Rapid Response: When your business disappears overnight, w/Marriott’s Arne Sorenson

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Late January this rolls out in China. And our business immediately drops by ninety to ninety five percent in China. The virus pops in South Korea, Iran, and Italy. And it becomes fairly clear that it's going to spread around the globe.

By the middle of March we're running down ninety to ninety five percent. All around the world. We would expect that it's probably a good two, three, four years before hotels get back to the level of performance they had in twenty nineteen. Having said that I do think that we will see people get back on the road.

We are itching to get back towards where we were before. There's no substitute for being together, and I think as we can do that safely. We'll step back and do most of what we did before. Well, I don't know when I'll get back to two hundred twenty five nights a year. I am eager to get back on the road and start traveling again.

It's only when we're together that we really do the most collaborative and creative things. As a globe, as a country, as communities, we've gotten through enormously difficult times. And there's no reason we can't get through this one. Mm. That's Arnie Sorensen, CEO of Marriott International. Hotels have been among the hardest hit businesses in the pandemic.

And despite some recovery The road ahead is uncertain. I'm Bob Sapian, former editor of Fast Company, founder of the Flux Group, and host of Masters of Scale Rapid Response. I wanted to talk to Arnie because no one has a better view of the global and national repercussions of Covet nineteen. He talks about the financial struggles and the human struggles.

From small businesses To big cities. He also talks about personally wrestling with cancer. As well as wrestling with racial injustice, and he offers his own formula for how businesses might approach social action. Arni believes that if businesses band together

They can have an important voice. But he also argues that business leaders shouldn't necessarily speak on every issue I'm Bob Safian, and I'm here with Arnie Sorensen, the CEO of Marriott International. Arnie is joining us from his home. In Maryland, as I ask my questions from my home in New York. Arnie, thanks for joining us.

Glad to be with you, Bob. Good to see you. So I hope it's okay if I start with something personal. When twenty twenty began, you were in the midst of cancer treatment. Recovering from surgery. An uncertain, very high stakes.

Moment. And then Covet nineteen begins to roll through. It's a lot to manage. How are you feeling these days? Yeah, it has been quite a year, that's for sure.

The only good thing about it is that my work, obviously intensified by COVID nineteen was a useful distraction from being consumed by a personal cancer battle. Thankfully, the cancer battle has gone reasonably well. So I am feeling good. I've got my hair back, which your audience won't be able to see, of course. But you know, I feel good and I'm through all scheduled treatments. I can attest. He looks great.

You used to travel, I don't know. Two hundred, two hundred and fifty days a year between the cancer and Covid. You can't do that. Your work patterns have got to be radically different. How has that Change things. It's been interesting. I never really counted the number of nights I was on the road before.

I was giving a speech in one of the universities in Pennsylvania a couple of years ago. And I got up there to give the speech and somebody introducing me said he spent two hundred twenty-five nights on the road the year before, which was news to me. I've always loved to travel. I'm obviously working in the travel industry. But I think it's important to travel. I've always gotten energy from getting out and seeing the world and understanding the places that we do business in, obviously because of cancer first, but then COVID 19 even more significantly. We have been stuck in uh place for The last six or seven months.

It causes new routines and some of that is positive. I have a great relationship with my wife and my kids, and I see them much more now than I have in years past. But I sure miss seeing our team around the world. And I miss getting out there and collecting the kinds of experiences we all collect when we travel. So while I don't know when I'll get back to two hundred twenty five nights a year, I am eager to get back on the road and start traveling again. So

Your health is much better than it was the start of the year. How is the health of Marriott's business? Well, we're making progress too, and you know, I can Maybe give you a quick scene setting, late January this rolls out in China. And our business immediately drops by ninety to ninety-five percent in China.

We get to the middle of March and we see it spread around the world. In late April, there's a horrible weekend where the virus pops in South Korea, Iran, and Italy all in the same weekend. And it becomes fairly clear that it's going to spread around the globe. By the middle of March we're running down ninety to ninety five percent. All around the world.

