CORPORATE GOVERNANCE – Articles

The restaurant industry has been hit especially hard by COVID. Layoffs, closures, a shift to delivery and outdoor dining, as well as mergers and acquisitions have dominated the news this past year. Many executives and even board directors have taken pay cuts during this health crisis. We also have seen restaurant boards in the news over the last several months. For example, in March 2021, Mellody Hobson will become the first African American Chairwoman of the Board of a Fortune 500 company – Starbuck – which is long overdue.

Casino Journal and AETHOS Consulting Group have been analysing board practices in the gaming industry for over a decade. The results of our recent survey show some vast improvements; however, there are still several companies that continue to lag the marketplace when it comes to corporate governance structure. Our study examined five critical areas of corporate governance:

2020 has been an incredibly tumultuous year within the restaurant industry. Due to the pandemic, the industry has seen closures, bankruptcies, acquisitions, and a complete shift in the way guests interact with restaurants. This year will be a watershed moment for every CEO and very well could determine the future of their businesses and careers. 

The top performing board in this year’s study belonged to Six Flags Entertainment, scoring an impressive 44 out of a possible 46 points. Extended Stay America and Hilton Grand Vacations tied for second with 43 points, while InterContinental Hotels and Pebblebrook Hotel Trust finished in a tie with 42 points. An impressive performance by these organizations. Each has proxy filing that was thoughtful, thorough, and easy to understand. Just what investors and proxy advisors are looking for. Other organizations such as Travel Zoo, Southerly Hotels, and InnSuites Hospitality Trust have much more work to do but should find plenty of low hanging fruit to improve their overall governance.

Results from a recent gender diversity study I conducted for the lodging industry indicate that of the 238 board seats available among the 28 U.S. lodging companies, only 51 were occupied by women (21%), a woefully low number. If we live in a world where women account for 80% of consumer spending and a multitude of credible studies point to a correlation between greater gender diversity and strong board performance, it is certainly time for us to address this issue head on. I have personally facilitated countless client board meetings and can say with unwavering confidence that gender diversity within the boardroom leads to first-rate ideation and collaboration. Here are some of my thoughts to stimulate change within the lodging industry.

Turnover of Chief Executives at the world’s 50 largest hotel groups remained flat for 2018, with new faces appearing at the head of four companies, the same number as for the prior year. Changes in CEO positions were seen at G6 Hospitality, Extended Stay, Millennium & Copthorne and B&B Hotels. Of these, three were planned moves. Jennifer Fox’s three-month stint at Millennium & Copthorne, though, can only be assumed to have been anything but planned. A sector turnover rate of 8% is well under the average for the general industry and speaks to a current period of leadership stability that has run since we last saw a spike of 14% in 2015.

Whether we are talking about a nation, a corporation or a small start-up, if the elected leadership is not challenged or upheld to its formal duties, infrastructural aspects may either start to derail or fractures appear which are fed by a growing disgruntlement with certain behaviour or decision-making. It is easy to find the fault in the person at the helm of a nation or an organisation, to brandish this particular individual as the “trouble-maker” or to call for new leadership to step in on the basis that the incumbent has not fulfilled their promises. But we are forgetting that there is a “collective responsibility.” As we are seeing in the current political landscape, leadership is in fact quite often following through with what they set out to do in the first place. We have just not fully listened or considered the consequences of what has been suggested as the course of action; nor has leadership clearly pointed it out to us. Thus, there appears to prevail a culture defined by superficial and oft meaningless conversations. Yes, of course there are also voices of concern or, at times, a challenge – yet, it seems that at the first hurdle, people are simply giving up.

The gaming industry is one of the most regulated businesses in the world. With a colourful past, the industry has gone to great lengths to earn a reputation as “squeaky clean.” But has that translated to the boardroom and corporate governance in general? We think so. Casino Journal and AETHOS Consulting Group have been analysing board practices for more than a decade; rating gaming companies on how well they are organized, managed, communicate with shareholders and pay themselves and executives.

The issue of diversity, and the lack of it, has popped up frequently in recent conversations with leaders in the hospitality world to the point where it seems that if a candidate for a job is neither female nor of a minority ethnicity, then their application is at a disadvantage. Grey-haired white men continue to be the largest faction of leaders sitting around most hotel company boardroom tables. The good news is that a lot of these companies are self-aware enough to recognise that the composition of their leadership needs to better represent their customer and employee bases. In the same way that a fish rots from the head down, the thinking goes that changes at the top of the organisation will percolate down through the rest of the employee body, as staff become inspired by the leaders above them.

AETHOS Consulting Group has been expounding on corporate governing practices for more than a decade. Our goal has been consistent; rate gaming companies on how well they are organized, managed and communicate with shareholders. This year’s study included 27 companies that have significant business concerns in the gaming industry.

