Colony Capital, LLC is a privately held independent global real estate investment firm founded in 1991 by Thomas J. Barrack, Jr. The Firm and its affiliates have an extensive global footprint and corresponding infrastructure, with over 400 employees operating in a total of 12 offices in the following nine countries: China, France, Italy, Lebanon, South Korea, Spain, Taiwan, the United Kingdom and the United States. Over the past 21 years, Colony has established 44 investment vehicles, including global investment funds, dedicated regional investment funds and investment-specific co-investment vehicles, raising an aggregate of approximately $19 billion of equity capital, which has been invested in most major sectors of real estate. Colony’s origins are rooted in distressed investing post financial crisis beginning in 1991 with the resolution of Resolution Trust Corporation (RTC) portfolios. In the wake of the 2007 subprime mortgage crisis and the subsequent global financial decline, Colony has continued to build upon this legacy deploying over $4.0 billion of equity since 2008 into distressed loan portfolios, rescue capital and numerous other opportunistic debt and equity investments throughout the U.S. and across a diverse range of property types.
Since inception, Colony has adapted its investment strategy to the different market opportunities that have arisen from time to time. Beginning in 1991, the Firm became one of the pioneering purchasers of distressed assets from the RTC and the Federal Deposit Insurance Corporation (FDIC). In the mid-1990s, Colony identified comparable investment opportunities in Europe. As a result, the Firm began to build a significant European presence, with an initial investment focus on distressed real estate. As the market opportunities again shifted in the mid- to late-1990s, Colony broadened its focus to include equity investments in real estate and real estate-related assets in the U.S., Europe and Asia, and expanded its global presence by setting up operations in Asia to capitalize on opportunities arising from the Asian financial crisis of the late 1990s. Since then, Colony has established several closed-end investment funds primarily focused on equity investments in real estate and operating businesses significantly dependent on real estate. Over its history, Colony has acquired over 19,000 assets representing over $48 billion in value.
- What is the most important ethical lesson you have learned (either personally or professionally)?
Treat people the way you want to be treated. In addition, it is essential to terminate employment immediately for unethical behavior. It is crucial to be particularly vigilant if the unethical person is close to the decision-maker (personally or professionally) and/or important value added to the work and financial profit of the firm. Unethical conduct deserves no second chances.
- What is the most shocking corporate ethics matter you have seen in the news recently? Non-profit sector? Why?
The Madoff scandal was the most egregious scandal imaginable – and particularly awful because of the hugely deliberately devious façade of kindness, charitable efforts, and investment expertise. This crossed all sectors and hit broadly in terms of both his behavior and the impact on the victims. It was unconscionable.
In addition, the election of the French President Hollande seems to reflect a complete lack of courage which I also characterize as unethical: running an election campaign denying severe economic conditions, blaming your predecessor on realities you knew existed only for the sake of being elected is inadmissible! Since the election, the Socialist Party has still failed to demonstrate the courage to face the economic reality. Worst of all, the party is bringing the country back 200 years to 1789 by creating a climate organizing one class of people against another.
3. What do you see as the opportunities for the corporate sector and non-profit sector to collaborate in raising the bar in ethical matters?
I don’t separate the for-profit from the non-profit sectors in terms of ethics matters. The only difference is the profit from for-profit entities, and the key question is whether profit is ethical or not. Profit has been one of the greatest mechanisms of change in society and is ethical when it contributes to all. So how do you share and amongst how many people? You have to collaborate. Recent French culture characterizes those that make a profit (who work hard and take risks) unethical and don’t allow for appropriate compensation for effort and risk. This is not an ethical point of view but rather a profit-limiting and society-limiting point of view. I admire the Bill Gates/Warren Buffett initiative whereby half of their wealth is donated back to society through charitable organizations. At Colony, each of the partners gives back individually as that is the most clean ethically and from a business standpoint.
- What are the most effective strategies for mitigating risk of unethical behaviour in your organization?
First, the road map for ethical conduct must be very strict and clear on what can be done and what cannot be done. There must be a clear alignment of interests, and as soon as a conflict arises, we address it immediately (often by dismissing the person). This road map is strictly followed by Colony’s leaders and advisors. Ethics is led from the top. This ethics “book” is on everyone’s desk: everyone must know it, understand it, and remember it. Second, there can be no second chances. Our capital is reputational capital. We can lose investors’ money if we can explain why, but if we lose our reputational capital it doesn’t matter how great our financial return is.
- What are your strategies for ensuring ethical policies and standards flow down through all levels of the organizing and to all stakeholders?
Regular communication at all levels is essential. We review the “book,” especially examples of how we made decisions in various ethically challenging situations. The challenge is creating an environment where people aren’t afraid to speak up.
- Are there areas you think regulation should be more extensive in regulating corporate ethics? Non-profit sector ethics?
In France there is fairly limited regulation that specifically addresses ethics. The French market regulatory authority (Autorité des Marchers Financiers (AMF)) guides the conduct of financial advisors. The great strength in France (versus the United Kingdom for example) is the cumbersome regulations on knowing your customer and flow of funds. We are incredibly rigorous about flow of funds from questionable countries or individuals with potentially criminal or other questionable backgrounds. I believe this is important and a key distinguishing features between the United Kingdom and France.
- Should culture be an important contextual element in ethics analysis? What is unique about the ethical culture and environment in your country that should be taken into consideration?
At Colony, our ethics infrastructure and philosophy is totally US-imposed, and it is a huge advantage. Investors rely on that standard, and internally I am able to enforce that standard. It is a great strength.
- Do you think globally applicable ethics principles and practices are possible? Desirable?
Global ethics standards should be universally possible and desirable, but in today’s reality it is impossible to enforce. Ideally, there should be global standards, and then each organization or person either complies or explains with full transparency why and how they are not complying. In France, a secular country with a “liberty, equality, fraternity” motto, there is no cultural reason for the highest international standards of ethics not to apply. However, this cannot happen globally in today’s world, particularly in developing countries. It seems that some parts of Africa, of Asia, and ex-Soviet Unions members are mainly driven by profit-centered motivations and with individual wealth creation being the driving agenda for too many political leaders. It will be a long time before US and European standards of ethics percolate meaningfully into those regions while improving the last few years, and it starts from the leadership.
- What is the biggest mistake people make in making decisions around ethical issues?
When you know someone has acted unethically, but you decide that the behavior is acceptable because it isn’t hurting anyone, you’re in trouble. You cannot judge on the basis of hurting or not hurting because ethics is subjective. I might think hurt is done when you don’t. The key is to start with a clear definition of ethical conduct, to make sure that everyone understands and accepts your definition, and to enforce it (including dismissal if appropriate) without judging whether any significant harm was done from your perspective or theirs. The only way is to have a book and live by it. Effective ethics is black and white. No gray area.
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