies and the property enterprise, or between the enterprise and the investors, must be avoided or disclosed through suitable regulations. ● The audit of annual accounts is important for the protection of investors and the establishment of confidence. The criteria of independence and qualification will be strongly emphasised in the selection of the auditors. ● The property enterprise’s business model, organisational structure and participation situation must be clearly shown, and any alterations explained. ● Property companies should provide information to institutional and private investors and other market participants in an objective, clear and comprehensive form. |
