Top European Hotel Board 2007
InterContinental Hotels Group named as the Top European Hotel Board 2007 by HVS Executive Search.
Our second study of board practices and performance at European-listed hotel companies included 23 companies with InterContinental Hotels Group taking top honours.
Since conducting this study for the first time two years ago the pressure on companies to practice good corporate governance compliance has clearly made its mark. As investors have become increasingly demanding and have placed companies’ boards under greater scrutiny so have the accessibility and transparency of data and information vastly improved. Shareholders’ voices are heard much more loudly these days, especially when it comes to contentious topics such as executive compensation. Bonuses and ‘golden parachutes’ in particular have come under the scrutiny of the European Union Finance Ministers this year who have appealed for greater appeal transparency on executive pay. We have certainly noticed an improvement in this area although many companies in continental Europe are still more reluctant to make the details of executives’ pay packages public knowledge compared to their cousins in the UK and North America.
Companies have been scored on their performance in four key categories:
- Size, makeup and independence of the board
- Committee structure and effectiveness
- Presence of interlocks, insider participation and related transactions
- Commitment to pay-for-performance for executive and director pay.
It was concerning to note that the trend towards separating the roles of Chairman and Chief Executive Officer has reduced over the past two years, with the same individual wearing both hats at 35% of companies surveyed this year compared to 24% in 2005. As in the past, the majority of companies with a CEO who is also Chairman are based in continental Europe, with UK based companies demonstrating much greater governance conduct in this area. Of the 15 companies that did separate the CEO from the Chairman, we were pleased to note that 12 had an outside Chairman, i.e. one free of any current or past insider involvement in the company.
Here are some noted statistics we found:
- 65% had an odd number of board members
- 35% have board terms of more than 3 years
- No companies had interlocks but 2 companies were guilty of insider participation
- Average board meeting attendance was 86%
Board Size & Makeup
Corporate governance experts typically recommend that a board of directors should have between 5 and 11 members, depending on the size and complexity of the organisation. A larger board can be highly unwieldy and increases the difficulty in getting a good attendance rate at board meetings. It is also strongly recommended that, for effective and efficient decision making, the number of board members should be an odd number to avoid decisions ending in a tie.
A board comprising more independent directors than those with an insider interest is more likely to deliver a higher level of corporate governance and objectivity to its shareholders. Of the companies surveyed in Europe, 57% have boards comprised of more independent directors than non-independent. Companies with a strong corporate governance culture also have shorter terms for their board directors. We advocate one-year terms thereby allowing directors to stand for re-election annually. This enables a board to regularly review the contribution of each board member and to turn over those who are underperforming. Three companies in our study have one-year terms in place and we hope to see more companies adopt this approach in the future.
No one company earned a perfect score in the Size and Makeup category.
Committee Structure
Governance consultants recommend that a board of directors should comprise four individual committees: Audit, Remuneration, Governance, and Nomination. Furthermore, these committees should meet on a regular basis, especially the Audit Committee which should meet at least quarterly to review company performance. Only two of the companies we surveyed had a Governance Committee; however it should be noted that these responsibilities are frequently handled by the Nomination Committee.
- 52% of Audit committees met 4 times or more
- 26% of Remuneration committees met more than twice in the year
- Nominations committees met on average 2.66 times per year
With shareholders expressing such an interest in executive pay we would expect Remuneration committees to be meeting on a more regular basis in order to maintain a close eye on company payment plans.
InterContinental Hotels Group and NH Hotels were the only companies to score top marks in the area of Committee Structure.
Interlocks & Insider Participation
Insider participation and interlocks (you sit on my board and I’ll sit on yours) have historically been a key concern for investors, so we are pleased to note that these issues are becoming ever less prevalent. We would be surprised to see interlocks feature in future surveys.
Insider participation concerns circumstances where a director, or his or her company, engages in business with the company. Such behavior is actively discouraged by the investment community. We recorded two companies, Sol Melia and International Hotel Investments, who have directors on their boards who are receiving fees for additional services rendered to the company in addition to their board duties.