That is the functional disappearance of our business. By today, I think we're probably running down sixty to sixty five percent. Those would be the numbers in the United States. Our occupancy has gone from 10% to about 40% as we speak. If you do the percentages in that, it looks spectacular from the bottom. It's still down 60% from last year. So it's a historically difficult time that continues.

But what we're seeing is that collectively We are showing our resilience around the world. It's not that we are used to the virus exactly, but we are learning to live with it. I know you have a bunch of new health protocols you put in place across the hotel social distancing and mask wearing and more cleaning and temperature checks for employees.

How safe is staying at a hotel? Like, do we know what's rational fear versus What's about confidence? Is there clear data about those things? Well, one of the challenges we've got is We've got less contact tracing data than we'd like to have. That's a comment, certainly, about the United States. I think it's a comment in many respects about other parts of the world.

You can't expect me to be unbiased in this as a hotel year, but I don't think hotels are particularly unsafe. The safest place, of course, for all of us to be is in an environment in which nobody else is ever entering that environment. And when you step out of that there is some incremental risk. But in a hotel

By and large, the guest room is your preserve. So you can get to a hotel and you can essentially put yourself in that environment and be pretty safe. Now as you start to step out, if there's a restaurant open, or if there's a bar open, or if there's Public space in the hotel. And if the hotel's full, you can obviously put yourself out there more aggressively. I think one of the good things about a hotel is each of us can set our

risk level, if you will, and decide, you know what, I'm simply gonna stay in my room. Or if I'm a little bit bolder, maybe I'm gonna go and I'm gonna sit on the beach or I'm gonna sit by the pool and do other things that need to get done. It we believe is much safer than many other public settings because you've got that ability to control your own interaction with it. What kind of occupancy do hotels need to

Stay Cash flow neutral. I know you raised four billion dollars of capital liquidity earlier in the year, but What does that percentage have to get to before the business starts to be trending in a sustainable direction? Yeah, it's a really good question. And let me just remind your audience, we don't own our hotels.

Our business is essentially managing and franchising hotels under our brands, running a reservations platform, running a loyalty program, so we deliver customers to those hotels. But the hotels are owned by real estate investors all around the world. They tend to be local, so the American hotels owned by US investors, Chinese hotels owned by Chinese investors, et cetera, And each of them is going through a very careful consideration of your question, which is, how much business do I need in order to make sure that I am Covering the bills.

What do I need beyond that to cover a mortgage that has to be serviced or to cover property taxes or other things? And it will vary a little bit based on the part of the world, but Broadly Thirty five to forty five percent occupancy is probably necessary to cover operating costs. It's Higher

in hotels where the service levels are higher because you've got that many more operating costs. But as I mentioned before, we've got about forty percent occupancy running today. So on average, we're getting close. Two. Break even before taxes and debt service. That still means many need incremental cash flow in order to service their debt. Yeah, and the new protocols

Cost more money for them to maintain Also are there things. you can do to help those individual or groups of hotels Financially get Through this, they may not be in the position to raise the kind of capital.

For liquidity that you guys can. Well, some of them are big institutional real estate owners and they've gone through very much a similar sort of process, which is sometimes borrowing more money in various countries around the world there's been government support. PPP, the paycheck protection program in the United States, has been tapped by many of our franchisees. Similarly, we provide services obviously to these hotels and we immediately put

seventy percent of our people on furlough when the crisis hit in March. So that we were reducing the costs that these hotels significantly pay for. Of course we were reducing our costs as well because of the pressure that was on Marriott International itself. And we have been bringing people back to full time work just in the last few weeks. But we are a smaller company than we were before. And the services we provide to the hotels are much more cost effective than they were before because they have to be in order to make sure these owners survive.

What's the hardest decisions you've had to make during this time? By far. The hardest decision is about our people. We estimated before the pandemic we had about seven hundred fifty thousand people that wore our name badge every day around the world. Seven hundred and fifty thousand people. It's a big community of folks.

