Interview with Keith Cheatham (President and CEO of Siemens Real Estate, USA)

Citation

Read, D. (2008), "Interview with Keith Cheatham (President and CEO of Siemens Real Estate, USA)", Journal of Corporate Real Estate, Vol. 10 No. 1. https://doi.org/10.1108/jcre.2008.31210aaf.001

Interview with Keith Cheatham (President and CEO of Siemens Real Estate, USA)

Article Type: Talking heads From: Journal of Corporate Real Estate, Volume 10, Issue 1

by Debbie Read

Can you tell us about your day-to-day role at Siemens Real Estate (SRE)?

Absolutely! My title is present CEO of Siemens Real Estate for the USA. Outside of Germany, we are the largest region in terms of revenues and head count, as well as in number of locations and square footage. So my scope is the continental USA, where we have about 830 different properties of varying size and business use, and approximately 34 million square feet of space. The organization's role is primarily to be an internal service provider, so we do not get involved in any type of speculative development nor do we get involved in providing space for third parties, except in the rare instance where we have a vacancy to backfill. We may then contract with external tenants just from an asset utilization perspective.

Our goal – and we don't have full penetration at this point in time – is to really be the total real estate service provider for all of the US entities, and the mission is the same globally, for everything from project management to transaction management to facilities management.

How would you describe your leadership style?

I think that the legacy that I would like to leave behind when people talk about me is tough but fair.

I have a number of ideologies and/or quotes that I use in coaching my folks and some of that probably comes from my former military background. However, for my leaders I take quite a bit of interest in developing and rounding their leadership skills, and not trying to dictate to them how they should manage different situations. I definitely look to get them to understand that the core skill sets they have as real estate professionals become less and less important as they move up the management scale. I also try to help them to continue to develop a better balance of talent management, which includes getting things done through other people and leveraging their own knowledge and experience in terms of the job that their direct reports are currently performing. A couple of things that I use in that regard are: encouraging people to control their own destiny, understanding that they are responsible for their own career, and the company is here to support, but you can't wait for someone to define and identify your next opportunity.

I also encourage my folks to take full advantage of every exposure that they have, reminding them, as I did when I was the Head of Audit, that we very often sit with people in the C suite and that many of the people in these C Suite organizations never get to have that opportunity. Although we are there as real estate professionals I think it's important to make sure we are developing a good understanding of the business, being totally value-added and not siloed to the specific function that we perform.

I don't know if that directly answers your question but it's such a broad one, and leadership is also very situational ...

You joined Siemens Corporation in October 2000 as Vice President of Financial Audit. During this time you completed the staffing and development of The Americas Team with a focus on increasing the company's financial competency in accordance with US GAAP. Looking back, how successful was this challenge?

In my own humble opinion, I think that it was very successful. I say that because when I joined Siemens it was a bit of a precarious time! The company was preparing to issue American depository receipts on the New York stock exchange, and there were a number of technical requirements that the company had to meet in order for that to be acceptable. One of those was getting our US GAP reporting to the level that it needed to be.

Actually, prior to my coming on board, I would say that our common adherence to US GAP was somewhat sporadic at best. Not that it presented a great risk to the company because we were not actually traded on the US exchange, and the requirements for us as a German company were very different than a purely US-based company.

That said, there were some mentalities and understandings that had to be changed in a relatively short period of time and I believe that I and my organization were a big part of helping to instill those behavioral changes, as well as process and procedure changes, and, in some cases, personnel changes that had to take place.

So, I am very proud of that experience because in 18 months I was able to build a team that didn't exist when I came on board, that was responsible, not just for the USA, but for all of the Americas – from Canada to Argentina – and so I had to staff a team that was not just skilled in Audit and US GAP knowledge, they also had to be very diverse in terms of culture and language. The fact that I was tapped only 18 months later to take on a CFO role at one of the company's divisions I believe was credence to the fact that we had performed a very successful establishment of that function, such that it was stable enough for me to hand it over to someone else.

Given the opportunity to do it again, would you do anything differently?

Because there were things that were very much at a development stage I took a lot of risks which panned out for me. Maybe I would have been a little bit more aggressive with a couple of the staffing moves that I've made, but again, I believe that they worked out over time.

I don't know that I would have done anything dramatically different, there were so many things still moving around at that time, including who my leadership was. My global boss was a new hire and I believe that he had moved on probably before the end of my very short 18month tenure with the function.

