CORPORATE GOVERNANCE TRENDS IN THE PUBLIC REIT SECTOR: AN EVOLVING LANDSCAPE 10 into better returns for stockholders, it follows that boards are not necessarily doing their stockholders a favor by chasing higher governance scores, no matter the cost. We believe that truly good corporate governance is more meaningfully defined by real-world behavior – does the REIT have an engaged and thoughtful board of directors, comprised of persons with relevant and useful experience, who consistently take action with the aim of maximizing stockholder value over the long term? Does the senior management team regularly and meaningfully engage with stockholders? Which and how many boxes on the corporate governance matrix can be checked becomes of secondary importance to these fundamental questions. In the REIT sector, we believe this is particularly true given the evolving nature of the stockholder base. With the recent elevation of real estate to a “Headline Sector” under the Global Industry Classification Standard (GICS) and the proliferation of REIT exchange-traded funds (ETFs), the typical public REIT’s stockholder base is increasingly large, diverse and fluid. In this environment, stockholders will not always speak with one voice and different groups of stockholders may have different, and even conflicting, interests. For example, retail investors and some institutional funds may be focused on maintaining stable dividends, while other funds may be facing life-cycle events and/or termination dates that cause their focus to be on near- term liquidity. Likewise, passive index funds may have interests that diverge from those of actively-managed funds, and certainly from those of short-term activist funds.14 So while corporate governance must not be misused or abused with the effect of, say, entrenching an underperforming board, a REIT’s stockholders are not necessarily better off with a “cookie-cutter” permissive governance profile that enables one subset of stockholders to effectively hijack the overall value proposition to the detriment of other stockholder groups. In our view, a corporate governance analysis should be undertaken holistically, with careful consideration not just of each particular metric but on the inter- connectedness of each metric with others and other provisions in the REIT’s organizational documents. It is not enough to say, “MUTA is bad, let’s opt out”, or “ISS likes bylaw amendments by stockholders, let’s opt in” – since either of these, either alone or when used in conjunction with other available governance arrangements — can prove critical in permitting a board acting in good faith to maximize long-term shareholder value. The question should be: for this company, at this particular time, taking into account its long-term strategic objectives, what makes sense in terms of an overall governance profile? And by “makes sense”, we mean that bundle of board rights and stockholder rights that strikes the right balance between owners and managers for that particular REIT, the one that will ultimately inure for the benefit of the long-term value proposition that prompted the REIT’s creation in the first place. 14 See, e.g., interview of Jonathan Litt, founder and chief investment officer at Land and Buildings, a REIT-dedicated activist fund, held in conjunction with REITWise 2017: NAREIT’s Law, Accounting & Finance Conference in La Quinta, California. short-term-returns). In describing Land and Building’s activist strategy of working to maximize value over the long term, Mr. Litt notes that there are “short-term ways to make money which are not the best outcome for all shareholders”. YOEL KRANZ Partner +1 212 813 8831 JOHN HAGGERTY Partner +1 617 570 1526 GIL MENNA Partner +1 617 570 1433 DANIEL ADAMS Partner +1 617 570 1966 ETTORE SANTUCCI Partner +1 617 570 1531 CONTACT THE AUTHORS Jordan S. Panter also contributed to the drafting of the article.