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.

As with our previous studies, we examined and ranked companies in five key areas of corporate governance:

• Size, makeup and independence of the board;
• Committee structure, number of meetings and effectiveness;
• Extent of insider participation and related transactions;
• Board evaluation and shareholder communication;
• Pay-for-performance for board and executive pay.

Of the 54 companies studied, not one company scored perfectly in the area of board size, makeup and independence, although Hershey was the first to receive 15 points in this category. If they had separated the CEO and Chairman role, they would have gotten the first perfect score. In fact, 16 companies still had their CEO holding the Chairman seat.

Something experts think is not best practise. In addition, only 15 companies had an even number of members on the board. We see both of these declining in future surveys as shareholders will have less tolerance for this consolidated power.

Click here to access the lead table.

Over half of the survey group designated a Lead Director; a relatively new phenomenon. We also saw a number of companies disband their classified board structure, with only 11 companies still having this outdated strategy for fighting proxy battles. We were proud to see that our industry made strides in the area of diversity, with companies such as Hershey, Sun International, Wyndham, Marriott, Hyatt and Disney making diversity a real priority.

With respect to committee structure, the industry had a solid year. Almost all of the group had the required committees of Audit, Compensation and Nominating/Governance. Furthermore, almost all had the required number of meetings that we and other governance experts see as appropriate to fulfil their duties. That said, 16 companies still had an Executive Committee, which makes no sense in this day and age.

Related party transactions remained prevalent in our surveyed group, which surprised us. That said, at least companies were more transparent about disclosing these transactions and other potential conflicts. We believe that many of these deals were the remnants of deals that were done prior to going public and will become obsolete in the future.

The board evaluation process appears to be taking hold. Most companies had a process of evaluating board performance, with governance committees taking this more seriously. Activist investors are also keeping boards on their toes when it comes to participation and attendance. Gone are the days when a board director could sit on 5+ boards and show up to one meeting a year. Most companies in our peer group had a policy of the number of boards their directors could sit on and minimum requirements for attendance. A few (Ryman for example) even put term limits on directorship.

With regards to board communication, directors are increasingly engaged with shareholders whether they like it or not. Activism is not going away as long as private equity and hedge funds see poor governance principals and opportunities for value enhancement. Almost all of the group had formal policies regarding how to communicate with their board. In addition boards spoke more openly about having more access to management and a more active role is strategy.

Finally as it relates to compensation, 16 received a full score of 10 points. This is a positive sign as companies put more emphasis on “pay at risk” and more importantly, tie pay to meaningful metrics of performance. Numerous companies also required board members and executive to own company stock.

These ownership requirements ranged in size and scope but a big step forward in connecting leadership to shareholders. Pay mix was a very hot topic for compensation committees and focused on how bonuses and LTIPs stacked up to base pay. Each of the companies who had full scores also had multiple triggers for bonus pay-out, with financial, personal and customer measures of performance.

Many of the LTIP programs had performance targets applied so that stock grants were not simply based on the passage of time. And finally, the best practise companies utilized “consultants of record” to vet peer group data and analysis in forming a compensation philosophy specific to their organization.

The top ten performers in our study were some of the usual suspects. Host, Priceline, DiamondRock have been consistently at the top of our annual surveys. Ryman made a big push to the top spot this year with solid marks in every category of our study. Newcomers such as InterContinental and Sun International demonstrate that corporate governance is not just an USA focused issue but a truly international one.

Keith Kefgen - Managing Director & CEO, AETHOS Consulting Group

With nearly 30 years of experience in the hospitality industry, Keith is a career hospitality executive. Having graduated from the Cornell University Hotel School, he went on to work at Waldorf=Astoria Hotel before embarking upon a career in hospitality executive search.

He was the CEO & founder of HVS Executive Search before joining AETHOS Consulting Group. A frequent lecturer on industry related issues, Keith has written more than 100 articles on the topics of executive selection, pay-for-performance, corporate governance and executive leadership. He is currently writing his first book, The Loneliness of Leadership.

www.aethoscg.com