SRE's portfolio comprises office, production, storage and specialist property that is spread across more than 3,000 different sites around the world. What is SRE's globalization strategy?

Global strategy is actually a very timely question because we have just started embarking on reinventing a bit and, most simply put, we are working towards what is called a 100 percent approach. The company, both globally as well as – probably more applicably – domestically, has grown primarily though merger and acquisition.

The relevance of this is that while we've both consolidated out and brought in a lot of new properties through M&A, as is the case with payroll systems, HR systems, general ledger systems, we also brought in everybody else's former real estate strategy, or lack there of, which can be anything from saying: “no, we're going to own everything” to “we're going to go very short on our leases” to “we're going to go very long on our leases” or “any assets that we own, because we've got a cash flow strain, we're going to look to sell a lease back where it makes sense.”

So, that's kind of a long way of me saying that our goal right now, globally, is to implement a 100 percent approach whereby Siemens Real Estate both globally and regionally, or at the country level around the world, is going to be the sole service provider and manager of all real estate assets regardless of their ownership structure to include whether they are leased or owned and/or whether they are actually on the Siemens Real Estate Balance Sheet or that of the operating companies.

Globalization has had an extraordinary impact on the emergence and momentum of corporate social responsibility. How does SRE ensure that it is perceived as a socially responsible organization?

Again, that's a very broad question, and my most honest response to that is that there is so much banter out there right now about green and LEED certification (The Leadership in Energy and Environmental Design Green Building Rating System) and sustainability that I very often look at this as something that I am really waiting to see what the real proof in the pudding is.

I think that there are a lot of companies out there that have claimed that they know what their carbon footprints are and they know exactly where they need to make changes in order to be more socially responsible from an environmental perspective. Quite honestly, I don't believe this is as true as some of them tout it to be. I also very much believe that some of the C Suites around the world are talking the talk, but aren't completely walking the walk when it comes to making those investments and changes that are really concerned with sustainability and addressing some of the current and future environmental issues that we may have.

So, I'm still a little bit on the sideline and wondering if this is like the dot com craze. I talked last week at the Cornet Conference with regard to how, when we had our gas crunch a number of years back, everybody was car pooling and we put in express lanes on the highway, and today these things are pretty much few and far between, if not non-existent, in many of the states around this country. I'm still waiting to see what is really going to happen here, but as far as Siemens goes, because of the stronger legislative regulations, Europe is somewhat ahead of the USA, and maybe some of the other North American countries, in terms of addressing current environmental problems as well as preventing future ones. But, it is on everybody's radar screen and, quite honestly, my team is continuing to look at some of the small things we can do, whether it's getting rid of Styrofoam or whether it's making sure that we've got solid recycling programs, which again are really just the tip of the iceberg.

As an organization that does not currently control or decide what happens at all of our locations, my opinion is that at least in the USA, as well as I think for a lot of companies across the country and across the world, all of this is still in the development stage.

There are many critical issues facing the US corporate real estate industry today. Such issues include: Sarbanes-Oxley, the partnership principle, corporate social responsibility, human assets, and benchmarking. Can you expand on one or two of these issues and explain how you deal with them at SRE?

Well, let me take the last one first which is benchmarking and which has been a challenge for us. I've been a long-term advocate of benchmarking, not just as an exercise but as one of the other mantras that I use on my folks; that I'm not adverse, or not shy, to beg, borrow and steal – meaning that we don't have to create everything here. If someone else has created a successful platform I'm all about trying to emulate what they've done and not reinvent the wheel, so to speak.

I've got to be honest with you that, despite different organizations, Cornet, or the Real Estate Executive Board, etc. we've found it very difficult to really develop quality benchmarks, because of, in part, the complexity of our portfolio. So, If I'm out there in the Real Estate Executive Board and there are IT companies and banking companies – their make-up of their portfolio is very very different, and for a bank they might have a lot of office space and/or a bunch of retail locations across the country, whereas I've got everything from light bulb filament manufacturing to a number of small “Class A” locations, which may be no more than a 20,000 square feet footprint in a 60 storey building in midtown Manhattan.

Benchmarking is something that I think is very important. Comparing and identifying our strengths as well as our development areas has been challenging in terms of really getting quality points of comparison for us to really delve into.

