It’s hard to overstate the devastation that Covid wreaked in the hospitality world during the spring of 2020. Cancellations streamed in, and hotel occupancy rates—and revenues along with them—plummeted, as an entire industry imploded overnight. For Marriott International, it was even tougher. Even as the world shuttered amid the first deadly Covid wave, Arne Sorenson, the company’s charismatic and beloved CEO, was losing his battle with pancreatic cancer. He died in early 2021.
Yet, Marriott’s board somehow found its way through these incredible challenges, one video call at a time, one day at a time. After bottoming out in April 2020, shares in the hotelier now trade at some of the highest levels in its history. For this extraordinary performance, our selection committee honored the board of Marriott International with this year’s Courage in the Boardroom award.
We spoke with Frederick Arthur “Fritz” Henderson, former chair and CEO of SunCoke Energy and lead independent director at Marriott, about what it was like to be on the board during this difficult period in the company’s history. Excerpts of that conversation, edited for length and clarity, follow.
Covid obviously hit the hospitality industry disproportionately hard. Can you tell us a little bit about the conversations that took place in the boardroom during that time?
In the company’s 95-year history, it’s dealt with wars, with terrorist attacks, obviously with recessions and global financial crises, but it never dealt with something like a global pandemic. In about April of 2020, our key metric for business performance, RevPAR, or revenue per available room, was down over 90 percent versus the prior year. The speed and depth of that drop-off of business, coupled with no real estimate of how we would emerge, was something the company had never seen before.
As a board, we responded by increasing communication. We’ve always had strong communication with the management team, but there was a lot more information sharing going on. At the same time, one of the hallmarks in the Marriott culture among the management team is a bias for action. I think that’s absolutely the right way for management teams to operate. And it really showed in this global pandemic. Arne [Sorenson] and the team just rolled up their sleeves and acted aggressively to basically protect the business, protect our associates to the extent we could and to protect the owners.
So the company moved very, very quickly to take mitigating steps to reduce costs, reduce cash requirements for owners and to support its associates. We had thousands of associates on furlough. Almost 25 percent of our hotels were closed. The board’s role in this period of time was supporting the management team.
Obviously, communication, oversight, back-and-forth questioning were important, but it was really about supporting the management team in doing what they felt needed to be done.
What were some of the mitigating steps run past the board?
Well, 25 percent of the hotels closed. So we went from 7,300 hotels before Covid to 5,400 hotels. Those 5,400 hotels reduced their manpower significantly. We also significantly reduced the above-property staff—the Marriott International employee base—and for the employees who were not furloughed, everyone’s pay was cut. That was all done very quickly.
At the same time, we reduced the cash requirements at the hotel for furniture, fixtures and replenishment. These were things that we could do subject to lender consent to try to ameliorate the impact on hotel owners’ cash flow. Because while we were feeling it at Marriott International, hotel owners oftentimes have financing on the properties they own, so they were feeling it to an equally significant extent.
So it was about reducing costs, taking care of our associates to the maximum extent possible and preserving cash, both at the property level but also at the corporate level.
At the corporate level, with the support of our banks, we negotiated, basically, a covenant holiday. Our CFO [Leeny Oberg]and her team did a terrific job working with our banks.
We raised capital so we met maturities as they were coming due and built liquidity during this period of time. And we actually sold points forward on our Bonvoy rewards program with the support of our partners JPMorgan Chase and American Express, something we’d never done before.
When you were in the thick of it, making those drastic moves to shore up liquidity, were you also planning for what would happen on the other side of the crisis when you reopened hotels?
We knew travel would come back. We just didn’t know when. But we also knew that when your revenues are down 90 percent, you need to adjust, and adjust quickly. The company, I think, did so responsibly. As the board, we spent time with the company on what we were doing to take care of our associates to the maximum extent possible.
We provided resources for them to look outside the company for full-time employment. That had never been done before. We didn’t want that to happen, but we also wanted to protect the lives of people who were going through challenges themselves.
