While guests relax at their resorts, in-house lawyers at hospitality companies have been busy keeping up with the latest technology trends, compliance and regulations, all the while moving mergers and acquisitions forward. Corporate counsel at some of the top companies in the industry share trends they’ve been seeing, the work that keeps them busiest, and how external counsel can help.
Despite the image portrayed by the industry, legal teams at hospitality companies aren’t exactly relaxing by the pool these days. The past few years have been busy for the industry, with a number of transactions involving hotel companies and hotel brands – most notably from Chinese investors. And with the acquisition of these brands, legal teams are playing an important role as companies make the business transformation from being a traditional hotelier to being a full-service provider in the hospitality space.
Then, especially for those at companies with hotels and resorts scattered across the Asia-Pacific region, there remains the important task of keeping up to date with the continuously developing regulatory and compliance landscape of each jurisdiction, particularly in the beautiful – but developing – countries with less sophisticated legal framework and systems.
Technology, too, has been affecting the hospitality industry. Platforms and products are becoming increasingly digitised as customers expect everything from seamless online and mobile booking and payment systems to enhanced experiences through integrated and personalised digital interactions. For the legal team, this means ensuring agreements and contracts are up to date with the providers offering the latest technology.
In this first instalment of In-House Insights, corporate counsel discuss more about these developments and trends, what they look to their external counsel for, and the biggest opportunities and challenges they’re currently facing.
Rhonda Hare
General Counsel, Asia Pacific
AccorHotels
What trends are you seeing in the hospitality industry, and how is it affecting your team?
From my perspective there are three key trends in the hospitality industry:
(a) Consolidation – over the last few years, there have been a lot of transactions involving hotel companies and hotel brands – including AccorHotels’ acquisition of the Fairmont, Raffles and Swissotel brands in 2016. In the last 12 months, AccorHotels has, on average, announced a new acquisition every month.
We are currently transforming our business from being a traditional hotelier to being a full-service provider in the hospitality space, with acquisitions and investments in complementary businesses such as digital distribution, concierge services, catering, events and private rentals.
Consolidation means more legal work as we continue to grow the portfolio of brands, along with focusing on the market position and differentiation of an expanding brand portfolio. Notwithstanding consolidation in the industry, we are also seeing new brands emerging, which increase competition. This is especially true in the lifestyle and luxury sector.
(b) Technology – technology continues to have a huge impact on the hospitality industry, including through distribution platforms, online accommodation providers and mobile payment systems. AccorHotels is very focused on updating its IT infrastructure and digital platforms to keep ahead of the trends, and we have invested over 225 million euros ($277 million) to ensure we can keep pace. At the same time, we are increasingly working with digital disruptors and startups to create a more innovative and agile structure within the business. For the legal team, this means ensuring that our agreements reflect the new technology requirements and working with the business units on implementation.
(c) Compliance – the world is becoming more regulated and new legislative changes are impacting business globally. AccorHotels is focused on ensuring legislative compliance and making sure that appropriate policies and training are in place – including for anti-bribery and corruption, data protection, know-your-client and ethics. This is a strong focus for the legal team – both in ensuring that the legal documentation is compliant and that the business units have the necessary skills to ensure compliance and implementation.
What kind of legal work does your team do, and what does the team focus on?
The legal team works on a variety of legal matters – including:
(a) Hotel development – drafting and negotiating hotel management agreements and franchise agreements;
(b) Branded hotel/residential projects – drafting and negotiating associate agreements and working with the business units on the sales and marketing process;
(c) Operations – providing advice and assistance as required – including drafting and negotiating supplier agreements and operational support at regional and hotel level;
(d) Corporate secretarial – managing corporate secretarial compliance;
(e) Intellectual property – monitoring registration and use of AccorHotels’ intellectual property; and
(f) Compliance – implementing policies and training related to the various legal and corporate compliance policies.
The work is extremely variable – no two days are the same. AccorHotels is an exciting company to work for – focused on growth and expanding its business across the globe and in an industry which is currently growing at a faster pace than most sectors of the economy.
Who are your external counsel, and what kind of work do you use them for?
We do a lot of work in-house, but work with local counsel on large transactions, overflow development work and specific local law matters, including arbitration.
What are some of the biggest opportunities and challenges you’re currently facing?
It’s a really interesting time to be working in the hospitality industry – the industry is changing so fast and the documentation needs to be agile to keep up with these changes. It is a time of enormous opportunity within the industry, especially in the Asia-Pacific region, where growth is outpacing the rest of the world.
One of the bigger challenges is regulatory compliance – there is no one global rule of law – each country has its own legislation. As a global organisation, we need to ensure compliance in each of the 95 countries where we operate hotels.
It can be tough to keep ahead of these changes, but that’s why working closely across the global legal team is essential. The legal team works together on a global basis to share information and knowledge which allows us to keep across the regulatory landscape.
Lynette Lim
Senior Vice President & Assistant General Counsel, Asia Pacific
Hilton
What trends are you seeing in the hospitality industry, and how is it affecting your team?
The digital age has transformed guests’ expectations of brands and companies, whereby they seek integrated and personalised digital interactions throughout their travel experience. At Hilton, innovation is in our DNA. We leverage digital innovation and technology to enhance the guest experience and build our brand differentiation through industry-leading tools like digital check-in with room selection and Digital Key, which allows them to use their smartphones as their room key.
