Working with owners special

It is the daydream that no general manager will never admit to having - and no, it’s not about the ultimate celebrity guest. What if, with the stroke of a pen, you could get your owner to restrain themselves from second-guessing your decisions, or walking through the halls and randomly deciding to change the colour of the lamps from blue to pink? As wish fulfilment goes, it is hard to imagine anything more potent.

But does it actually exist? And if you, as an operator, dared to put such a clause into your contract with your owner and had to enforce it, how would you do so? The topic was discussed during the ‘Working With Owners’ workshop at Great GM Debate and as one would expect, it drew contentious responses from across the board.

Helpful hints
To begin with, the word ‘interference’ conjures up all sorts of negative connotations, but what exactly qualifies as interference? It differs from property to property, but as Tarek El Sherif, managing director of V.Five Continents Hospitality Group wearily explained, few GMs manage to escape its icy touch.

“No more than 5-6% of the owners I’ve worked with ‘behaved’. They tend to interfere in the pricing, the rates, the staffing and the salaries — basically every aspect.

That hinders us as an operator from rendering our services. He puts you under pressure asking why you are selling for AED 500 (US $136) when you could be selling at AED 700 ($190)?” asked El Sherif.

Unrealistic expectations can also pay a part, he added: “They think highly about their properties where, with no real logic, they compare it with some of the very high-ranked hotels. I’ve seen a very good hotel open in Doha and he was comparing it to the Ritz-Carlton! There’s no way that it’s comparable!”

Operators have some right to feel aggrieved, but what about owners? What do they think? As the woman with the unique perspective of having to negotiate the treacherous waters between the two, Madhu Azad, director of asset management at Ròya International, believes owners often fail to understand the value of the service operators provide, but equally, operators could do with being less unyielding in their approach.

“Obviously owners are businessmen and they are not hoteliers,” she explained. “They don’t understand the importance of lots of things which operators keep insisting on.

Owners think they can run the product as well as the operator, saying, ‘why are we paying them these high fees, why are we giving so many protections to the operator? The value that the operator adds doesn’t really get conveyed to the owners in terms of output,” she said.

“If I have to give an unbiased view, I do sometimes think that operators can be very rigid because they are governed by their international controls in some head office in America or Europe.

Any vital changes to their contract, they always need to go back, they don’t want to make many exceptions with ease. Of course, everything is negotiable, but it has to be both ways in my opinion,” said Azad.

Some might think that choosing to delegate authority and access to an asset manager like Ròya might make things easier — but quite often hotel owners will still make unilateral changes without consulting anyone.

Tim Klitscher, head of asset management at Seven Tides, agrees: “We’re pretty heavily involved in our hotels because of the nature of who we are. We’re employed by the owner to do a job just like anyone else.

We’re under pressure to make it work because we’re the owner’s first point of contact. An owner might walk into a hotel and say, ‘buy five of that’ to the GM, which is something we would have to manage backwards, actually. He might be expecting more money out of the project — we need to work with the GM to make that happen.”

In black and white
“If an operator asks for this clause I believe that no owner will sign any agreement,” explained Siegfried Nierhaus, managing director of Atlas Hospitality, who does not mince his words at the prospect of a non-interference clause being written into any of the contracts he has with his operators.

“As management contracts are generally signed for a long period of time (a minimum of 10 years), I believe that important decisions have to be carried out with a long-term relationship in mind,” he continued.

“Signing a management agreement between an owner and an operator should be seen by all parties as a great opportunity to make better business for the benefit of both the owner and the operator.”

Klitscher is equally vehement in his refusal of the clause: “I don’t believe in it anyway. I don’t think it ever gets enforced. I don’t see how it is possibly enforceable in any way, shape or form. I’ve never known anyone to enforce it. I think it’s actually a ridiculous clause to have in there. That said, how do you make it work for the benefit of those involved?”

Unexpectedly, Ròya’s Azad breaks from the crowd and suggests that such a clause can be acceptable, but it comes down to how it is worded in the contract. Even if enforcement is necessary, careful use of diplomacy can stave off a confrontation in most cases.

“It depends how the clause is worded — to say no interference in day-to-day operations is fair because there can only be one captain of the ship. The owner’s interference should be through certain channels through which they can communicate and get involved. They should not walk into the lobby and say they don’t like this or that, directly communicating with the members of staff,” she explained.

“If the owner is still getting involved, despite what you’re writing in the contract, then owners can point to the protections built into the contract, claiming they are not able to operate.

Operators can make a big issue and say they do not wish to run that hotel, but mostly, before things reach that state, there is a conversation between hotels and operators at different levels.

If the owner is interacting with the staff, then the GM may approach the owner’s rep and have a conversation. If they can’t get along, the higher management of the operator may directly have a conversation with the owner and explain what can be done,” said Azad.

While interference can never be ruled out entirely, Laurent Chaudet, general manager of the Pullman Dubai Mall of the Emirates, believes that a healthy dose of trust can smooth over most issues. Besides, as he puts it, owners in the Middle East are generally easier to deal with than those in the East.

“Any relationship with the owners has to be built on trust and transparency. Particularly in Asia, when we have Chinese owners coming from the Guangzhou province who have never dealt with the hotel industry, it’s more complicated than dealing with [our owner] Majid Al Futtaim, for which there are pros to working with,” he said.

“As GM, we have to understand that we are not completely empowered. We always have people complaining about what we do. According to management contracts, it’s clear we have the ability to run the show. It’s up to us to deliver what people expect, because they hired a management company. As soon we demonstrate our competence, things get better,” he concluded.