So the company did extraordinary things to look after our employees. At the same time, there was also work being done, to say, “Okay, when we come out of it, how do we actually provide the guest with the confidence that when they return to a Marriott property, to any of our 30 brands, that they could do so with the confidence that we’re looking after their health and safety?”
We put together a council on cleanliness and launched a Commitment to Cleanliness initiative. Bill Marriott was prominently featured and led that.
I can assure you, in Bill’s 66 years, he’d never done a video like that. It demonstrated the importance of being ready when the guests came back to provide them with the confidence that they could do so safely.
How concerned was the board about restaffing down the road?
There were discussions with the management team at the time on how do we come back? How do we bring people back? But to be honest, because you didn’t know when, it was difficult to plan. One of the things I’ve learned both at Marriott as well as some of the other boards I serve on is that because you didn’t have a playbook, you didn’t really understand what was going to happen when things came back, whether it’s the supply-chain pressures many manufacturers are seeing, or, in our case, a shortage of workers.
We’ve seen that, and we’ve adjusted and coped, but it was not something that the management foresaw or that we as a board foresaw. As the business started coming back, it became abundantly clear that there was a shortage of skilled people to come back into the company.
What did the company and the board do to bolster morale during the crisis?
Our CEO at the time, Arne Sorenson, made the comment, “The culture has been bruised,” but he went on to say, “But bruises heal.” There was no question that it had an effect on the culture. But the company took steps to care for associates, to communicate what was happening, to help them look for alternative employment if it was necessary, to communicate when hotels were going to reopen. There was work being done on blood drives and various different community initiatives. We opened our doors to first responders in a number of properties to try to be a truly responsible citizen in the face of an unprecedented challenge.
These things demonstrated to our associates the historic commitment the company has had to them. And I think the people respected that. And as the business has responded and improved, we’ve seen that the strength of the Marriott culture is still intact.
Prior to Covid, Marriott had been adding new rooms daily. Did going through this experience change the strategy?
Immediately prior to Covid, we had approximately 7,300 hotels. As of March 31, we had 8,048. So, we’ve grown our properties by 10 percent through this period of time. I don’t have the exact room count, but the rooms also grew. We’ve had properties leave the system at a faster rate than historically seen. Some of them were relatively prominent owners or groups of properties that left the system for different reasons. Our rate of growth of hotels and rooms did slow. But we did continue to grow both properties and rooms on a net basis through the pandemic.
And as hospitality recovers—in 2022, the demand by consumers is healthy—our rate of growth has continued. And interestingly to me, the rate of deletion has actually slowed. This tells me that investors and hotel property owners still consider investing in hospitality to be attractive.
Has there been a shift to a more cautious approach to investment in growth?
The company does deploy capital to support growth, typically through support for hotel owners who are developing properties. We call it key money. But interestingly, that growth is driven largely by hotel owners and developers who are developing either new franchises or new company-managed properties. As a company, we own some hotels, but very few. We basically manage and franchise hotels. Our growth in properties and rooms is a function of the confidence that investors and hotel owners have in the ability to make a return on the investment they have in a Marriott-branded property.
So, while growth slowed, it didn’t stop. And our deployment of capital and supportive growth has continued. We significantly slowed a number of above-property investments that we would typically pass through to our owners. It was significantly reduced to try to reduce the impact on cash flow. And a lot of property development was deferred, but property is now coming on.
Marriott is not like a manufacturing company or other companies that have significant capital expenditures that would be retimed or deferred. A large part of the capital for the growth of hotels and rooms is provided by developers and hotel owners who are interested in growing with the brands of the company. It’s a different business model that way, but I can absolutely say that the management team took significant action to reduce the costs being borne by our hotels, whether they were managed hotels or franchised hotels, to allow our owners to get through this very difficult period.
Marriott also went through an incredibly difficult leadership transition with the illness and death of its much-loved CEO, Arne Sorenson. Can you share your recollections of that time?
