For hotels, improving workplace diversity means breaking old habits

Photo Credit: StayMogul

Alexander Mirza is the founder and CEO of Mogul

As a double immigrant raised in Toronto, having spent a decade in New York and eventually starting a lifestyle hotel brand in Shanghai, I enjoyed the benefit of living in and working among the most diverse and multicultural places on Earth. I have also worked for diversity award-winning corporations such as Deloitte, Accenture and Hilton, to name a few.

Research confirms that discrimination is best understood not by classroom lectures or corporate training but by experiencing it firsthand. In 2007, when I was senor vice president of corporate development at Hilton, I was presenting to the board of directors at a Waldorf Astoria resort in Phoenix. After a very thorough question-and-answer period that followed my presentation, I undid my tie and walked to the valet to retrieve my rental car. The valet crew was out retrieving vehicles so I waited politely alongside a few other hotel guests at this iconic resort. In a span of a few minutes, not one but three white men handed me the car keys to their vintage sports cars, mistaking me for the valet. I passed the keys over to the actual valet who quipped, “This is one of the few places where they trust Brown people.” It turns out all three were CEOs of real estate and finance companies and were frequent guests at the resort. While the implicit bias of this experience was demoralizing, it pales in comparison to the explicit barriers that women and ethnic minorities face in reaching the senior ranks of the hospitality industry.

Given the lack of diversity at the top of hotel companies, it is even more important for executives to get off the beaten path.

When I became CEO of Cachet Hotels in Shanghai in 2012, I championed increasing diversity and made it one of my top three objectives as CEO. In many Asian markets, hotel owners strongly associate prestigious international hotel brands with the tall, handsome European men who usually manage them. Despite this association, in 2012, Cachet Hotels set a bold goal of 50% female and minority general managers at our hotels and restaurants. At the time, women comprised 70% of the hotel workforce in China but only 5% of full-service hotel general managers.

Cachet Hotels’ diversity initiative grew from a top-down purpose that I articulated at our first Chinese press conference in Shanghai to being a widely adopted practice that was embraced by hotel operators whose entire work experience was working for European men in mainland China. Five years later, we met our objective across our entire portfolio of hotels and restaurants in China, the rest of Asia and the Americas. We were also pleased that a few years later, in 2015, Accor announced a goal of 35% women hotel general managers in the Asia-Pacific region.

I returned to the States a few years ago and partnered with hotel industry veterans, data scientists and technologists to build MogulRecruiter, an elite talent marketplace whose mission is to perfect meritocracy and accelerate diversity. According to our research at MogulRecruiter, women and minorities comprise 60% and 40% of the U.S. hotel frontline, which comprises positions such as concierge, guest relations manager, front desk manager and housekeepers. However, only 20% of U.S. hotel general managers are women and 10% minorities. Blacks represent 15% of the frontline but only 1% of hotel general managers. It took us a few years to analyze the data, but we have developed algorithms to rank diverse pools of talent and predict their worth and annual compensation. Today, our talent database has over 500,000 elite hospitality leaders in supervisor roles and above featuring over 50% women and 33% who identify as minorities. However, our work is just getting started.

Through these leadership experiences and “swimming in the data,” I learned a thing or two about sourcing and developing diverse talent in the hospitality industry. Today, the hotel industry’s consolidation has made the executive ranks a small world. Many of my former corporate colleagues, owners and business partners are now CEOs of major hotel brands and real estate groups. Most are quite sophisticated, care deeply about building winning cultures and have established clear metrics that define winning in real estate, property operations and online distribution. But prior to 2020, few have set diversity as one of their top management priorities. Many have remained silent despite their good intentions and continue to invest large sums of money marketing their brands as champions of diversity on social media platforms.