Pay for Performance
No board study is complete without an examination of remuneration practices. As mentioned previously, the reporting rules on disclosure of executive pay vary from one European country to another. In our role as pay for performance advocates, it is our opinion that shareholders have a right to see this information in order to help them make informed investment decisions. Such disclosure applies pressure on the board to make sure that decisions they take about executive compensation are fully justified.
In terms of non-executive Director pay, we awarded maximum points for remuneration comprising a moderate annual Director fee, plus an additional fee for committee membership or for being committee Chairman, plus some form of ownership (e.g. shares or stock options).
Top scorers in this area were Accor; Fuller, Smith & Turner; The Real Hotel Company; and TUI.
Last time we conducted this survey, Jury’s Doyle Hotel Group achieved the top spot shortly before delisting and going private. InterContinental Hotels Group was ranked second and this year inherits the number one position as Top European Hotel Board 2007. The year was not without its challenges for IHG from a corporate governance standpoint, nonetheless the company recorded consistently high scores across all categories of sound corporate governance practice, including maximum scores in two categories, and should be hailed as an example of effective and well regulated board performance.
| Rank | Company | Size & Makeup | Committee Structure | Interlocks & Insider Participation | Pay For Performance | Total |
| 1 | InterContinental Hotel Group | 8 | 10 | 10 | 8 | 36 |
| 2 | Rezidor Hotel Group | 9 | 7 | 10 | 8 | 34 |
| 2 | Accor Corporation N/A | 6 | 8 | 10 | 10 | 34 |
| 2 | Fuller, Smith & Turner | 7 | 7 | 10 | 10 | 34 |
| 5 | The Real Hotel Company | 6 | 7 | 10 | 10 | 33 |
| 6 | TUI Hotels | 5 | 6 | 10 | 10 | 31 |
| 7 | Hapimag | 9 | 7 | 10 | 4 | 30 |
| 7 | MWB - Malmaison | 8 | 6 | 10 | 6 | 30 |
| 7 | Societe Des Bains De Mer | 9 | 9 | 10 | 2 | 30 |
| 10 | Millennium & Copthorne Hotels | 8 | 7 | 10 | 4 | 29 |
| 11 | Club Méditerranée | 4 | 6 | 10 | 8 | 28 |
| 11 | Whitbread | 4 | 6 | 10 | 8 | 28 |
| 13 | Euro Disney | 6 | 7 | 10 | 4 | 27 |
| 13 | Norwegian Property (Norgani) | 7 | 4 | 10 | 6 | 27 |
| 15 | Peel Hotels | 7 | 5 | 10 | 4 | 26 |
| 16 | International Hotel Investments | 7 | 7 | 5 | 6 | 25 |
| 16 | NH Hoteles | 3 | 10 | 10 | 2 | 25 |
| 16 | Park Plaza Hotels | 2 | 7 | 10 | 6 | 25 |
| 19 | Sol Melia Hotels & Resorts | 3 | 9 | 5 | 6 | 23 |
| 20 | Danubius Hotels | 5 | 5 | 10 | 2 | 22 |
| 20 | Pierre & Vacances | 6 | 4 | 10 | 2 | 22 |
| 22 | Orco Property Group | 2 | 5 | 10 | 4 | 21 |
| 23 | Maypole Group | 3 | 1 | 10 | 3 | 17 |
Allocation of Points:
|
Size & Make-Up Sum of the following: Board size Head of board Ratio (insider:outsider) Board terms Committee Structures and Effectiveness Sum of the following: FOR EACH COMMITTEE (AUDIT, GOVERNANCE, COMP, NOMINATING) Board Attendance Rate If committee, but does not meet, 0 If any committee has even one insider, 0 Interlocks and insider participations Nothing = 10 pt Absence of Interlocks = 5 pt Absence of Insider participation = 5 pt Compensation Philosophy Sum of the following: Director Compensation Philosophy - Executive Comp |
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