It starts with Arne and his commitment to transparency. When Arne was first diagnosed, he basically, within a few days of receiving his diagnosis, spoke with the board, spoke to the management team, and the company put out an internal and external announcement about the situation. That was in May of 2019.
Other companies haven’t necessarily handled similar situations that way. I’m not being critical of them. It’s just that Arne wanted to be as transparent as he could be in terms of his situation, when, obviously, it was a significant blow. Arne was the picture of health. He was an avid runner, a hiker, always doing something outdoors. And it was detected early, the pancreatic cancer. So the feeling was, while it’s a horrible disease, if anybody could beat it, it would be Arne.
He went through relatively extensive treatments and came through them remarkably well. He videotaped a message five days after the surgery. When he returned to work, he didn’t hide his treatments at all. I remember watching him in the White House at a meeting of American business leaders talking about the impact of the pandemic, and he was completely bald. That’s just one example.
The board, obviously, had to manage through the situation. We had a really terrific management team, and we had Mr. Marriott, as the executive chair, with 67 years with the company, and my predecessor as lead independent director, Larry Kellner. So, with a good management team, a sound strategy and really deep leadership, we felt confident that the company could continue in a very positive way while Arne was going through his treatment.
Then came February ’21, when Arne needed to step back and then tragically passed. And that triggered a host of next steps that we had to address.
Succession planning is challenging in the best of circumstances, and this wasn’t that. How did the board handle it?
The first CEO of this company was the founder, Mr. Marriott’s father, when it was 20 root beer stands. Then Bill was the general manager of the very first hotel, hotel number one—today we’re at 1,048. Bill became Marriott’s second CEO, and he was the CEO for over 40 years. So Arne was only the third CEO in the 95-year history of the company and the first one not named Marriott.
So you might say, “Well, the board has not historically had to do a lot of work on succession planning.” But that’s not necessarily true, because something Mr. Marriott said many, many times was that the most important thing that a board does is select the CEO. The CEO builds his or her team, but the most important thing the board does is select the CEO.
So we invested a great deal of time in succession planning. We knew our management team; they regularly participated in board meetings. The board had good insight down into the organization—whether it was Tony [Capuano] or Stephanie [Linnartz] or Leeny Oberg, our CFO, you know, the people in the continents—from regular succession planning reviews, with CEO succession planning at the top of that list.
We did that annually, if not more frequently. So when Arne tragically passed, we knew we had excellent candidates for individual jobs and for the CEO job, so we just shifted into the next gear and did what we needed to do. We’d done all the preparatory work, now we needed to select the next CEO. We announced Tony moving into the job near the end of February, several weeks after Arne’s passing. We promoted Stephanie to president. Leeny stayed as CFO and actually took on some additional responsibilities. We felt really good about that leadership team and their ability to continue leading the company, and this was all taking place during the pandemic.
We had the benefit of Mr. Marriott’s wisdom and experience. His family owns more than 15 percent of the shares of the company. So they’re major shareholders in the company. And his wisdom was invaluable as we traversed the situation, which I hope you know, is one no board wants to go through, ever.
With leadership generally, do you feel that what companies need from CEOs and directors now is different from what it was, say, a decade ago?
The job of the CEO today versus what it was even five years ago, or 10 years ago, is more demanding and more complicated. It’s the same with the role of a director, there are more demands. But a wise person once counseled me that whether you’re a CEO or whether you’re a director, focus on the things that are most important. Don’t let a multiplicity of agenda items prevent you from focusing on what’s most important.
That lesson holds true for the CEO as well as the director. Make sure you remember what’s important—and then make sure you’re spending your time on that. It may sound simple, but sometimes it’s not, because there are a lot of demands on your time. But if you focus on what’s most important and don’t let other things get in the way of that, you’re going to have a much higher chance of success.
That’s actually a good mantra for life. It’s so easy to get hung up on the small stuff. But you mentioned that both the CEO and director roles are getting more complicated, more difficult and challenging. What factors contribute to that?
