At least that was the message from a group of real estate leaders at a panel to discuss the burgeoning investor market for medical office buildings, many of which were developed by physicians.

Andrew Shapack, the former chief executive of GT Canada Medical Properties Real Estate Investment Trust, said he recently bought a building in Midland, Ont., from a physician.

“I said doctor ‘What’s your price?’ ” said Mr. Shapack, noting the doctor wanted $5-million. “I said, ‘What is that based on?’ and he said, ‘Nothing.’

“It was truly based on nothing.”

Once he crunched the numbers, he realized that the rate of return the building would generate would leave him with a healthy profit margin and that the doctor was selling below market value.

Mr. Shapack, a Detroit native who came to Canada in 2002 sensing opportunity in the medical-building sector, says universal health care makes doctors and the remainder of the medical professions a no-lose proposition as tenants no matter where landlords locate.

“I want to be the king of Lindsay, Ont.,” Mr. Shapack, told Queen’s University Executive Seminar on Corporate and Investment Real Estate.

“It doesn’t matter if the medical office building is in Yellowknife or the corner of Yonge and Eglinton.”

The real problem is finding medical office buildings for sale.

It’s a piecemeal process acquiring them since few portfolios are for sale — evidenced by the fact Mr. Shapack’s company with 12 properties was just bought for $87-million and is now part of NorthWest Healthcare Properties REIT.

The usual course is for a group of doctors to team with a developer on a small building. Try and buy the building later and you are not just dealing with one doctor.

“When it comes time to negotiate, there are 16 physicians you are negotiating with and they will come to every meeting.

“They’ll each hire their own lawyers and their own accountants,” said Mr. Shapack, adding it’s not like dealing with a professional real estate company.

“This is like being a camp counsellor — in a bad way.”

But the demand to own office space is strong, especially among retail investors. The deal with NorthWest leaves it as the only publicly traded vehicle; Gazit America Inc. is about to leave the market after it sold out to a related party.

“I thought we have 18 medical REITs in the U.S. and they don’t have one in Canada” said Mr. Shapack, about his original decision to start a REIT here.

Peter Riggin, chief executive of NorthWest, said his 62property portfolio had to be created one property at a time but it was worth it because of the quality of tenants.

“It’s a defensive asset class. These buildings are full of sometimes cranky doctors but they are necessity-based tenancies for the most part, so they perform well whether it’s a positive economic cycle or a not-so-positive cycle,” said Mr. Riggin, adding professional management can easily add to the bottom line.

It may sound strange to consider medical buildings having something like a “retail mix” but professional management looks at it that way.

“In a medical building, it matters who is in there,” said Mr. Riggin. “It matters what kind of specialists want to be there – labs, imaging, pharmacy, physio. It’s management intensive but that can lead to tremendous growth.”

He said that once a strong tenant mix is established no one wants to leave.

“It’s almost unbreakable in terms of the co-tenancy synergies that exist.”

Jeffrey Olin, chief executive and co-portfolio manager of Vision Capital Corp., said demographics also bode well for the sector.

“It is giving rise to external growth opportunities in new development,” said Mr. Olin. “We like the fragmented ownership. We like the fact shrewd folks like my colleagues can be opportunistic in taking advantage of the [dysfunctional ownership].”

During the search for a new corporate director, the questions usually flow in one direction.

It’s the search committee zinging questions at the potential director — about the organization’s history, about the qualities that make the candidate fit to be a director, about the challenges and opportunities facing the organization.

But interviews about board appointments should be two-way dialogues. Directors should be asking as many questions as they’re answering. Below are some suggestions. The first four questions involve the company’s basic information, and they’re meant to ascertain what directors know about the “guts” of the business: why it exists and how it works. Are they basic questions? Sure — but basic questions are the ones that tend to yield insights.

As the saying goes: If you think the questions are stupid, you should hear some of the answers. 

What is the unique reason why customers choose this company? Some analysts identify this as the most important question in business: Why do our customers choose us? You might be surprised. A poor answer here is major reason for concern.

Start with raw inputs and describe to me how the company makes money. A CEO of our acquaintance loves to ask this question of existing directors. Few, he has found, really understand how their organizations operate and make profit.

Where is the company trying to be in five years? Do board members share a common vision? How much consistency is there among the existing directors? Major inconsistency should be a major cause for concern.

What financial metrics does the board examine to evaluate management? Ideally, existing board members would all give a common answer or two here, involving metrics that are some variant of a return on invested capital, or a customer satisfaction metric.