At Mariette, we've been around for ninety three years. We have said for most of those ninety three years We can't serve our guests except through our people. And therefore our people have got to come first. We've got to connect with them. We've got to build careers for them. We've got to empower them. And to have the business disappear in a way that impacts Not just one, but Tens of thousands or hundreds of thousands of our people.

is a really sobering thing. Part of my role throughout this crisis has been to communicate with them. about what we're seeing, about what the consequences are to them and to us. And often that is not having the benefit of answers because we don't really know what the answers are. It's a new experience for all of us. All we can really do is be transparent with them and try and explain the decisions that we're making.

so that they understand what's behind the screen, if you will. And that's been extraordinarily difficult. This is the time of year usually when business travel really kicks into high gear and There's not a lot of that happening. Virtual meetings may change business travel

Permanently, do you have a theory about what that is gonna mean for The way your business looks down the road? Well, we will obviously not count on business returning until it does return. We'll build our business back as demand justifies. And as a consequence, we would expect that it's probably a good two, three, four years, maybe.

before hotels get back to the level of performance they had in twenty nineteen. Not all hotels are identical, obviously. Some will come back quicker than others, the more they're dependent on group or the more they're dependent on international travel. probably the slower they will be to come back. Having said that, I do think that we will see people get back on the road. And listening to

Not just business leaders, but my adult kids who are working remotely, their peers. friends, you know, talking to all the folks we zoom with or teams with or get on the telephone with. I think collectively we are itching to get back, at least Some measure of the way towards where we were before. Let me get back on the road a little bit. Let me get out of my house a little bit. Let me meet with some others a little bit.

Because there's no substitute for being together. And I think as we can do that safely. We'll step back and do most of what we did before. You've got some strong feelings I know about remote work versus face to face. I understand you got kind of worked up when Google announced that they'd allow remote work through twenty twenty one. Why do you feel so strongly about it? Well, for lots of reasons, I blogged about this advice that I often give to young people starting their careers, which

is summarized by just say yes. early in your careers, opportunities are gonna come from places you don't anticipate. And you may find somebody who suddenly says, You know what? Bob, I want you to run a huge radio program. And you may not have even thought about doing that before, but that person is giving you an opportunity that

could be very unique and the likelihood is the right answer is just say yes. Well, if you're not present to hear about that opportunity. That opportunity may never arise. It's gonna be particularly important early in your career at transition points in your career. It is similarly important when you're thinking about

Not just solving the task which is before you, which we can do remotely fairly easily. But trying to figure out what tasks are the most important for us to get at. What are the questions we have to answer? And the more that is the challenge, and it's gonna be the challenge regularly, the more important it is to be together. because it's only when we're together that we really do the most

collaborative and creative things. I think the third thing I'd put on the list is Our cities are under enormous pressure today. And they're under pressure because we've got small businesses all around the places where we go to work. And when we're not going to work. They don't have a reason for being.

Whether it's a Dry cleaners or a parking garage or a florist shop or a clothing store. They're closed. And they're not coming back until we step back out of our houses and go back And our economy won't come back the way it should unless those businesses are reopening again. So all of these things to me pile on together and say

We don't wanna be unwise. We don't wanna be taking risks that we shouldn't be taking. We should pay attention to what the risks of the virus are. But we can go back to the offices safely with reduced density, with social distancing, with mask wearing, and we can start to build our careers again and we can start to build the economy again. There are folks who have digital based businesses who feel like oh this is just an acceleration of a trend. In some ways, all those stores were gonna go away anyway, eventually, because you were gonna interact with everyone digitally. It sounds like you don't really By that argument. I think it would be a very sad world to live in that didn't have restaurants on the street for us to walk to or drive to or get together with our friends at.

I'm not for a second suggesting that. Digital transformation is gonna stop. It won't. It's gonna continue. And the tools that we're using now during the pandemic are very powerful tools that will continue to be used, but they should create incremental economic opportunities for us. Not just put a death knell in what we'd used to do in the past. When you build substantial wealth through your business, it's often tied up in a single equity position.

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Learn more at creative planning dot com slash masters of scale. Hey, listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show because every Friday we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topic are just as compelling and timely. From Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. Humans will never be more intelligent than AI. There's gbi two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future?

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There's been a lot of discussion this year About the propriety and at times the peril of political and social statements by businesses. What is the role, the responsibility of

A business of a CEO. In engaging in Social issues. Yeah, this is a place we could spend hours talking about because I think it's evolved dramatically in the last five years.

