Commentary

Starwood CEO Van Paasschen Abruptly Checks Out

Frits van Paasschen, a Harvard MBA with broad experience in retail, operations, consumer marketing and finance across major brands such as Coors, Nike and Disney, as well as stints at consulting firms such as Boston Consulting Group and McKinsey & Company, apparently never quite settled into the hospitality industry. He and Starwood Hotels & Resorts came to a “mutual agreement” yesterday that he’d vacate the CEO office he’s held since 2007.

“Analysts said his relative lack of industry knowledge and operational experience might have cost him,” Craig Karmin and Joann S. Lublin report in the Wall Street Journal. “We are looking for someone with hospitality experience,” board chairman Bruce Duncan said on a conference call announcing the decision yesterday. 

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Board member Aaron Aron, who has been CEO of the Philadelphia 76ers since 2011 and chairman and CEO of World Leisure Partners since 2006, will serve as interim CEO as the search for a permanent leader gets under way. Previously, he was chairman and CEO of Vail Resorts.

“Aron did not say whether he would throw his hat in the ring, but the company said it would look both internally and externally to fill the spot,” Lauren Gensler reports on Forbes.com.

“The move [follows] months of behind-the-scenes wrangling with shareholders and after alienating board members,” Karmon and Lublin write.

During the call yesterday, “Aron cited the need for better execution, greater room growth and a broader footprint as the driving factors behind the company’s decision,” reports Skift’s Samantha Shankman. “There was no disagreement over the strategy, according to the call, but a need to put the right team in place to deliver on it.”

“Raymond James & Associates analyst William Crow said investors want to see Starwood mimic Marriott and Hilton Worldwide Holdings in growing hotel rooms and hotels at a faster clip,” Maureen Farrell writes on MarketWatch. “Unit growth is what drives free cash flow and perpetuates share repurchases,” Crow says. “It’s what investors are clamoring for.

Skift’s Shankman points out that Starwood reported net room growth of 2% in 2014 during its annual earnings call on Feb. 10, “well below the target of 4% to 5%.” 

“As we mentioned on recent calls, this was driven by three factors,” van Paasschen said at the time. “Longer development times and important growth markets like China, fewer in the year for the year conversions and a higher proportion of Select Serve hotels with lower average room count.”

“Starwood made a bet on expanding internationally at a time when international regions aren’t doing that well,” FBR & Co. analyst Nikhil Bhalla tells Bloomberg’s Neil Callanan and Heather Perlberg, which has slowed its growth against its peers. “There have also been several missteps in communicating capital-return strategy to shareholders, which left people wondering what Starwood’s story was all about.”

On the earnings call Feb. 10, which is transcribed on Seeking Alpha, van Paasschen revealed some details on the company’s just-announced plan to spin off its timeshare vacation ownership business unto a separately publicly traded company (SVO) under Matthew Avril, who retired as president of Starwood’s Hotel Group in 2012 and will be CEO of Starwood Vacation Ownership.

“And this leads me to a point [that] doesn't stand out on SVO's balance sheet, but in my opinion is arguably its greatest asset. SVO has a great culture, year in year out the associate engagement [scores] are among the highest in Starwood,” van Paasschen said. “This culture and the talent that goes along with it have made great results in both sales with industry-leading margins and in guest service with guest satisfaction scores to prove it. It's also why our 60% of our buyers are existing owners of our timeshare intervals.”

When Van Paasschen — “who prefers to be called ‘Frits’ and rarely wears a tie” — took the Starwood job in 2007, he “stood out because of his ‘intellectual firepower,’ success at shaping global strategies for consumer products at Disney, Nike and Coors, his likable personality and the aggressive way he promised to tackle the job,” board chairman Duncan toldUSA Today’s Barbara De Lollis for a 2008 profile. “Because he lacked hotel experience, he vowed to immerse himself in the industry. Since joining, he's visited 132 hotels in 20 countries and 45 cities.” 

Apparently, travel does not the CEO make.

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