Are Hoteliers Checking Out of the Boardroom?

If we look at today’s most important public hotel companies, we see three main profiles of CEO – Marketing experts, Finance experts and an increasingly rare breed, Hoteliers.

David Michels, former CEO of Hilton Hotels, was probably one of the last traditional hoteliers to sit in the driver’s seat of one of the most important public hotel chains. Another who jumps to mind is Kurt Ritter, who recently took Rezidor public. However, they are the exception since the hot seat of the boardroom has most often been filled by executives with a finance background. Matthew Hart, who will replace Stephen Bollanbach as CEO of Hilton Hotels Corporation as of January 2008 used to be the former CFO of Hilton Hotels Corporation. The two most likely candidates to succeed Bill Marriott as CEO of Marriott International, Bill Shaw and Arne Sornenson, are former and current CFOs.

On the other hand, it seems that in some companies these financial profiles no longer have the complete set of business skills required to lead in today’s business environment. Over the last two to three years, there has been a tendency for some of the largest public hotel companies to recruit marketing experts as they have pursued a “property-light” strategy by either separating the owning and management companies or by selling off their bricks and mortar. With this asset-light approach they sought executives who were experts in marketing and brand building. This was reflected in the high-profile appointments of the “Three Marketeers”: Andrew Cosslett, Ian Carter and Steve Heyer. Andrew Cosslett, former President EMEA Cadbury-Schweppes replaced Richard North as CEO of IHG. Once IHG sold off most of its assets, Cosslett brought the brand development expertise to grow global brands in a managed and franchised hotel system. Ian Carter, formerly European President of Black & Decker replaced David Michels as CEO of Hilton International. Steve Heyer, former President and COO of Coca Cola, replaced Barry Sternlicht as CEO of Starwood.

So how well has this new breed of CEOs performed in leading the change in strategy of these companies? It has been a couple of golden years for most businesses, but if we compare how these companies have performed with the overall hotel industry average, they have done pretty well to say the least.

In terms of shareholder value, these new appointments have brought great returns. Despite Heyer’s awkward exit, under his leadership over the last three years, Starwood’s Earnings Per Share growth has been 114.4% compared to a three year hotel industry average of 46.3% as Starwood transformed itself from a real estate driven firm to a branding organisation shedding US $ 4.6 billion in real estate assets and returning US $ 4.3 billion to shareholders. IHG, under Cosslett, reported an Earnings Per Share change of a staggering 1,078% compared to a one year hotel industry average of 164.8%. This is mainly due to the fact that they have sold approximately 87% of their assets retuning a total of US $ 7 billion to shareholders in the process. When compared to the industry average, Hilton has not delivered as much shareholder value as its counterparts, with a change in Earnings Per Share over the last year of only 23.3 % compared to the same one year hotel industry average of 164.8%. On the other hand, the modest increase can be attributed to the costs incurred in the merger between Hilton Hotels and Hilton Hotels Corporation. If we look at total revenue growth, Hilton Hotels Corporation’s annual revenues have grown by 84% compared to a one year hotel industry average of 16.5%.

Given the overall positive impact CEO outsiders have had on public hotel companies, will other hotel companies follow the trend? If a young high school graduate who has ambitions to get to the top would ask a public hotel company boardroom which direction they should take to become a CEO, what would they be told? Would they be advised to study Economics as Cosslett did or Law as Sorenson did? Would they be directed to work in the consumer goods industry to benefit from the best marketing training like Cosslett, Heyer and Carter? Or would they be told to focus on finance as Sornenson, Shaw and Hart? Probably the answer would be that there is no magic formula, that every background differs depending on who you work for and that it is hard to predict what public hotel companies will be looking for in 30 years. However, it seems obvious that the traditional hotelier route of working one’s way up from unit positions is not the trend. On the other hand, a never changing formula to success is to strive high, since as Conrad Hilton said “to achieve great things you must first dream great things.”