The chief executive of Starwood Hotels & Resorts Worldwide Inc. abruptly resigned Tuesday, following months of behind-the-scenes wrangling with shareholders and after alienating board members.
Frits van Paasschen , 53 years old, who held the top job since 2007, came under pressure for failing to increase the number of hotels in the Starwood system through franchise or management agreements as quickly as the company wanted, said Chairman Bruce Duncan.
Mr. Duncan also said the company wanted to step up the pace of selling properties still owned by Starwood, and that he wanted the next CEO to do more to "increase value for shareholders." He called the resignation a "mutual agreement."
Adam Aron, a Starwood director since 2006 and a hospitality veteran, is taking over as interim CEO while Starwood looks for a permanent successor.
Mr. Duncan said the departure was "all about execution" and didn't represent a change in corporate strategy.
Mr. van Paasschen will receive a $7.2 million severance payment, a prorated bonus and other payments.
His sudden exit shows how hotel companies have little tolerance for mixed results at a time when the industry is booming, rising group and leisure travel are lifting revenue-per-available room to new highs, and hotels are fetching record sales prices.
But some analysts suggested Starwood could do more to boost its brands. It was the rare major U.S. hotel operator not to introduce a new brand over the past year or make a big acquisition. Starwood has introduced the brands Aloft and Four Points, but they have underperformed peers in the fast-growing low-frills, or "select service," market segment.
"This is a long-term trend and Starwood has really missed out," says Ryan Meliker, hotel analyst for investment bank MLV & Co.
Meanwhile, Starwood's early lead in lifestyle brands is starting to come under siege. Marriott International Inc. and Hilton Worldwide Holdings Inc. and others have launched lifestyle brands in recent years that threaten Starwood's W Hotels early dominance in hotels offering swank bars and lively lobbies in a bid to appeal to younger, more design-conscious clientele.
Mr. van Paasschen's departure comes as Starwood is experiencing a recent period of management turnover. The company's chief financial officer Vasant Prabhu left for NBCUniversal last year before joining Visa Inc. this month. Starwood's chief brand officer and head of sales are also leaving, a spokeswoman said.
Starwood's stock returned 10% over the past 12 months, including dividends, lagging behind the 30% or more enjoyed by rivals like Marriott and Hilton. Some investors have criticized Starwood for being slow to announce share repurchases when its peers have been more aggressive.
"Shareholders had become very frustrated," said David Loeb, a hotel analyst for the financial firm R.W. Baird. "They seemed to decide his leadership wasn't working for them."
Starwood shares rose 2.7% to $80.64 on Tuesday after the company announced the CEO change. Mr. van Paasschen couldn't be reached for comment.
Directors talked by phone and in person over the weekend to finalize their decision ahead of Tuesday morning's announcement, according to a person familiar with the company.
The change in leadership comes a week after Starwood announced a plan to spin off its vacation ownership division to take advantage of growth opportunities in the timeshare business. But analysts said the move, which was cheered by investors, might have come too late for Mr. van Paasschen, and that it was unclear what his role was in orchestrating the spinoff.
Mr. van Paasschen had no hospitality experience but came to the top job with a marketing background. He was head of the Coors unit at Molson Coors Brewing Co. He is a big fan of technology, and under his reign, Starwood was the first major lodging company to test using a mobile phone as a room key.
But analysts said his relative lack of industry knowledge and operational experience might have cost him. Mr. Duncan said the new CEO would have a different résumé. "We are looking for someone with hospitality experience," he said on a Tuesday conference call.
Some analysts also suggested the board was unhappy with the number of hotel owners that have dropped a Starwood brand recently. In 2014, Starwood added 74 hotels and 15,000 rooms to its system, but it also lost 28 hotels and 7,000 rooms during the year.
Last year, Thayer Lodging Group said that Westin Diplomat Resort & Spa, with 998 rooms in Hollywood, Fla., would leave the Starwood brand and become affiliated with Hilton.
"We were convinced that Hilton would be more effective at driving convention and group business to that hotel," says Leland Pillsbury, Thayer's CEO. He added that he expects the hotel's daily rate in 2015 to be about $50 higher than it was in 2014.
Several Starwood board members will comprise its CEO search committee, but haven't yet decided which executive recruitment firm they'll use, said the person familiar with the matter. "They were just appointed.''
Source: Wall Street Journal by Craig Karmin Joann S. Lublin
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