Starwood Hotels & Resorts Worldwide on Tuesday announced the resignation of Frits van Paasschen as president and CEO after seven years on the job. Adam Aron, a member of Starwood’s board since 2006, was named interim CEO.
Starwood plans to consider both internal and external candidates in its search, and Van Paasschen will serve as a consultant during the transition.
R.W. Baird analyst David Loeb said, “We view this change positively and expect investors will as well given that we believe Mr. van Paasschen lost investor confidence over the past year or so as poor communication of the company’s capital allocation strategy, the slower-than-expected asset sale pace, and lagging unit growth have caused the stock to significantly underperform the peer group (~2,300 bps of underperformance versus the peer median since the beginning of 2014).”
In a conference call Tuesday morning Starwood Chairman of the Board Bruce Duncan said the company needs to accelerate its pipeline, drive top-line revenue growth, increase net-room growth, manage costs better and sharpen its operational performance. “We came to the conclusion that it was the right time to turn to new leadership,” Duncan said.
Aron said during the call that he will not be a passive interim leader and will focus on operational excellence, enhancing consumer appeal of Starwood brands and accelerate growth. “I’m now in the CEO hot seat. I endorse Starwood’s current strategy. However, we can execute better than we have of late.”
Loeb’s note went on the say R.W. Baird does not expect a change in corporate strategy and that the company will continue to focus on international growth and its transition to an asset-light model. “However, we expect the new CEO to focus on improving Starwood’s performance through regaining its position as a brand innovator; better communication and execution of its capital allocation strategy; and addressing its lagging unit growth by improving its relationships with owners and developers,” Loeb said.
“We expect the new CEO to also focus on improving the perception of its Element and Aloft brands and potentially expanding the company’s select-service offering to boost unit growth to a level that is more comparable with peers,” Loeb added.