Next, ask these questions that reflect the rigour of the existing board’s governance processes. Poor answers here tend to indicate bad governance and a potentially risky situation for a potential director.

How often does the board discuss management’s performance in a confidential session? If the board isn’t having private discussions without members of the management team present, it isn’t doing its job.

What are two or three recent tough discussions that arose during a board meeting? Too many boards spend their time on administrative trivia and not enough on debates about tough issues: how the CEO is doing, how’s our customer service, why is our return on capital below average? Potential directors need to ascertain what kind of a board they are joining.

What concerns have been expressed by the organization’s accountants, auditors, lawyers and regulators in the past five years? For example, potential directors should ask about concerns auditors expressed formally in their audit report, and informally during the audit.

What protections are afforded to directors? Start worrying if existing directors can’t explain this well. Is a valid directors’ and officers’ liability policy in place? How does the policy work? It pays to get interested in these documents before you’re staring down the barrel of a lawsuit.

How does the board evaluate the CEO’s performance? This is the board’s single most important job. For example, how frequently does the evaluation happen? And how much time is allocated for it?

Getting poor answers to some of these questions doesn’t necessarily mean you should decline becoming a director. But they will help diagnose the kind of situation you’re entering. Know what you’re getting into!

- Shaun Francis is chairman of Medcan, and John Kelleher is president & CEO of RHB Group LP. Both are members of the Young Presidents’ Organization and have served as CEOs and directors.

It’s one of the basic ideals of corporate governance: the notion that part-time directors can provide informed oversight to a professional, full-time management team.

But is it valid? Step back and think about this for a moment. The average director attends approximately 24 hours of meetings per year. Add the time spent outside of meetings, and the average public company director spends roughly 200 hours a year working on board business. That’s roughly the equivalent of a month of full-time work. Compared with the full-time executives who run large public companies, the average director works only about a twelfth of the time.

Corporate directors are incredibly hard-working individuals who believe in the organizations they oversee. But do they need more time to properly execute their responsibilities?

Today’s corporations are massive entities. Many have hundreds of billions in assets, tens of billions in revenue and tens of thousands of employees. They operate in dozens of countries. They’re involved in an incredibly diverse and complex range of businesses.

Directors must put in more work outside of meetings. This means digging into numbers, assessing company performance, double-checking major facts using outside sources, and testing critical assumptions. Further, directors should debate management’s results and plans in meetings without members of the management team present. Executing these additional activities properly would lead to a significantly increased director time commitment – perhaps double or even triple the work a directorship is now considered to entail.

Many directors have multiple governance commitments, and spending more time on each means taking on fewer appointments.

If directors did focus their oversight abilities on fewer companies, Canada would require more directors to fill its boards. The best directors are simply very sharp people who are willing to ask tough questions about basic governance and business issues. If you think of these essential qualities and seriously consider new, more diverse talent pools, then the list of potential directors opens up. Finally, increasing a director’s basic compensation would increase the number of people willing to serve.

Our current system rests on the premise that directors can provide that oversight with only a small fraction of their time and focus. The time has come to subject this idea to a healthy debate.

- Shaun Francis is chairman of Medcan, North America’s largest preventative health clinic and one of Canada’s 50 Best Managed Companies. John Kelleher is president & CEO of RHB Group LP, Canada’s leading student apparel group and a former consultant at McKinsey & Co. Both are members of the Young Presidents’ Organization and have served as CEOs and directors.

• Sustainability Governance: How an organization leads and manages itself in relation to its stakeholders, including its employees, investors, regulatory authorities, customers, and the communities in which it operates
• Environment: An organization’s environmental footprint across its policies, operations, products and services, including its resource use and emissions
• Workforce: Issues related to employee working conditions, organizational culture, and effectiveness
• Customers and Suppliers: Issues related to an organization’s policies and practices on product safety, quality, pricing, and marketing as well as its supply chain policies and practices
• Social and Community Engagement: An organization’s impacts on its community in the areas of social equity, ethical conduct, and human rights

Organizations that demonstrate leadership performance against the standard’s metrics will be recognized through a third-party verification process.  The developers of the Standard are planning on three levels of certification, reflecting increasingly higher levels of achievement.  There will be additional standards following ULE 880, including ULE 881, intended for service-sector companies.

BrownFlynn appreciates the responsibility to participate as a reviewer of this new corporate responsibility standard.

The draft of the ULE 880 standard is open for stakeholder comment through UL Environment’s online Collaborative Standards Development System (CSDS). The comment period will be open for 45 days. UL Environment and GreenBiz Group welcome your participation during that period in reviewing and commenting on the standard.