I confess, my experience with the contribution of public company boards to corporate performance has mostly been from headlines. So researching hospitality industry public boards as part of a February 2021 report was a fascinating look at reality.
Public company boards consist of talented human beings. The boards are a window into the hospitality industry and its value.
Almost a quarter of board members are now women. While there is concern that women will be limited to that level, I expect the share of women to grow over time. The largest and most desirable companies in the industry have a larger share of women on their boards. So, even the stodgiest firms are likely to shift in that direction, although it may take them a few years or a change in leadership to make it happen. Women are more than half of the industry’s marketplace and talent pool; it makes sense to align boards with their markets. Critically, the number of highly talented women with appropriate experience to benefit boards is already large and is growing rapidly, which should encourage the share of women on boards.
Although it makes sense upon reflection, I was surprised to find that many hospitality company boards are chaired by the company’s founders or those founder’s sons. The hospitality industry is characterized by family businesses, and that carries through for 19 of the sector’s 31 public companies. These are engaged, often entrepreneurial, enterprises that provide investors an opportunity to participate in the growth of founder-led or family businesses.
The impact of leadership on founder-led businesses is reflected in the racial makeup of these boards. Two of these companies have Black founders, RLJ Lodging Trust and Park Hotels & Resorts. Of 18 Black board members across the industry, five are at RLJ. There is no Black representation on two-thirds of the boards. In comparison, 13% of the U.S. population identifies as Black.
One of these family-founded public hospitality companies was established by Asian Americans — Hersha Hospitality Trust, founded by the Shah family. Of 17 Asian American board members in 2020, five are with Hersha. An entrepreneurial force driving wealth creation in the industry for over 30 years, Asian Americans own over half the hotels in the United States. Perhaps public investors will have the opportunity to participate in the dynamism of more of these businesses as public companies diversify.
In February, the Carlyle Group announced a $4.1 billion private equity credit facility focused on advancing board diversity. Over the past three years, Carlyle’s research has shown that the average earnings growth of Carlyle portfolio companies with two or more diverse board members has been approximately 12% greater per year than companies that lack diversity, underscoring the correlation of board diversity with strong financial decisions and performance.
Among hospitality public companies, 22 meet the “two or more diverse board members” hurdle counting female, Black and Asian members. Three companies are 50% or more diverse. Given that women are 51% of the U.S. population and over 40% of the population identifies as non-white, the shift to diverse boards seems inevitable and bound to accelerate.
Peggy Berg chairs the Castell Project, a non-profit advancing women in leadership in the hospitality industry.
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