Bennett and the Ashford Companies: Corporate Governance Pitfalls and Lessons
In April 2020, the group of hotel companies controlled by Texan hotelier Monty Bennett became the face of the controversies surrounding the Paycheck Protection Program (PPP), a program meant to help small businesses survive the economic impact of COVID-19. Three public companies controlled by Bennett (Ashford Inc., Ashford Hospitality Trust and Braemar Hotels & Resorts) applied for USD 126 million in loans under the PPP and received at least USD 58 million in return. The Ashford group is the largest known applicant of the government’s relief program, and Ashford Hospitality Trust alone applied for USD 76 million in 117 separate loans, the most by a single company. These companies took advantage of a provision that allowed hospitality and restaurant chains to receive assistance if individual locations had fewer than 500 employees.
Ashford companies soon received backlash for exploiting a government loan program designed to help small businesses during a difficult time. Bennett initially refused to return USD 58.7 million his companies received and denied any wrongdoing. On April 28, 2020, Treasury Secretary Mnuchin announced that all companies that had received more than USD 2 million could be audited and held criminally liable for failing to meet the program’s criteria. With mounting public scrutiny and the threat of congressional investigation, on May 2 Bennett declared his companies would return all funds.
A few days later, Douglas Kessler voluntarily resigned as President and CEO of Ashford Hospitality Trust.
Intense media scrutiny and Bennett’s initial refusal to return the funds shone a light onto the companies’ governance structure and poor financial performance. Ashford Inc., which provides asset management services, acts as an external advisor to real estate investment trusts Ashford Hospitality and Braemar. As Chairman of all Ashford companies and CEO of Ashford Inc., Bennett receives compensation from all three entities. These companies were already suffering from heavy losses and sinking stock prices long before COVID-19 struck. Ashford Hospitality had more than USD 100 million in losses in FY 2019. Amid the scandal, the NYSE threatened the company with delisting after its share price fell below USD 1, the minimum average closing price per share required to maintain listing on the NYSE. Overall, the companies’ share prices have fallen over 70 percent on average over the last five years.
However, the compensation of the Ashford group’s top executives did not decrease due to its poor financial performance. When using CGLytics’ Pay for Performance modeler to consider Ashford Inc.’s relative position compared to its industry peer group, it is revealed that Bennett’s compensation over three years as CEO is disproportionally high compared to the company’s earnings per share. Their CEO’s granted compensation is ranked on the 95th percentile whilst Earnings Per Share (EPS) is ranked in the 5th percentile displaying a misalignment between pay and performance.
Ashford Inc. also received an F grade in Glass Lewis’ Pay for Performance Analysis for FY 2018, meaning that the company’s poor financial performance is not in line with its high compensation levels.
When analyzing the Ashford companies’ boards through CGLytics’s board composition and expertise tools, it is noticed that directors were unlikely to be effective lines of defense against the public’s backlash. To have an effective response, we would expect to observe board members with governance, financial, legal or risk expertise. Of the seven directors sitting on Ashford Inc.’s board, only three have governance expertise which is derived from their exposure in governance committee roles. The only member with financial expertise, J. Robinson Hays, is dependent, and no members of the board have legal or risk experience. While all directors have worked in real estate, capital management or hospitality, only three – of which two are dependent – have experience in Ashford Inc.’s specific field.
Looking at Ashford Hospitality Trust, only one of the three directors with governance expertise has worked in a compliance and governance role. Only two have financial expertise, with one being the outgoing CEO, and of the two individuals with legal expertise, only one has practiced law. No director has risk experience.
Of Braemar Hotels and Resorts’ seven directors, none has risk expertise and only one has held financial roles.
From this analysis, few directors held the expertise and skills necessary to advise the companies on the proper course of action. All companies are led by Bennett as Chairman, and the New York Times asserts that the boards are “filled with people with close ties to Bennett,” including a director whose wife’s firm provides services to the entities.
Board tenure is also a factor to consider in a board’s effectiveness. While long tenure can have advantages, they can be an issue if members lack the necessary expertise or if they compromise independence. Two of the three boards have an average tenure of almost seven years and Ashford Inc. has only appointed one director in the past six years.
Overall, the effects of public backlash against Bennett and the Ashford companies could have been mitigated with good governance practices and decisions. In order to acquire credibility in the eyes of the public and investors, the companies should consider restructuring their compensation levels and appointing independent directors with the right skills to oversee executive management and add value to the company.
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