By Jack Cumming
Before the Brookdale directors breathe a sigh of relief at having dodged the Ortelius missile, they should pause to consider the lessons to be learned. First, it appears that the Brookdale model is stale, and churning the portfolio will not freshen it up. It’s time for bold action with a bold leader.
Stop Shrinking
Start by recognizing that housing seniors is a different business from trading real estate properties. Even the real estate moguls on the board should understand this, since they are also people who one day may want to live in a Brookdale property. Instead of trading the portfolio and standing by as the business shrinks, rebuild the business to the potential that it once had.
Let’s start with the C-suite. Let the interim CEO return to her role as a director. Let Spencer Stuart focus on other clients, and bring Cindy Baier back as interim CEO, perhaps with backing from ex-CEO Andy Smith and the experts at LCS. Industry thinkers Steve Vernon and Steve Moran have also offered to help restore the business. It wouldn’t hurt to let Boston Consulting Group and Goldman Sachs advise the board on a recovery plan.
Become the Industry Leader
As you restore Brookdale to an enterprise in which talented people can imagine building a career, bring the communities up to a living standard worthy of the board members’ humanity. If a board member wouldn’t house his or her mother or grandmother in a Brookdale community, that’s a sign that the board has some learning to do. Board myopia is never a positive.
Brookdale declares that it is “the nation’s premier operator of senior living communities …” [2024 Annual Report, p. 5]. Nonsense. In all the pious mouthing about shareholder value and the need for drastic change, there is no mention of residents and consumer value. That is not a recipe for “premier” operations.
Moreover, the path toward building shareholder value is to grow the business’s reputation for excellence by putting customers first. The superficiality that pursues money solely for the sake of making more money is a self-defeating path toward failure.
Stop Failing
Brookdale has been failing. The market assessments of its stock value over the years since the Emeritus merger tell the story. Following failure, with more failure wrapped in the same old bromides about shareholder value, is lemming-like behavior as Brookdale goes over a cliff, shrinking from over 1,100 communities to half that number.
Has the board gone mad? Avarice, insensitivity, and hubris are never qualities that benefit a people-serving business. How can these recurring CEO firings attract the talent needed for business success? Is Spencer Stuart the best advisor the board can find? Let’s put the blame game in the rearview mirror and build quality and service as management’s obsession with a supportive board. A respected enterprise will reward shareholders abundantly.
It’s A Trust Undertaking
Housing people and tending to their needs for life is a fiduciary undertaking in ethics if not in law. That is not compatible with the notion that the only social purpose of business is to reward shareholders. Brookdale’s core product is age-restricted multi-family housing with benefits. The benefits are care, meals, and amusements. Lifetime trust is not compatible with a trader’s mentality that dreams of unearned riches with a gambler’s fantasies.
Here are a few suggestions for responsible leadership for Brookdale.
- Make Brookdale the trusted home for those you love by giving trust top priority. Soon, you, too, may be the beneficiary.
- Emphasize customer value and provider reliability as a path toward growth and increasing shareholder value.
- Innovate to make Brookdale unique in multi-family living, including the senior sector of the multi-family housing industry. Know what lifts Brookdale above the rest, even in its “affordable” offerings.
- Craft a plan to let the world know what makes Brookdale unique for better, happier living. First, create a product that is a beacon of excellence, and then tell the world the Brookdale story. Brookdale should be the first place people turn to when they need help.
- Recruit the talent needed to deliver on the promise. Make Brookdale the quality provider for senior living in America. This might require a merger with a quality operating company or, at least, a working agreement.
- Grow the business by buying properties ready for turnaround (as opposed to the past propensity for selling losers) and by removing age and other barriers to residence.
Build Shareholder Value
Shareholder value can be earned. The most valuable businesses in America didn’t build value by shrinking. It’s time for Brookdale to go back to work, to build back the business that has been lost, to stop living off its real estate, and to use its corporate standing to bring value to the world. Experience and history show that value created will be returned to Brookdale’s owners as their just reward.
By way of disclosure, I bought Brookdale at $37, and it now trades at about $7. The board’s lack of wisdom is reflected in those numbers. It’s time to get back to building value.
Mr. Cumming, I enjoy reading your thoughts as you bring the valuable perspective of a senior living resident. While I agree with your mention of pursuing opportunistic acquisitions, something that was done regularly by ARC/BKD, selling communities also makes sense. Reasons can range from the community being a geographic outlier to it being of a size that doesn’t generate an acceptable return due to a lack of economies of scale. When you purchase a large portfolio, you always get some properties that don’t fit the desired criteria. Regarding the CEO situation, your suggestions are off the mark. I know many people who left BKD under Baier’s stint and a common theme expressed to me was that she had created a “toxic” environment. She was there far too long and needs to stay gone. LCS has been exemplary for as long as I can remember and it now has a large number of talented leaders who used to be at BKD; however, LCS competes with BKD and isn’t going to help. They may buy additional BKD properties because they know how to successfully turn them around. While your two Steves have expertise in their respective niches neither have experience running a large, complex organization. I have come to believe that senior living companies that are privately held are the best ownership model for the industry. Excellent private operators will develop the relationships needed for funding without the associated burdens of being public. I was at BKD when it had about 550 communities and operated at over 89% occupancy. It is possible for BKD to be successful again, but it will take an inspirational leader, like the late Bill Sheriff, to build the team and articulate the vision.
Thank you, Ron, for your thoughtful reflection. Everything you say is true. Of course, there are properties that can’t be rehabilitated, and they should be transitioned into something positive and constructive. Also, there are competitors who outperform Brookdale, and Brookdale can learn from that. Collaboration can be more constructive than adverse observation.
Senior Housing News today features a story of NuCare’s growth that could have been Brookdale’s winner. The CEO, Joel Moyer, was with Brookdale. Brookdale has trained many executives who have gone on to build value in other organizations. That, too, is a loss of value for Brookdale’s shareholders.
Brookdale needs an imaginative board that supports talented leadership and that builds value for consumers in the marketplace with a proportional share of the value accruing to the benefit of Brookdale’s owners, the shareholders. We should bring our best selves into the world of senior living.
Great article from (this coming from a former Brookdale Executive Director). Very accurate. It’s sad that during my time with the company (under Andy Smith, by the way) that it was OK to fire the Dietary Services manager but don’t expect to get training on how to order food. Call light system needs fixed? } “But that costs money” was literally the reply I got.
Hopefully they have learned from their mistakes. Having worked with the founders of assisted living in the US, I can tell you that the way they (successfully) run their operations and the way Brookdale does are very different.