2016 was a watershed year in corporate governance, with major initiatives in say-on-pay, share ownership requirements, director evaluation and transparency. The hospitality industry continues to make significant strides in each one of these areas. This year’s study was different in that it included a number of international companies, and it was interesting to see how companies traded on the NYSE and NASDAQ compared to those on other exchanges. Suffice to say, good corporate governance is a global initiative and not necessarily led by US regulators.

Consequences of M&A activity in the hospitality industry are increasingly making headlines, fuelled by a greater complexity of owning- and operating structures and an ever larger number of international stakeholders... What are the best practices to protect oneself from unwanted consequences?

Casino Journal and AETHOS Consulting Group have be examining corporate governing practices for more than a decade. This year’s study includes 26 companies that have significant business concerns in the gaming industry. This study examines board makeup, independence, committee structure and pay-for-performance in determining a governance score for each company.

Most restaurant chains receive failing grades when it comes to corporate board gender diversity - according to a recent study by Harvard Business Review, females are one of the most powerful economic forces in the world. In the U.S., women make up more than 50% of the population and account for over 80% of consumer spend. If this is the case, why do so few females occupy seats in the corporate boardroom?

New trends in the board room are emerging based on AETHOS Consulting Group’s study of corporate governance in the lodging industry. This does not mean that perfection has been achieved in previously raised key areas. Unfortunately, we continue to see a few companies with classified boards, little diversity, questionable independence, and holding back as it relates to more performance based compensation.

Pay for top gaming industry chief executives is on the uptick, especially for companies concentrating on international opportunities

Every proxy season for the past 20 years I have evaluated the performance of CEOs in the hotel industry using a proprietary pay-for-performance model which looks at key financial metrics such as company size, stock appreciation, EBITDA growth, and total direct compensation within a defined peer group.

CEO turnover among the world’s 50 largest hotel firms in 2013 was 10% down from a 2012 figure of 16%. Leaders who took office in 2013 were Sébastien Bazin (Accor), Lee Chee Koon (Ascott), Wolfgang Neumann (Carlson Rezidor), Frank Fiskers (Scandic), and Peter Gowers (Travelodge). New CEO arrivals always tend to prompt speculation from employees, shareholders, analysts, media, and industry colleagues as to the likely performance of the hire and of the hiring organization. Such transition events also give us a chance to take stock, look at the CEO role in the hotel world from a holistic standpoint and explore the profile of these industry titans.

Many would argue that all CEOs are overpaid, but we disagree. Keith Kefgen reveals his findings in the latest edition of our annual review of US hotel company CEO compensation.

Based on our pay-for-performance index, in 2012 Joe D'Amato at Empire Gaming was the industry's most underpaid boss or top-performing CEO, depending on your point of view.

By comparing a company’s stock appreciation, growth in earnings and EBITDA to our Governance Index, Keith Kefgen concludes only a minor connection between the two.

Newer research increasingly implicates self-imposed barriers to women’s advancement at the workplace. We argue that the “glass ceiling” is now predominantly a misnomer and that the current challenges to advancement are best characterized as an “invisible obstacle course”.

Based on our pay-for-performance model, Bill McCarten was underpaid by 120.9% in 2006. The model takes into consideration three primary criteria, EBITDA/FFO growth, market capitalization and stock appreciation and compares that to total compensation.

Based on our pay-for-performance model, Steve Bollenbach at Hilton Hotels Corporation was underpaid by 120% in 2005.

You can’t read a business magazine or newspaper today without executive compensation being hotly debated.

Shareholders are demanding transparency and they are going to get it. With the right balance of metrics, managerial behavior can be directed in the appropriate way.

IRS statute (280G) was enacted to control excessive payment to executives in the event of a Change In Control.

A few years ago there was no such thing as a lead director on a public board. But when the CEO and the Chairman were the same person conflicts were clearly visible. This has been improving and in 2006, 25 of 41 executives in the Chairman position were not the CEO.

We still deem equity pay to be an important part of compensation administration; we just think it is time to end the compensation free-for-all.

Did CEO pay follow the dramatic fall of the US economy in 2009? AETHOS Consulting Group presents this and other findings in our annual CEO survey of the US hotel industry.

The role of the nominating/governance committee is critical in establishing good governance.

The need to show clear Board of Director Independence has sparked a trend to appointing Independent Lead Directors. AETHOS looks at the trend's effect on US gaming companies.

If there has been any positive effect to the recent debacles in the world of corporate governance (Tyco, Enron, Adelphia, Worldcom) it is that Wall Streeter’s and Shareholders have become “educated buyer”.

CEO pay continues to be a highly scrutinized topic, especially in today's economic environment. We argue that when compensation programming is done correctly, a CEO's pay should be based on performance relative to his or her peers.

In the last year, numerous cases of backdating stock options have come to light. Apple has been the most high profile company to be embroiled in the scandal. Keith Kefgen looks at "What is backdating?"