And I think the answers tend to be in shades of gray. It's not crystal clear what is always right or what is always wrong. I think one of the reasons it's evolved so much is that we collectively have less faith in our institutions than we did in the past. And as a consequence, we are looking towards more people to speak for us. I mentioned we thought we had seven hundred and fifty thousand people that wore our name badge every day before the pandemic.

They are our community and they are an extraordinarily diverse group of people from all around the world. All identities. Who have some cynicism and doubt about whether government speaks for them. but who want to be spoken for. They want to know that their voice is being heard. Increasingly, that community for Marriott and similar communities for other companies or for other institutions say, where's our voice in this? And we expect you to speak out when there's a killing of George Floyd.

We expect your voice to be heard when there is Something that is germane to our community. We want to know that we are there with a voice that is being articulated and representing us. I think there is an obligation to speak out. I don't think it's about every issue. I have spoken out, of course, in the context of the George Floyd killing and the racial inequities that we've been wrestling with again.

being reminded that we never stopped wrestling with in the way the events happen this summer. But there are other issues that I haven't spoken out about. I have personal views about choice issues as an example. I haven't spoken out about those because it's not particularly germane to Marriott's business. It is germane to many members of our community, but It is not

really relevant to the jobs that they have with us. And so there's some issues that I think it's fundamental to speak out on, and there's some that I think it is Probably not Germaine. Yeah. And sometimes there are business issues that become political even if you didn't Expect them to

We obviously welcome many, many, many people into our hotels all the time. They have very different political points of view, and many times they're meeting in our hotels. And so it is a very regular occurrence for us to hear from one side or the other saying, How on earth could you have let that group meet in your hotel? Mm and we're gonna boycott you unless you basically kick them out of the hotel.

Ultimately, our view there is we're not gonna sit in judgment on what group A or group B believes. Nobody I think really wants us to do that. Do people really want me individually as the CEO of Marriott to say that group's okay because I've approved their point of view and that group's not okay because I haven't? And the best decision we can make is Generally everybody's welcome to our hotels no matter what they think. And so

Just to push you a little bit more on this, if an anti-vaccine group wanted to have a meeting at your hotel, or a Holocaust denier group, are all those allowed too? We can go a long way here with an individual hypothetical. If it's illegal. Or if there's a safety risk because of violence. Those are two particular things that we're gonna be mindful of.

But if say President Trump and a delegation is staying in one of our hotels, or Vice President Biden and a bunch of his folks are staying in one of our hotels. Does anybody expect us to exclude them? Even though there are many who believe the other should definitely not be elected. Right.

How could you possibly support them? And I think the answer has got to be that we've got enough regard for a divergence of opinion that we cannot be afraid of those that have opinions that are different than ours. We cannot be afraid of them getting together with folks who are like-minded with them. And again, as long as it doesn't promote violence or safety issues or legality.

We're not gonna sit back and say, Okay, now you are just over the line here, and we're not gonna let you come in. You mentioned George Floyd's killing and I know you posted right after that that you wanted to use your perch at Marriott to advance opportunity for all. I just want to ask how that has manifested itself Since then. Mariette has for years worked on a diversity and inclusion agenda. Our board is more than half diverse if you include gender and race.

Our senior management ranks top seven or eight hundred people is roughly half diverse if you include gender and race. And those are good statistics, but I think what we were m reminded of This year is is it good enough? And the answer is no, it's not good enough. We've got to make sure we continue to move, but are we making sure that healthcare is

Available across the entire community. Are we making sure the effectiveness of that healthcare is comparable? Are we understanding the social and economic challenges that our folks are wrestling with? Are we using our procurement leverage to make sure that we are helping and inclusive world, then we've got to make sure that we are using our voice with other voices in the community. So with the business round table, I'm on their executive committee and chair their health care and equities task force, which was set up in the wake of George Floyd's killing, we're really looking at what are the things that we can do from a policy perspective. Because Mariette alone can't solve these or a single institution can't solve them, but if we band together, we can have a voice which is that much more audible.

