Hotel leadership shows relative stability in crisis
 
Hotel leadership shows relative stability in crisis
20 AUGUST 2020 7:15 AM

Tracking CEO turnover in the hotel industry, an AETHOS study suggests changes at the top might not be imminent, but pressure’s building up.

The COVID-19 pandemic has been affecting businesses across geographic fault lines and industry segments.

However, despite the fact that the hospitality sector has undoubtedly been one of the hardest hit, it is also important to recognise that the industry is experiencing a rather remarkable period of steady leadership—and with it comes the firm hand of a tried and tested leader who has seen and dealt with a variety of crises and turbulences and who hopefully has gained the trust of ownership, shareholders and stakeholders.

AETHOS has been tracking CEO turnover at the 50 largest public or privately-held hotel companies for well over 15 years, and there have been since only two years in which there was less “shuffling of seats” for the top job than in the recent past.

In 2014, coincidentally the year in which the United Nations declared Ebola an “international public health emergency” as well as a year marked by a continued uptick in global terrorism, only two hotel CEOs changed their jobs (at Wyndham and Shanghai Jin Jiang). Everyone else seemed to be too busy dealing with the going concerns and preparing for the super-mergers that followed in 2015 (Marriott/Starwood, Accor/FRHI).

Going further back in time, 2009 also stands out as another year of remarkable stability. Although the global economy was in shatters, or most likely exactly because of it, hotel companies around the world kept a firm grip on their C-suite to steady the waters and to avoid any unnecessary uncertainty or distractions that might come with a change in CEO.

In 2019, we tracked new appointments at Extended Stay America, RLH Corporation and Caesars Entertainment, as well as Scandic Hotels. To date in 2020, we have witnessed four changes—at Minor International, MGM Resorts International, Disney and Millennium & Copthorne. All but the CEO departure at Millennium & Copthorne occurred pre-COVID. For the moment, then, it appears this picture of steady and calm leadership within the industry continues to hold true.

By and large, hotel companies have continued to stay loyal to those at the helm; however, average tenure of incumbent CEOs now sits almost at an all-time high of approximately 10 years. Organizations are already facing an incredible amount of pressure on their operations globally (for example, not only tumbling revenue and profits but also fundamental changes to demand patterns, buying behaviours, etc.). All of this increases the likelihood of investors (rightly or wrongly) to call for radical changes to take place. Those may not happen imminently, but happen they will.

Looking ahead: ‘Ready, Set, Go!’
The years following the calm oases of 2009 and 2014 were characterised by heightened activity in changes within the C-suite.

Interestingly, after 2009, there was a much more prolonged period of instability within hotel companies across the globe. During the subsequent three years, CEO changes continued to increase, culminating in eight companies making leadership adjustments in 2012.

In contrast, following the inactivity in 2014, there was only one year of frantic shuffling of the hotel CEO seats, with seven new leaders appointed in 2015 before activity then quieted down.

Which pattern is the industry likely to follow this time?

As the current pandemic is both a health and economic crisis, a scenario comparable to 2014/15, when there was a brief period of quick adjustments, is less likely. Instead, the hospitality industry realistically should prepare itself for a prolonged period of “corrections” in the C-suite, as well as numerous acquisitions or mergers and considerable restructurings.

Incumbent CEOs will be under the microscope more than ever, not only by their investors but also by their fellow executives and staff members.

Have they taken the right decisions? Were they firm enough in their actions to protect the business, its employees and the stakeholders from the worst of the crisis? Did they themselves take proportionate or substantial enough pay-cuts, for example, to show solidarity? Have they shown proactive leadership in futureproofing the business for the aftermath? Were smart actions taken to better manage costs, such as rent/lease payments, to try and spread the burden of the crisis more evenly amongst the stakeholders involved?

United Kingdom budget chain Travelodge, backed by significant hedge funds and an investment bank, is a good example of how divided public opinion can be on whether a company takes correction actions to protect the business. The Travelodge Owners Action Group, representing the majority of U.K. Travelodge landlords, has begun to evaluate whether it will execute a break option from Travelodge to create, under the umbrella of AGO Hotels, a new association with Accor. Again, such increased scrutiny is likely to trigger additional calls for someone new to come in and take the reins.

Additionally, considering the changing landscape and business environment, investors will likely look for different skill sets in their top man or woman—although the latter is, unfortunately, still very unlikely to be the case. Just shy of 90% of the CEO seats continue to be held by men, and essentially almost all the incoming CEOs, since our first Hotel CEO Turnover report, are men.

Credit where credit is due
There is no doubt that COVID-19 has been devastating for the sector; however, it has also forced hospitality organizations and their CEOs to focus their attentions, and to improve their scorecards for innovation and speed of action—traditionally areas which have not been a forte for many of the internationally operating players.

It seems results are starting to show, and this is a credit to the incumbent CEOs. They have had to face unparalleled disruption and challenges, undoubtedly causing large amounts of mental and emotional stress, pain and pressure. Maintaining a high alert level 24/7 over such a prolonged time-period is not easy.

A change at CEO might just occur for the plain and simple reason that someone with a new perspective, unburdened by previous fights and challenges, can also bring in renewed energy and drive and rally potentially divided share- or stakeholders to more readily back one common goal.

It seems this is exactly what is happening in another subsegment of the hospitality industry as CEO shakeups have already occurred at cruise line companies, renowned for their steady leadership, such as Azamara Cruises, Holland America, Seabourn and Windstar.

Thomas Mielke is a Founding Partner at AETHOS Consulting Group and Managing Director of the London office. Contact him at tmielke@aethoscg.com

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