MINEOLA, NY? In the past few months, CEOs at major corporations such as Bank One, Coca Cola and Mattel have been ousted or forced to resign. In this fast-paced decade, it seems as if CEOs and other top executives are being pushed out sooner than usual as impatient directors demand quick results and offer less room for mistakes. Although there are some clear signs of an unsuccessful CEO, such as failing to deliver profits, many reasons remain behind the closed doors of the boardroom. What factors are driving boards to be so impatient? In our Second Annual Survey of Board Performance, we set out to answer this question by evaluating the performance and decision-making of lodging industry boards. In theory, a board should act as a check and balance between investors and management. Our survey continues to find that some boards are doing an admirable job of corporate governance, but many are turning a blind eye. We began our analysis by scrutinizing public documents of 54 lodging companies and speaking to corporate governance experts. We then rated each lodging company in the following four fundamental areas: ? The size, makeup and independence of the board; ? Committee structure and effectiveness; ? The prevalence of interlocks, insider participation and related transactions; ? Commitment to pay-for-performance. Board Size, Makeup and Independence A successful board, according to experts, should be comprised of no more than two or three executive officers (insiders). Greater board participation should come from impartial outside directors in order to ward off inherent conflicts of interest. This year, we saw a vast improvement in the composition of many lodging boards. Candlewood Hotel Co., for example, went from eight insiders in 1998 to two insiders in 1999. Other top performers in this category included Canadian Pacific, Walt Disney, Vail Resorts and Starwood Hotels & Resorts. Another problem boards often face is allowing family members to promulgate a board. For example, a third of Loews Corp.?s board is composed of the Tisch family, while Sonesta?s board is mainly comprised of Sonnabend family members. Not exactly the impartiality investors are seeking. For a board to further be effective, directors need to attend meetings. Although this seems obvious, companies only made general statements regarding overall attendance, rather than providing actual attendance records of each director. Most governance experts strongly recommend that attendance records be published in proxy statements to ensure that board members show up for meetings and make a worthwhile contribution. Per SEC requirements, companies noted when a board member did not attend at least 75% of the board meetings. We estimated that nearly 12% of all board members in the industry fit into this truant category. Committee Structure and Effectiveness The four committees that governance experts deem mandatory include the audit, compensation, nominating and executive committees. Sadly, Cendant was the only company that had these four committees formally meet in 1999. We are certain that Cendant?s debacle in acquiring CUC has prompted their heightened awareness of corporate governance issues. We hope it does not take a $3 billion lawsuit to get others thinking in a similar fashion. Having the CEO sit on the compensation committee is another corporate governance no-no. Experts question the effectiveness of a CEO making decisions on his/her own compensation. John Q. Hammons was a violator of this tenet, as was Micky Arison of Carnival. Audit committees are particularly vulnerable today with litigation becoming much more prevalent. In fact, Cendant?s settlement of a class action suit was the largest in U.S. history. Outside directors with accounting and finance backgrounds should be sought to chair the audit committee in today?s litigious environment. Conflicts of Interest Allowing interlocks, insider participation or directors to collect professional fees poses a
