Real Estate Portfolio also spoke with three independent REIT board members, covering much of the same ground as the CEOs, to get their take on matters of corporate governance in the post-Enron era. When it comes to the problems facing the REIT industry, the board members voice similar, but not quite the same concerns as the CEOs.

"Executive comp is the most pressing issue," says Robert Gidel, a board member at Developers Diversified Realty Corporation (NYSE: DDR), and lead director of Global Signal (NYSE: GSL), a REIT that specializes in technological equipment. "Auditing and Section 404 compliance are lower priority. At DDR we're well aware of all the elements of compensation, and we have tied them to shareholder performance. Not everything is linked all the time, but if we meet a shareholder in the street, we'd be comfortable explaining our program and how it relates to shareholder value."

Lance Primis, a board member at AvalonBay Communities, Inc. (NYSE: AVB), notes that "corporate governance issues within the REIT industry are similar to the issues faced by all public corporations. At AvalonBay in the past few years, our focus on risk management and compliance has increased as Sarbanes-Oxley was instituted."

Richard Ellwood, who is on the boards of Apartment Investment & Management Company (NYSE: AIV) and FelCor Lodging Trust Incorporated (NYSE: FCH), generally has positive things to say about the impact of Sarbanes-Oxley. "It's been good for American business," he says. "It isn't asking us to do things we shouldn't have been doing all along. Section 404 compliance can be burdensome, and maybe that should be adjusted, but overall it works."

Gidel agrees, but points out that the law favors sizable REITs. "For large companies, it's a good exercise, though rigorous and expensive," he says. "There's no question that you learn something when you go through those processes. For smaller companies, however, it's quite a burden. There's no scaling to these costs."

Sarbanes-Oxley has had some specific effects on how board members manage their time. According to Primis, "as a board, we're more focused on compliance and controls. We've expanded the amount of time we participate in company oversight activities. While I think we're effective today, we do spend more time than ever to be more effective at oversight."

Gidel says that the law has inspired the boards he serves on to approach their tasks more methodically. "Serious board members appreciate that structure," he explains. "If you're going to be on a board, the fact that you understand that structure is now a critical consideration. On the other hand, unfortunately, you lose good people who don't have the time for it."

All of the board members also had quite a bit to say about executive compensation, which they termed a top challenge in the REIT industry, or any industry. "We're all challenged by CEO pay," says Ellwood. "In my next life as a CEO, I will hire a comp consultant who will compare my salary to Jack Welch's, and I'd get an increase to just below his salary. I've seen things like this happen, when consultants use dissimilar companies to compare the CEO's pay."

Executives might be overpaid sometimes, but figuring out a reasonable compensation package isn't easy. "How does the board tie compensation to performance of the company, both operationally and financially?" asks Gidel. "It's problematic. You don't want to tie it to earnings alone, because over time, management will tend to focus on near-term earnings."

Primis agrees, adding that there's a "need for high-quality data required to develop 'pay for performance' benchmarks. We're concerned about the timing and the quality of external data, and find it increasingly challenging to develop peer group or industry data useful to benchmark performance."