The other issue that I'd like to speak about is the war for talent, and I know that's not exactly the way you described it, but I believe that this is another huge challenge for corporate real estate organizations and I hear more and more banter – and I'm actually a prime example of this – that much more of the leadership for corporate real estate functions is actually coming from outside of real estate (people that have a real estate degree or have been a former broker), you see a lot more financial people, like myself, taking over these roles and leveraging their financial backgrounds, but also bringing a very strong leadership that can handle the brick and mortar part of the job as well as develop it at the C Suite level.

What I see more and more, and I've already done this with our organization, is outsourcing quite a bit. My short strategy for that, which I don't think is much different from many others, is not just the economies of scale that come from that, but more so letting the experts do the job, so, as is the case with the Siemens Real Estate portfolio in the USA there's very often fractions of people that are doing facility management type functions along with whatever their full time job is supposed to be. I don't think that really optimizes the role, and so instead of having fractions of people or keeping full time people on staff, do this in limited and non-leveraged types of ways. I think it is much better to have people who do this day in and day out through some of our outsourcing partners, and to grow and develop and coach people along these lines and also give them career paths, is really the better way to source some of these skill sets.

Do you find that these issues are the same at your other sites across the globe?

As a matter of fact, I spoke to my fellow comrade from the UK earlier this week and they are more of a regional company, meaning that the real estate as well as their corporate headquarters – or I should really say regional office – makes decisions on behalf of the country, and that all of the operating companies within the UK, or other regional companies around the world, report into a regional headquarters, which is kind of the decision making body for the region.

In the USA, we are a holding company, so the operating companies don't really have a solid direct reporting line to Siemens Corporation. They report directly back to their sector heads – typically in Germany – so the essential corporation, to include my own, is really more of an “influence without authority” type of body.

Their ability, again sticking with the UK, to enforce and enact common approaches across the portfolio is very different than it is here.

Many world-leading corporate real estate departments are addressing increasing cost pressure and performance expectations by using process improvement, such as Six Sigma. How do you measure performance at SRE?

Six Sigma, or similar programs, is something that is on the outskirts of my radar screen. We have certain entities within Siemens who have run and developed and used these programs very successfully.

I believe that you've got to have a solid platform for that before you can really get the most out of it, so I've got to purposely hold off on pushing that to my organization because it's only been about two years since we consolidated the former shadow real estate organizations at the operating companies, and brought them under one umbrella under my leadership. So, I still think we have a way to go in terms of having a solid and consistent platform for managing real estate before we can get into really fine tuning and squeezing every drop of water out of the rock, so to speak.

We have measured our success over the last couple of years, probably in three primary facets; one being consolidation. Over the last four years we have eliminated about 400 locations out of our portfolio, and that's not to say that we had 1,200 and we're now down to 800. What actually happened is we reduced about 400, but through merger and acquisition we brought another three or four hundred back into the portfolio. So in doing all those consolidations, which to be frank was really elimination of a lot of redundancy, and I'll call it “low hanging fruit,” but there were some rather substantial savings, adding up to about $100 million of recurring cost avoidance and actual expense reduction that the company is now benefiting from. So consolidation, one; the cost saving associated with those consolidations, two; and then three, the FM initiative which we have been driving for the last two years, and that has allowed us to consolidate about 24 million square feet under one service provider umbrella and is targeted to save the company another $20 million a year over the next five years.

On a lighter note, if you had the opportunity to have lunch with any business leader – past or present, who would it be, and why?

I would like to have lunch with Ken Chenault, President of American Express. The reason being, first of all, as an African American business leader, I think there's some unique challenges that he faces and that I face as well, so I think there would be a level of relation that I may not be able to get from a Larry Bossidy or a Jack Welch for that matter.

He is someone who I respect, I've read articles about him and how his compensation plan is structured and how he got to where he is. He is currently still in his role, which is also interesting given all that's happening with a lot of different C Suites these days ... so that would be my choice.

Finally, what is the next important event in your corporate diary?

There are so many things going on all the time, but my next important date is with Harvard School of Design.

A little more than a year ago I enrolled in an Advanced Management degree program there and next week I'm going up to complete my Challenges of Leadership training, which is my final elective for me to receive my formal Advanced Management degree from Harvard School of Design.

As part of that curriculum, I've also been tapped to write a business case on corporate real estate and I've actually been tentatively pencilled in as Adjunct Professor for the upcoming Advanced Management degree program in real estate starting in July 2008, so for me, both personally and professionally, that is really my next big milestone – getting this business case written, and getting up there and presenting it to the students of the next Advanced Management degree program.

January 2008.

End of interview.