And should be able to cause some change. It is an incredibly complicated and unsettling time between The political situation, the social situation, the health and the covet, and then the economic situation. There's a lot of challenges in managing all that.

When you're dealing with your team. How do you manage the practical versus this sort of psychological and emotional challenges that your team is struggling with. I don't know that I've got a real crisp answer to that. I mean uh communications and transparency both are To me, tools that we must use, and we must use them.

with all of our constituencies. To make sure that we are Explaining what we're doing, that we're listening to what their concerns are. That we are being transparent with the kinds of priorities that we're setting.

In order to not get too depressed and to be effective, we've gotta make sure we understand What we can influence and what we can't. That doesn't mean the things we can't influence we should not care about. And there'll be times when we can influence things in times when we can't. So my team at Mariette of a dozen or so, I'm talking to them individually every week, certainly, if not more frequently than that. We are focused on the things that we can

impact most frequently. Has your experience battling cancer Provided perspective. In this time or impatience. About the other things don't happen faster, a little of both.

That's a good question. Patience is not one of my virtues. At the same time, I think it's a lifelong lesson for me. to continue to delegate and rely on others. And I say lifelong. This is not about the last two years battling cancer and COVID nineteen. But it is about recognizing that

The bigger the institution, of course, the more fundamental this is. You can't touch everything. And the more you expect the opportunity to touch everything, the more the organization is gonna freeze up. And because you can't touch everything, you've got to Empower people to know that they've got the

right to make a decision, you've got to get comfortable with the fact that the decision might be wrong. And we're much better forgiving our own decisions if they're wrong. than forgiving somebody else's decision if they're wrong. But it's equally important that we allow those decisions to be made and we learn from them. I think if anything, the cancer battle in COVID nineteen has been a fresh reminder of the importance of that because There's so much that has to get done and

There is less time and maybe less stamina in order to do that. And so you got to rely on that team. You gotta rely on those folks who are willing to step up and say, I got this. We're gonna get this done. What's at stake in this moment? How do we come out of this with as much strength and momentum as we possibly can? Not just how do we survive, we're gonna survive. Human resiliency is such that we will survive as

people and overwhelmingly we even if we've lost our jobs or we're wrestling with health aspects of COVID 19, we will get through it and people have proven that. through history over and over again. But how do we collectively move so that The economy's as strong as it can be so that individuals they suffer no more than they need to. so that we can come out of this as individuals, as companies, as society, with as much momentum as we possibly can, so that we can be on the other side with employment, with the wherewithal to live our lives.

And not to sound too corny, but to be able to get back to a place where we can get joy in our lives and joy from each other because we're not worried about the most fundamental things. At least we're not worried about it. All day long, every day. And if we play our cards right, I think we can do that. With all the uncertainty and the challenges You still seem

Optimistic. I am optimistic. I am probably by personality, I suppose, in some respects, but I'm an avid reader of history and of fiction both. the history is obvious that you learn from the past. I think fiction is less obvious, but

We learn from the portrayals that authors give us of people. I think both of those things tell us that We've gotten through as a globe, as a country, as communities, we've gotten through enormously difficult times. And there's no reason we can't get through this one. Well, thank you. Thanks for making the time. We really really appreciate it.

Bob, this has been great. It's really been an enjoyable conversation and thank you for all that you're doing with Masters of Scale. Masters of Scale Rapid Response is a Wait What original. The show is recorded remotely, using sanitized audio gear. It's hosted by me, Bob Safian. Masters of Scales editor at large, and Masters of Scale host Reed Hoffman. Our executive producers are June Cohen and Darren Triff.

Our supervising producer is Jay Punjabi. Our producer is Jordan McCloud. Scripts by Christina Gonzalez. Original music and sound design by Ryan Holiday and Daniel Nissenbaum. Audio editing by Keith J. Nelson and Lina Sillicen.

Mixing and Mastering by Brian Pugh. Special thanks to Emily McManus. Sarah Sandman. Adam Heiner Kelsey Capitano.

Tim Cronin. Charlie Menessis. And Saida Sapia. Visit masters of scale dot com slash rapid response. To find the transcript for this episode.

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