In addition, we’ve introduced the concept of the Connected Room, a mobile-centric smart room that allows guests to manage their stays from the palm of their hands, from controlling the temperature and lighting to the window coverings and TV entertainment preferences, and plan to scale this rapidly across our hotels.
As innovation progresses and changes very quickly, my team has to be very much aligned with our business units to ensure that we have advanced notice of our innovation plans. This will enable us to identify any issues early and also help navigate the necessary regulatory framework to ensure a successful implementation of our new products and services.
What kind of legal work does your team do, and what does the team focus on?
My team is made up of transaction lawyers and operational generalists. The transaction lawyers deal with management and franchise deals as well as real estate projects. The operational generalists handle the whole gamut of work (for example, vendor contracts, sales contracts, marketing promotions, employment matters, crisis and disputes) relating to hotel operations.
Who are your external counsel, and what kind of work do you use them for?
We have a global panel of law firms comprising a mixture of international firms and regional firms. We tend to use law firms for high risk and/or specialized legal advice, for example land title issues, litigation matters, privacy, antitrust and so on.
What are some of the biggest opportunities and challenges you’re currently facing?
We need to keep up with evolving laws and regulations in all the countries where we operate and that challenge is amplified in developing countries with less than sophisticated legal framework and system. We expect our panel firms to alert us whenever there is any legal or regulatory development that will have an impact on our business and operations. That’s also the reason why we prefer to converge our legal spend on a small panel of law firms who maintain a close working relationship with us and will, therefore, be very familiar with our business model.
In-house legal departments are increasingly expected to be operationally effective and do more with less. Modernizing the legal department using legal technology and innovation is becoming a pressing imperative. It requires a huge commitment, investment of resources, and change management – all while managing the high volume of day-to-day legal work. That’s akin to servicing a fighter craft while it is flying in mid-air.
Gordon Chan
Vice President of Legal & Corporate Affairs, Asia Pacific
Hyatt International
What trends are you seeing in the hospitality industry, and how is it affecting your team?
Catching up with various means of online platforms and products (like different online travel agents and sales platforms) as well as promotions on social media (Facebook and beyond). We need to be more equipped on the customer behaviour trends and IT-related contracts. For example, IT platforms common in China are very different from media channels in other Asian countries.
Right now, the sales methodology and a bulk part of the booking experiences are trending toward a seamless virtual experience. So from that aspect, there are a lot of contracts that we need to think from the cybersecurity side and IT-related platforms – it’s a different ball game. To adapt to this trend, we have a dedicated team of IT and IP lawyers supporting the company’s initiatives in innovation and technology. My team are generalists, so we work with lawyers with that kind of IT expertise.
What kind of legal work does your team do, and what does the team focus on?
We do all sorts of legal-related work and advice to support business units from hotel development to app formulation. We focus on the latest consumer trends as well as the China market.
What keeps us busiest is work related to new hotel developments – that’s our core job. Hotel development includes signing-up more hotel management contracts and penetration into other platforms where the company can expand distribution, such as franchise and portfolio venture arrangement.
A key factor about negotiating a good management agreement is that the legal advisor should not just view it as a one-off sale and purchase agreement and say goodbye after completion. For us, it is a long-term relationship, meaning we need to be the manager for that particular project for a sustainable period of time. So the moment that we sign a new hotel management contract, we anticipate what the hotel will be opened, say, three to five years time, and then there may be a period where there is not a lot of legal work in between while they do the actual construction and development. When pre-opening actually comes in, then it'll be another stream of work – about the operational set-up and other business-related work. So it is a lifespan of project that you actually look through, in contrast to shorter business goals in certain M&A deals.
Who are your external counsel, and what kind of work do you use them for?
We instruct various counsels like DLA Piper’s U.S. office for certain development and licensing work, selective Baker McKenzie Asia offices for corporate work in certain jurisdictions, Herbert Smith Freehills for disputes matters, Eversheds for employment matters, and Zhong Lun for PRC matters.
We prefer to do the negotiation in-house because we know the industry inside out. For example, we do the actual negotiation of the hotel management contract by ourselves – it’s quite time-consuming for an external party to do it because there's a lot of industry knowledge and internal coordination is required. But other than that, we seek external counsel for opinions on due diligence, compliance and dispute resolution matters.
What are some of the biggest opportunities and challenges you’re currently facing?
Biggest opportunities include development of talents and future leaders in a dynamic in-house legal team. There’s a lot of the industry focus on hotel development recently, especially in the last decade in China. The hospitality services industry indeed attracts quite a number of people, and thus, there are more opportunities to groom new-comers to the business.
However, for now in Asia, it is disproportionate as to the number of lawyers who can properly advise about the hospitality industry and related commercial contracts in Asia. A number of commercial lawyers have been focussed on IPOs and M&A work, and lacks exposure to long-term service agreements and application of fundamental contractual concepts. This could become a challenge. Hotel operators tend to control the contract negotiation process, so not a lot of external law firms will be able to get that industry knowledge, and the commercial factors required to formulate a practical whilst properly structured hotel management deal. In that sense, the pool of talent for recruitment is rather limited.
At Hyatt Hotels & Resorts, we are looking into growing and cultivate our talents by providing hospitality industry knowledge and the leadership training based on our company values. At times, we need to look beyond the immediate technical skill set of a candidate, and determine if he or she has the potential to grow with our company.
