With investors increasingly viewing hotels as a solid asset class, strong corporate governance has never been more important, but, as the boardroom wranglings at NH Hotel Group and other companies illustrate, the hunger for more deals may also be putting that reputation at risk.
AETHOS Consulting’s Thomas Mielke and Andrew Hazelton warned of just that: “It is not surprising that there is a greater number of potential conflicts of interest to arise. Yet, the at times Hollywood-esque and very public ‘shareholder fights’ certainly do no good to any party involved in a take-over or potential merger situation. It is the board’s responsibility to ensure a ‘smooth transition’ from a corporate governance point of view,” they said.
NH Hotel Group has endured a difficult year so far, with shareholders Oceanwood Capital and Hesperia taking control of the board in June and ousting the CEO and four board members amidst accusations that 28.5-percent shareholder HNA Group was pushing to buy the group and merge with Carlson Hotels and, potentially, Rezidor Hotel Group.
In September, HNA Group filed a lawsuit against NH Hoteles, calling for the vote which saw the CEO ousted to be reversed and Federico Gonzalez Tejera to be reinstated, along with the other board members.
The latest move at the company came from ousted chair Charles Mobus, who wrote an open letter at the start of November calling on the NH Hotel board to immediately announce that it was initiating a formal search for a qualified and independent CEO.
Mobus said that Oceanwood and Hesperia had sought to “deceive the entire NH Hotel shareholder base by creating an ‘Office of the [Chairman]’ constituted by the COO, the CFO, and the communications director” which reports into an executive committee co-chaired by non-executive chairman and Oceanwood director Alfredo Fernandez and a Hesperia director.
“This structure is a Trojan Horse, allowing Oceanwood and Hesperia to retain effective control of the day-to-day operations of NH Hotel without a clear mandate from the company’s board or shareholders,” Mobus said.
The former chairman added that, if an independent search was not forthcoming, HNA would consider calling for a shareholder meeting and proposing a new independent slate of directors and a new independent CEO.
Such boardroom skirmishes are becoming commonplace in the hospitality sector, with Morgans Hotel Group enduring a public fracas prior to being acquired by SBE Entertainment, and AccorHotels now battling with shareholder Jin Jiang over its interest in the group and potentially courting other shareholders to dilute the Chinese group’s power.
AccorHotels remains in a holding pattern over the 12.6-percent shareholder, telling us: “We do not know what is their mid-term strategy regarding AccorHotels but they have declared many times that they support AccorHotels management and strategy.”
There is hope to be had. Chris Mumford, Mielke and Hazelton’s colleague and managing director of AETHOS Consulting’s London office, told us: “I would not expect poorer governance to result from M&A or take-private activity. Over the past 10 to 15 years most companies have made significant strides to implement transparent governance procedures and I believe that shareholders (especially institutional ones) of private companies now expect those boards to be run along similar lines to those of a public company.
“For example, it is much rarer these days to see the CEO and chairman roles occupied by the same individual. With the increased M&A activity we may continue to see shareholder battles, such as those we have seen at NH and Morgans, but I would not expect to witness any abuse of the established corporate governance procedures.”
More pressing to operators may be the impact of public arguments on their expansion plans, as owners are wary of being drawn into a position where battling board members are distracted by their own political machinations at the cost of effective operations, or run the risk of being taken over by another company which may not share their outlook.
Tom Page, partner, global head of the hotels & leisure group, CMS, told us: “Morgans and NH show that being in the public markets doesn’t resolve your corporate governance issues.
“I don’t think that the public or private nature of the companies makes a difference. Any wranglings will cause owners to consider whether to sign up with an operator. If they are signing up on the basis that they think it’s going to be a much bigger company than it then becomes they may take a different view on taking on a 25-year contract.
“Corporate governance is always going to be an issue. For those in the public markets they tend to be played out in the public sphere whereas private companies may go under the radar, but any disputes may cause owners to seek out a larger, more stable company, even if it is more expensive, rather than a smaller, but potentially more volatile company. Shareholder problems can cause a loss of hotels, either by losing hotels as owners back away or hotels not signing up.”
At NH Hotels Group, the public spat is made the more curious by the warring parties sharing the same goal, according to observers—that of HNA Group acquiring the remainder of the company with the aim of folding it into Carlson Hotels and Rezidor Hotels Group. It was Mobus’s connections to HNA and fears of a takeover that led to the initial accusations of a conflict of interest, but HNA Group has since accused Oceanwood and Hesperia of trying to bully it into doing just that.
Thus far, the open-letter-writing and lawsuits have provided entertainment for journalists, but, with the company performing strongly, no concerns for its owners. Should HNA Group walk away, that could change.