The hotel industry remains extremely conservative, with few outsider CEOs. Being in the same industry and company for a long period of time can ingrain even the most exceptional business leaders with orthodoxies or deeply held beliefs about “how we do business in this industry.” These widely adopted orthodoxies are perpetuated by the investment community, media, academics, industry associations and universities. Not all orthodoxies are toxic, but the ones that create massive blind spots will ultimately become driving lanes for disruption.

Hotel CEOs can start by identifying the toxic orthodoxies that must be challenged to accelerate diversity and then brainstorm what opportunities could be made possible if they are overturned. To start the process, the following are five industry orthodoxies regarding diversity in the hotel industry:

“The focus of a CEO’s diversity agenda should be the board and human resources leader, including a strong diversity department in the corporate office.”

To overturn this orthodoxy, start with the hotel properties.

Jim Reynolds, the African American chairman and CEO of Chicago-based Loop Capital, recently said in a CNBC interview: “I have not ever been able, and I’m trying, to find a correlation between Blacks on the board of directors and a company doing more for Blacks and African Americans. I haven’t seen it.”

Adding a few diverse members to your board of directors and building a diversity department in human resources is important, but it is table stakes — the cost of entry. Moreover, hotel companies have been doing this for decades with little if any meaningful progress.

For hotel CEOs, the leadership challenge is achieving diversity at the property-managerial levels, where an array of owners, lenders, third-party management companies, unions and other stakeholders can intentionally or unintentionally block progress. To accelerate progress, CEOs must focus more time on implementing change in the properties, starting with those they manage and with real estate owners and third-party operators who get it.

“Diversity data on employees and the talent pipeline is best kept confidential, both internally and externally.”

To overturn this orthodoxy, collect and share employee-volunteered data with all levels of the entire organization and franchised properties. Then make it public before the governments and regulators require us to do so.

The NAACP already publishes an annual report where it grades hotel operators and their franchisees on minority representation of skilled versus unskilled labor, property management and corporate ranks. In 2019, the NAACP declared that “little progress has been made since the organization’s 2005 evaluation” and gave Hilton, Hyatt and Wyndham each a C and Marriott a B. For top management representation, the range of grades was from C (best score) to many F’s. How does this square with the same brands winning diversity awards from major publications?

The issue is data transparency. While I applaud the NAACP, their grades are based on EEOC data and surveys with grades based on results against their own targets. Meanwhile, hotel industry leaders have not been forthcoming in sharing data. This is the same approach they used to protect customer reviews while TripAdvisor and other online travel agencies established the high ground with consumers, adding travelers’ photos and property-ranking algorithms. To this day, Marriott is the only hotel brand that shows customer reviews on its own website.

Hotel CEOs manage a complex ecosystem of stakeholders and recognize that the first step in leading any change process is to collect and disseminate data widely. Data also helps stimulate debate and new ideas and may even create entire markets for innovation. It is also in the shareholders’ best interest for hotel CEOs to take the lead rather than hide behind legal excuses and wait for regulators and politicians to legislate requirements that may serve their parochial political interests.

Regular reports on diversity gaps should be as important as customer reviews. Diversity should be an integral part of a talent pipeline, integrated into dashboards and pushed all the way down to hotel management teams.

“Our labor costs are already too high, and diversity will only increase our recruiting, training and legal costs.”

To overturn this orthodoxy, use zero-based budgeting and reset the entire recruiting and HR model to reduce expenses.

Labor-related costs are over 50% of the cost structure of full-service hotels and have been increasing at 5% to 10% per annum, outpacing revenues since 2000. However, do not forget that the U.S. hotel industry generates profit margins of 25% to 50% and just came off a decadelong streak with record profits of $70 billion to $80 billion annually. Unlike airlines such as Southwest and Delta and other lower-margin service industries, no publicly traded hotel management company has ever implemented an employee stock ownership plan. To my knowledge, no private equity firm has implemented a promote structure that gives hotel executive teams compensation for increasing real estate value.

