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Hyatt and Tsogo Sun: No leisure in the hotel industry

By William D Alessandro on December 08, 2014 at 3:33pm.

Context:
Sustainability reports from two top companies give a composite picture of the latest trends in the leisure and hospitality industry.  Hyatt Hotels Corp., the Chicago-based global enterprise, and Tsogo Sun, a leading gaming and hotel group mainly in southern Africa, are contrasting pairs, like sugar and spice. 
 
Although Hyatt has been publicly traded for five years, the company operates like the family business it mostly is.  The rich heirs of the founding Pritzker fortune own 56% of the shares — and nearly 75% of the voting power.  Thomas Pritzker is the executive chairman.  He is worth US$3.1 billion, according to Forbes.  He has contractual arrangements to choose to remain in charge or to execute a favourable exit.  (Incidentally, Tom’s cousin, also a billionaire, and former board member Penny is US Secretary of Commerce in the Obama administration.)

The key shareholder of Tsogo Sun, listed on the Johannesburg Stock Exchange, is Hosken Consolidated Investments (HCI), a black empowerment holding company.  HCI’s major shareholder is the Sactwu Investment Group, the vehicle for the South African Clothing and Textile Workers Union.  The big change is that after more than 40 years, brewer SABMiller divested its large stake in Tsogo Sun in July 2014.  

Content:
Reporting biennially, Hyatt is now publishing information containing standard disclosures required by the Global Reporting Initiative’s (GRI’s) latest G4 guidelines.  When an organization says its report contains standard disclosures, it has not fulfilled the requirements of either of two “in accordance” options. 

As GRI stipulates, Hyatt lists the G4 standard disclosures it reports along with the page where the information is found.  Let’s break this down. 

The GRI guideline presents 58 general standard disclosures.  Hyatt reports on 44 of them.  The company says 25% of the 44 are partially reported. Many of Hyatt’s full disclosures cover basic facts, such as the name of the organization, its location, and its brand names.  Conservatively estimated, 19 of the full disclosures are of this nature. 

The partially reported information includes these and other items like them: the processes for defining report content; membership in associations; approaches to stakeholder engagement; key topics and concerns that have been raised through stakeholder engagement; and processes for evaluation of the highest governance body’s performance with respect to governance of economic, environmental, and social topics. 

To sum up Hyatt reports fully on about 75% of the G4 standard disclosures.  It is fair to say that 31% of these are fully reported and/or go beyond the essentials available from any publicly traded company.

G4 also contains specific standard disclosures.  For example, one calls for the disclosure of the organisation’s management approach in each category of activity.  Hyatt reports that.  Below is the content score for the other categories of specific disclosures.  GRI’s total number of items in the category is listed first followed by the number Hyatt reports:

Economic aspects: 9/2
Environmental aspects: 34/16
Labour practices: 16/2
Human rights: 12/2
Society aspects: 11/1
Product responsibility: 9/1

So Hyatt’s 52-page report divulges information on just over 25% of the specific general standard disclosures in G4. 

Tsogo Sun publishes an annual integrated report. The information is in accordance with the framework developed by the independent International Integrated Reporting Council (IIRC).   The definition of an integrated report is “a concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term.”

The sustainability information in the report is “guided by” G3, the version that GRI will still recognise until the end of 2015.  The assertion means what it says and is synonymous with “informed by”.  Stated negatively, it means we don’t follow G3 closely enough to declare being “in accordance with” it.  

In Tsogo’s case, nothing is lost because of that.

Tsogo’s 101-page report strives to achieve the goals of the integrated framework reporting by: addressing the process used to determine materiality; describing the business model used to create value for key stakeholders; and evaluating the regulatory environment the company operates in.   An x-y graph depicts the company’s assessment of the magnitude of the impact and the likelihood of the occurrence of the top 10 key risks.  Each is specifically described side-by-side with potential impacts, the company’s responses, and strategic priorities.

The report contains a table explaining why and how Tsogo engages with each of six stakeholder groups.  It lists what their interests and concerns are, and page references to find the discussion of the relevant strategies elsewhere in the report.

As do all integrated reports, Tsogo’s includes summarised consolidated financial statements.

Tsogo’s CEO and the CFO each give a three-page review of the company’s performance.

