Starwood CEO Abruptly Steps Down After Board Cites Lack of Confidence

Starwood Hotels & Resorts, the hotel chain known for its trendsetting industry moves, will now be forced to blaze a new trail at the top. Steve Heyer, the former Coca-Cola marketing whiz turned CEO of Starwood Hotels & Resorts, resigned his position in the company last week after two-and-a-half years due to clashes with Starwood's board over his managing style. Bruce Duncan, the 55-year-old chairman of Starwood, was named interim CEO while the company looks for a permanent replacement.  Barry Sternlicht

In an unusual move, Starwood openly disclosed the discontent its board felt toward Heyer. "While the board appreciates the good work Steve Heyer has done to position Starwood for the future, issues with regard to his management style have led us to lose confidence in his leadership," said chairman of the governance and nominating committees on Starwood's board, Stephen Quazzo, who also has the task of finding Heyer's replacement. One point of contention was Heyer's unwillingness to relocate to Starwood's headquarters in White Plains, NY, preferring to live and commute from his home in Atlanta.

Indisputably, Starwood flourished under Heyer's leadership. Last year alone, the company netted more than $1 billion in income, and industry analysts favored his strategy of divesting owned properties in favor of generating income from management fees, which Starwood says it won't change. Heyer also oversaw the launch of two new Starwood brands, aloft, a midprice offshoot of its W brand, and Element, an extended-stay concept born out of the Westin brand.

Steve Heyer

In a rather bizarre twist, the man who originally brought Heyer to Starwood left because of him. Former Starwood CEO Barry Sternlicht hired Heyer for his clever marketing and branding abilities, which he honed during stints with Coca-Cola and Turner Broadcasting. Quickly, though, their relationship soured as they haggled over the company's direction. Ultimately, it was Sternlicht who bitterly left the company in May 2005. However, Heyer's recent departure has sparked speculation that Sternlicht could come back to head the company he originally founded.


Ripe for a Takeover?

The company also announced that its chief marketing officer, Javier Benito, is leaving. Although this is unrelated to Heyer's departure, some suspect that this management shakeup makes the company ripe for a takeover.

"Change in leadership may serve as a catalyst for Starwood to explore the possibility of an outright sale," Citigroup analyst Joshua Attie said. "We have no specific knowledge of a transaction, but the environment seems right in which to sell the company."

Goldman Sachs analyst Steven Kent said that Starwood could be a target for a buyout by a private equity group, a pervasive hotel-industry trend made fashionable by the likes of the Blackstone Group, which has spent billions over the past three years on hotel acquisitions. However, acting CEO Duncan dispelled any such notion during an analyst call last Monday. "We do not expect any other management changes and there will be no strategic changes in the coming months, just sustained focus on implementing the successful plan we have in place," he said.

No Impact on Agents

Travel agents are quite comfortable that the shakeup at Starwood will have little consequence on their livelihoods.

"It won't make a difference," says Anne Morgan Scully, president of McCabe World Travel in McLean, VA. "The satisfaction for the guest is really at the hotel level and its general management. Starwood has had so many changes in the last year or two and I'd say the hotels have never been better. We don't like change, but it's the most consistent thing in our industry."

Peter Carideo, president of Chicago-based CRC Travel, agrees. "It really will have no effect on us at this level," he says. "I am always more affected by sales people and general managers leaving specific hotels or sales offices. Only if the direction of the company changes with the new CEO in such a way as to negate the value of travel agents, I really see no effect on us."