Still, contrary to conventional wisdom, accelerating diversity does not require spending more money or increasing a hotel’s fixed cost structure. What it does require is cost innovation that results from restructuring the talent-acquisition process. The outcome of a new process should be spending less money on the internal resources, vendors and search firms that are recycling the same candidates, sell data as their business model and increase employee turnover, which remains at 40% to 75%.

We know that talent attracts talent. Diversity also attracts diversity. The marginal costs of building a diverse workforce should drop considerably if the diversity at managerial levels are addressed up front.

“The best way to reduce turnover and ensure fit is to use assessments and personality tests.”

To overturn this orthodoxy, stop using assessments and personality tests.

Hotels should take a cue from colleges and universities and decrease their reliance on standardized testing. In 2020, UCLA eliminated the standardized testing requirement in their application and saw a 28% increase in applications for freshman seats compared with the previous year. The campus also saw a historic increase in Black applicants, rising 48% over last year, and significant gains across all other racial and ethnic groups: 33% for Latinos, 35% for whites, 22% for Asian Americans, 34% for Pacific Islanders and 16% for American Indians. UCLA campus officials also credited their long years of active recruitment in underserved areas and community partnerships.

The lesson is clear: Even if standardized tests are not inherently racially biased, they stand in the way of attracting diverse talent. To be fair, test creators have never claimed to measure drive, resilience or human potential. At most, assessments should be reserved for highly technical roles or to take the risk out of hiring candidates from another industry.

Also, while we all look for that hospitality gene to make a hiring decision, there is no correlation between a personality type and elite talent even at the frontline. Personality tests that can easily be used to wrongly label people and homogenize workplace cultures should be dropped altogether.

“There’s already enough diversity in our industry. Let’s just steal talent from our direct competitors.”

To overturn this orthodoxy, spend time scouting talent in other service industries and testing new platforms.

Conventional wisdom says that with at least 4 million women and minorities working in U.S. hotels prior to Covid-19, there is enough supply of supervisor-ready talent to source or promote from within the industry to make progress against stated diversity objectives.

However, our analysis suggests otherwise: the quality and depth of the diverse talent pool is a significant problem. For example, at the hotel general manager and director levels, including rooms and food and beverage (the two functions that manage the most people and budgets), diversity drops by two-thirds compared with the frontline. According to our algorithm that uses customer reviews, brand scores and market difficulty to rank the elite talent pool, only 15% of this smaller, diverse talent pool are ready to be promoted to these senior property-level positions.

In total, we estimate 2,000 to 3,000 minority candidates are ready for promotion from within the hotel industry versus the 10,000 required to fulfill the diversity objectives set by the hotel brands. This does not even factor in the talent needed for the record number of hotels in the pipeline, which remains largely intact.

Accelerating diversity requires more than increasing pay or incremental innovation. It requires experimentation to identify up-and-coming diverse talent in hotels as well as adjacent industries, schools and communities. Above all, breakthroughs will require new scouting systems and new listening posts. CEOs should make it a higher priority to establish their employer brand where more diverse service leaders can be found. For example, the proportion of Black, midlevel managers in retail is 9% compared with 1.6% in U.S. hotels. This is just one example of a more managerially diverse industry that could be tapped by hoteliers to build a more diverse talent pipeline.

The U.S. hotel industry, one of the greatest human meritocracies on Earth, is poised for a remarkable comeback, but there is much work to be done. In the short term, 5% to10% of the pre-Covid talent has turned to the gig economy and other industries. A new talent pool must be discovered and accelerated. The industry’s ability to improve service and meet its diversity goals will determine the pace of recovery. Significant innovation in all dimensions of human capital will be required to fend off substitutes like Airbnb and more alternative employers, such as Amazon and food delivery apps. Hotel CEOs should begin by developing strategies to overturn orthodoxies and allocate more resources to those courageous enough to do so.

Alexander Mirza is the founder and CEO of Mogul, with a mission to address talent in the hospitality industry through data science and artificial intelligence. He has over 25 years of experience in management consulting and hospitality as a senior executive.

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