Initial Write-up Home Builder Research Report Updated
Ferguson Partners Ltd. researched and examined 2015 data in board size, board tenure, number of independent directors, average age of board members, director compensation, CEO/Chairman relationship, CEO tenure, and stock performance of nineteen public home builder companies. In addition, we examined how the home building sector compares to the broader S&P 500 index.
Four Primary Takeaways:
- The size of an S&P 500 board is bigger than a home builder’s board.
- S&P 500 companies’ boards are comprised of a higher number of independent directors.
- The average tenure for a director at a home builder that had an IPO date before 2013 is longer than the average tenure of a director at an S&P 500 company.
- Given the lingering effects of the Great Recession, home builder stock performance is dramatically underperforming the S&P 500 over the past three years.
Public home building companies’ boards have 8.4 members on average. An average S&P 500 company has 10.8 members.
Independent directors represent 75% of all directors on public home builder company boards, compared with 84% of S&P 500 directors.
Board Members Age
The average board age of a public home builder company 61.2, which is slightly younger than the average age of an S&P 500 board. The youngest home builder board has an average age of 51 and the oldest has an average age of 72. The oldest average board age among S&P 500 companies is 75.
The average tenure of a home builder company board is similar to that of to the S&P 500 average, 8.6 vs. 8.5 respectively. The longest average tenure for a home builder is 20 years. Home builders such as Tri-Pointe, The New Home Company, William Lyon Homes, UCP, Century Communities, and LGI Homes, went public in 2013 or later and helped reduce the group’s average board tenure. When you remove the companies that recently had an IPO, the average board tenure for the remaining companies in the group increases to 11.4 years. Furthermore, six boards have an average tenure of over 12.5 years.
The average board compensation of home builder boards is $208,576. While average per director compensation for a board member at an S&P 500 company is $277,237.
58% of home builder company boards have a separate Chairman and CEO, compared with 48% of S&P 500 boards.
The average tenure for a CEO in the home building sector is 7.9 years, which is slightly longer than the average tenure of an S&P 500 CEO 7.4 years. The median CEO tenure for home building companies is 6 years, which is in line with the median CEO tenure of an S&P 500 company. The longest tenured home builder CEO is 27 years.
The home builder sector was one of the most impacted sectors during the 2008 financial crisis. Over the past five years the sector has outperformed the broader market. As a sector the group has risen 49%, compared to a 38.7% gain in the S&P 500. However, over the last three years the group has underperformed the S&P 500. Over a three year period home builders have lost 16.6% of their stock value, while the S&P 500 is up 22.87% over the same period. In the past year, both the home builder group and the S&P 500 are negative. Home builder stocks have fallen more sharply over the past year and are down 22.42%, compared to a 11.18% drop in the S&P 500.
To better reflect a typical S&P 500 company, home builders should increase the size of their boards. By adding additional members to the board, especially at companies that have an IPO date before 2013, home builders will have a broader group of directors to reach decisions and it will help to reduce average board tenure. Furthermore, new directors should be independent directors, which will better align the group with the S&P average.
How Independent Directors Help
Independent directors help to bring fresh ideas into a company’s boardroom, as well as accretive skill sets. When a company and its strategy change over time, fresh voices must be found for bringing new ideas and perspectives to the board. An independent director can help a company gain a better understanding of markets, geographies, business models, or functions that have become newly critical for success. For example, diversity and consumer marketing are common “recruits” among home builders recently. Institutional investors also look favorably upon expanded, independent Boards.
Imposing metrics, either by age or term, has been strongly advocated as a way to make room on boards for traditionally underrepresented pools of talent, such as diversity candidates. By increasing board turnover, tenure-limiting instruments increase the opportunities to create more diverse boards.
FPL Advisory Group is a global professional services firm that specializes in providing executive search and leadership, compensation and management consulting solutions to the real estate and a select group of related industries. Comprised of three businesses that work together, FPL Advisory Group offers solutions and services across the entire business life cycle:Ferguson Partners: Working in two groups, Ferguson Partners offers services in executive search and recruitment, as well as leadership consulting, with FPL Associates: Focusing on compensation, FPL Associates assists with the assessment, design and implementation of compensation programs; FPL Consulting: Covering a wide array of business needs, FPL Consulting partners with clients to develop strategies and structures to drive competitive performance.