Why Starwood Hotels' Visionary CEO Had to Go

Earnings Shot Past $1 Billion, but Heyer's Management Style Rankled Board

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NEW YORK (AdAge.com) -- Business prince or boardroom pariah? Innovator or aggressor? Steven J. Heyer might be an amalgam of them all.
During Steven Heyer's tenure as CEO, Starwood Hotels and Resorts' earnings rocketed from $440 million to more than $1 billion on sales of around $6 billion.
During Steven Heyer's tenure as CEO, Starwood Hotels and Resorts' earnings rocketed from $440 million to more than $1 billion on sales of around $6 billion.

Management style
The executive revered for his visionary ideas, but sometimes criticized for his management style, was forced out last week after two-plus years as the CEO of Starwood Hotels and Resorts Worldwide, following repeated clashes with the company's board of directors.

"This is solely related to management style and in no way related to strategy, performance or financial reporting," said Stephen R. Quazzo, chairman of the Starwood board's governance nominating committee.

"He has a difficult style, and it just came to a head," said interim CEO Bruce Duncan.

Financial performance
It's not surprising that Mr. Quazzo avoided criticizing Mr. Heyer's financial performance. Revenue crept up during his tenure, and earnings rocketed from $440 million to more than $1 billion on sales of around $6 billion. But clearly his management style rubs some the wrong way. Robert LaFleur, an analyst at Susquehanna Financial Group, Stamford, Conn., said Mr. Heyer's reputation as being "difficult to work with was fairly well-known."

The resignation of Starwood's chief marketing officer, Javier Benito, was announced on the same day as Mr. Heyer's resignation, but a Starwood spokeswoman said she "can't stress enough that the two events are totally unrelated." The spokeswoman said Mr. Benito, who also worked with Mr. Heyer at Coca-Cola Co., had actually resigned more than a month ago. But a Starwood executive who asked for anonymity said Mr. Benito resigned because "he and Steve weren't on the same page anymore." Mr. Benito could not be reached for comment.

Mr. Heyer was the hand-picked choice of former Starwood CEO Barry Sternlicht, now the company's chairman emeritus. At the time, analysts were worried Mr. Heyer and Mr. Sternlicht would clash, given their strong personalities. In fact, Ad Age's story on Mr. Heyer's appointment quoted an analyst report from Raymond James & Associates saying his hire "fills out what is undoubtedly one of the top management teams in the industry" but warned: "Many of us will closely watch the interaction between the two well-proven executives (both men are notoriously strong-willed and opinionated)."

Board problems not foreseen
But analysts didn't seem to consider that Mr. Heyer would have a problem with Starwood's board, which they thought to be generally receptive to innovative ideas.

And his ideas were innovative. Mr. Heyer was one of the first marketing executives to maximize the potential of branded-entertainment strategies. While he was at Coca-Cola, he masterminded its sponsorship of Fox's "American Idol" and the placement of Coca-Cola cups on the judges' table -- just one example of how he turned brands into media.

At Starwood, Mr. Heyer was hoping to turn the world's third-largest hotel chain into a travel version of what Nike and Apple had become: hip marketers. To do so, he used partnerships to place Volkswagen's upscale Phaeton at the beck and call of those staying at W hotels and had Christie's hold wine auctions at St. Regis hotels.

He also turned to increasingly popular wisdom-of-the-crowds research methods to guide Starwood in the creation of a brand, Aloft, a chain of hotels due to launch later this year. More than 500 consumers were invited to outline what they would want in the design, features, communications and even name of the new chain. A virtual version of the hotel was created in Second Life.

No comments
Attempts to reach the onetime Turner Broadcasting president, who left Coke in 2004 after being passed over for the CEO job, were unsuccessful. Calls to his former colleagues asking about his management style either went unreturned or were met with a "no comment." But a noted business psychologist said management styles that don't sit well with board members are not unexpected from people who are exceptionally bright and have strong egos.

"It's often difficult for those type of executives -- because they have a strong sense of self and are used to being the decider, if you will -- to compromise," said Jon Kramer, an executive coach and business psychologist based in San Diego. "They only trust themselves. They believe in themselves, their judgment, their own decision making ... and that keeps them from wanting to compromise or even trust others."

Though Messrs. Quazzo and Duncan did not elaborate on what it was about Mr. Heyer's management style that caused so much concern, Mr. Quazzo did say what he was looking for in Mr. Heyer's successor: "an outstanding leader, someone who will be a standard-bearer for the company," he said. "Impeccable character and integrity, someone who's a strong communicator, real good interpersonal skills, who will work with both the board, employees and outside business relationships ... someone who really understands the importance of building long-term value."

Stock price
There's no question Mr. Heyer improved Starwood's brands and bottom line. The stock price rose 19% in the past 12 months as he aggressively marketed Starwood brands such as Sheraton and St. Regis, forging marketing alliances with such entities as Yahoo. Morningstar's Jeremy Glaser wrote in an analyst's report that Starwood enjoys "one of the highest-quality portfolios of brands in the business."

So if it wasn't Mr. Heyer's skills that did him in, it had to be his bedside manner, right? It may not be that simple. "If it's a matter of people skills, it's still hard to believe someone would have risen that high in his career without knowing how to build relationships," Mr. Kramer said.

Mr. Heyer leaves Starwood with just $2.25 million in severance, a $2 million bonus earned for his work in 2006 and $250,000, or a quarter of his 2007 salary. By mutual agreement with Starwood, Mr. Heyer forfeits stock options valued at $12.7 million, according to a proxy statement.

Starwood has hired search consultant Spencer Stuart, Stamford, Conn., to find its next CEO.
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