The dimensions of performance are expanding. Performance used to be measured as financial performance. In a company like Marriott, it was, how are associates feeling about the company? And then guest satisfaction scores, how are customers viewing us? And then, obviously, are the owners happy? Are the owners interested in continuing to grow with our brand? Because it’s competitive. We compete with many other prominent hotel companies, and we want to get more than our fair share of growth. Therefore, we want to be an attractive brand operator or franchisor for hotel owners.
Those are things that have continued on for decades. But the company’s role in society, that has expanded. And that’s okay. We are a global company, so it’s making sure that you understand what role you play in not just one country but everywhere you do business, and what you stand for globally. It’s just a bigger job.
For a company like Marriott, operating in 140 countries, the demands on our management team and then on our board are larger than if your company is primarily a U.S. company, for example. Because it brings with it global issues that you don’t necessarily need to deal with if you’re a U.S. distributor of a product.
When you’re primarily a U.S. company, you’re not really focused on what happens to the Chinese consumer. You’re not focused on how to run a global business. How do you incorporate the cultures of 140 different countries in terms of your delivery of hospitality services? How do you develop talent that’s global? That’s not what you focus on. You focus on, how do I satisfy my customers in the United States? It’s a more straightforward task.
I spent 26 years with GM, and I worked in GM businesses all around the globe. So one of the reasons Bill invited me to the board was that he wanted to make sure they had board members with significant global experience.
How do the recent changes Marriott made at the board level reflect what companies look for in a director and in board composition now?
At Marriott, our board has gone through a significant set of changes recently, with Bill stepping into the emeritus role and David stepping into the chair role. Bella Goren joined our board, a terrific new director with great travel experience from her time at American Airlines, an audit committee expert, having been a CFO and an audit committee chair of multiple companies.
So you have skills, you have industry. Having significant leadership roles, either past or even current CEOs, and, obviously, the diversity of a board is critically important. This is something that Marriott has always been very focused on. And so if you look at the diversity of our board, women, the ethnicity of our board, we’ve been diverse, as a board long before it was a focus area, let’s put it that way, of investors, and there’s a commitment to maintain that.
We used to have a committee called the Committee of Excellence. We actually renamed it the Committee for Inclusion and Social Impact, chaired by Debbie Lee, one of our directors. And it’s been focused on diversity, equity and inclusion, and the role our hotels play in communities and society, and how we work and how we operate, and how we act with our associates. It was in place long before I joined the board. So, this is something that has been part of the Marriott culture, but also a part of the Marriott board culture for many years.
As a former CEO and a director who has served on several boards, what do you see as the most important factors that can help create a successful board-CEO relationship?
Excellent communication. The importance of communication with the CEO, whether you’re lead independent director or chair of the board, is something that I can’t emphasize enough.
The second thing is minimizing surprises. All management teams—and I say this as a former CEO—want to bring solutions when they raise issues with the board. But sometimes you don’t necessarily know the solutions. It will take you some time to develop them. But you’ve got to have the confidence to be able to share issues, get collective wisdom, and bring [board members’] experience to bear to help you as a CEO develop your strategy for addressing issues.
So, having the mutual confidence to be able to communicate, even when you don’t know what all the answers are, is critical. I’ve known some CEOs who would not be comfortable doing that. But that’s not been the case with Marriott. I mean, there’s a bias to action. There’s no question that if you’re going to bring an issue forth, you want to present a plan if you have one, to raise risks and issues and say, “This is what we’re doing about it.” But you don’t have to have all the answers.
On the board side, management would need to feel confident that the folks at the table won’t leap in and try to solve the problem themselves the second you bring it up, right? For directors who are often former CEOs, resisting the temptation to get in there and lead requires a certain amount of discipline.
Yes. You need a board that understands that’s up to the person who runs the company. The board’s principle responsibility is to have the right CEO. The CEO picks his or her management team, and the board needs to support them, to ask the right questions and bring the right experiences to bear. But the board doesn’t run the company, the management team does.