Communication:
Hyatt’s report is easy on the eyes.  The spacing between lines (the leading) is wide and the graphics are clean.  The table of contents hot links to the subject matter; the same is true for the content index starting each section within the report.  

Hyatt has an inherent problem though.  The level of influence over individual hotels varies so much.  Hyatt provides brand standards, but operational and financial decisions are made by franchisees.

In general, the data in the report represents managed properties only.  It excludes non-management associates outside of the United States, Canada, and the Caribbean.  Even then, as the company points out: “… all of our hotels, even those we manage, have a high level of operational autonomy.” 

The report tries to keep things straight with footnotes where data limitations exist.  It proves to be a hard job.  Whether Hyatt’s fault or the readers’ deficiency, a degree of confusion prevails.  One should expect to get lost among all the different denominators and numerators.

Tsogo states point blank: “The matters included in our integrated annual report are principally aimed at providers of financial capital in order to support their financial capital allocation assessments.”  The company is quick to add: “The interests of the providers of financial capital are, however, aligned with other key stakeholders in that they also are focused on the creation of value in the long term.”

The singular focus lets readers follow along effortless as the report moves through matters of material interest, corporate strategies, and the forms of capital Tsogo uses to create value.  The style of Tsogo’s integrated report is decisive.  Here, for instance, is a typical paragraph:

"During the year ended 31 March 2014, the group’s combined social
investment in community development amounted to R54 million.  Of this, verified spend on [Broad-Based Black Economic Empowerment] BBBEE socio-economic development amounted to R51 million which is the equivalent of 2.6% of net profit after tax and represents 1.6% more than the [Department of Trade and Industry] target."

Hyatt takes a far more general approach to disclosure.  For instance, the company says progress to date on environmental concerns is not strong enough to meet 2015 targets (which are listed in a table).  The report says: “We were challenged by fluctuations in occupancy during the global financial crisis and the strong recovery that followed, both of which impacted our resource use.”  The company determines the best path forward: extend the timeframe of the goals to 2020.

Credibility:
Tsogo treats current and prospective investors to straightforward remarks and comprehensive explanations.  Tsogo never minces words as with this definition from the CEO:

“Sustainability, or more simply staying in business, is achieved through firstly, avoiding mistakes that can threaten the survival of the business and secondly, identifying external risks and developing mitigating strategies to minimise or eliminate their impact on the organisation.”

The company earns the lion’s share of money from slot machines and other games at casinos and properties — not from hotel rooms.  No way the company can duck the negative implications.  Nor do they try.  After a lengthy recital of the criticisms, the report concludes with the justification that “the issues such as problem gambling are well managed and substantially exceeded by the benefits…”.  Agree or not, the situation should be for all decide.

Assurance is from a combination of external and internal sources “which will become more formalised in line with future guidance from the IIRC”.  The report states that Tsogo’s board of directors reviewed the output and believe the information is a fair presentation of the integrated performance of the group.

Hyatt’s report is rife with bromides like this one: “Our hotels harness the expertise and enthusiasm of our colleagues in their daily jobs, as well as in our efforts to make a difference for our communities and our planet.  At
Hyatt, we understand the importance of enabling people to support causes that they care about.”

The financial information required by national law is audited for both reports.  Otherwise Hyatt does not assure the content in the report.  Greenhouse gas emissions were verified but only back in 2009. 

Hyatt’s report is plausible, just not complete or transparent enough to be credible.  It certainly doesn’t help for Hyatt to restrict discussions of labour practices.  The notorious and bitter battle over unionisation, which has been a defining characteristic of the Pritzker family’s management profile for decades, was settled in 2013 and is still ongoing at some franchised hotels. 

Recommendations:
1.  Hyatt should remove the varnish and make partial disclosures whole.

2.  Tsogo might want to widen the perspective of environmental affairs.

3.  Investors and other stakeholders are best served, regardless of the framework purportedly followed, when reports reflect sustainability strategies at the highest levels of management. 

William D’Alessandro is president of Victor House News Co., an independent agency reporting on law and the environment for trade publications and executive newsletters.  He also edits Crosslands Bulletin http://www.crosslandsbulletin.com covering strategic corporate environmental management and sustainability issues.