At Marriott, we had the benefit of Mr. Marriott, who knew very clearly the role of the leadership team versus the role of the board. He was an example in that regard. And Larry was the same way. Larry was a former CEO, but he understood that being a lead independent director is a different role than if you’re actually leading the company.
Going forward, what are the big issues that boards are going to be facing and should be thinking about and planning for?
Our management team has mobilized on greenhouse gas emissions, science-based targets around greenhouse gas emissions and reduction, and marshaling the resources of hotel and franchise owners to continue to make progress in this part of their strategy. Was that part of an integrated strategy five or 10 years ago? I think it was an important part of being a good corporate citizen, but I don’t necessarily think it [was given] the same rigor that you see today.
This is a company that’s mobilized on privacy. We went through a major cyber incident with the Starwood merger. We addressed it to the best of our abilities, and we’ve learned from it and continued to allocate resources even during the pandemic to hardening our environment.
These are areas a board wouldn’t have been spending a lot of time on 10 or 15 years ago. You might have been spending time on information technology, but today, with the needs around consumer-facing digital, around privacy, around the risks of cyber, you spend a significant amount of time.
At Marriott, after the Starwood security incident, it took up one hour of every audit committee meeting. I actually chaired the audit committee during that time. Then, as we transitioned, we brought aboard several new board members with really good technology grounding. We ultimately made the decision to form a Technology and Information Security Committee on the board to work with management on the transition to Marriott’s future technology platform. Whether it’s for hotel reservation systems, hotel property management, rewards programs, consumer-facing or the Bonvoy program, the company is going through a major transition in this regard.
So the board needed to evolve and change. In this case, we actually stood up a committee and dedicated that committee to working with the management team, providing the right questions, the right sort of experiences, and leadership. So it’s an area where the board evolved based upon the needs of the business.
The workplace is evolving too. Does Marriott have a lot of remote workers in the corporate office now?
Work has changed. There’s still a benefit to being in the office, the informality of it, the communication, but there’s also more flexibility. I’m on three boards, and all of them have a slightly different approach to this. But at Marriott, by and large, the workforce above property has come back to work.
Our board ran meetings virtually for quite some time—including through oversight of Covid-related strategic actions and through CEO succession, unfortunately, with the tragic loss of Arne. So a lot can be done virtually. But there’s no substitute for being face-to-face in terms of the ability to coalesce, build culture, strengthen culture, communicate both formally and informally, get to know the management team. There is so much benefit to being face-to-face.
Shareholders’ interest in engaging with directors seems to have intensified in recent years. How actively does Marriott’s board engage with shareholders, and how does that engagement serve the company?
The CEO speaks to the company in terms of performance matters and how the company performs. It’s very important to separate those two. Larry Kellner, my predecessor as the lead independent director, engaged with shareholders on governance matters. And I have as well since coming into the job, and with my other boards. It’s a part of the job I find enriching, getting investor feedback on governance-related issues, comp-related issues and shareholder proposals. Every time I’ve had a chance to engage with investors, I learned something.
Both Larry and myself have spent time communicating with investors about the importance of our governance structure in the Marriott family. We have three non-independent directors. We have the CEO, Tony, and then we have David Marriott and Debbie Harrison, who is Bill’s daughter. We just went through a transition with Bill retiring and David moving into the chair job.
[Few] other companies have three non-independent directors. We do, and we think it’s a strength because of the importance of the Marriott family. So we spend time reinforcing the importance of the Marriott family in the culture of the company and the performance of the company, and then how it affects the governance structures of the company. And investors listen and ask good questions, so that’s an area I spend time on, because it’s different for many companies.
What do you tell them? Why is it important?
The Marriott culture is very strong. Cultures that are very strong do not necessarily always lead to high performance, at least in my experience. Some can hinder performance. That is not the case here. At Marriott, the associates of the company see the culture of the company as a foundation. Bill’s mantra: ”Take care of your associates, because associates will take care of the customers, and they’ll keep coming back,” is simple to say, really important to live every day. This is a company that has done so over the course of 95 years. So I think they do understand it, but you need to continue to explain it. And when you do, investors understand.