These are trying times for the hospitality industry and Marriott International is no exception. Last month chairman and chief executive Bill Marriott said that the company was facing the “worst economy in a decade”, offering an insight into how seriously the sector may ultimately be damaged by the 11 September attacks.
Marriott’s massive hotel business, which operates some 2,300 properties, has been hit hardest by the ensuing travel crisis. Its smaller timeshare division – Marriott Vacation Club International (MVCI) – is less exposed, but has been acknowledged by Marriott as a vulnerable area. Indeed, much of its success has been down to its approach of making the two business areas highly complementary. “In the travel industry right now, everything’s in flux,” says MVCI London-based senior counsel for Europe and the Middle East Jonathan Cole.
Even before the attacks, the sector was struggling under the impact of a downturn in the US. In the spring, Marriott’s divisions were told to cut legal costs by 10 per cent. MVCI was not immune, and lost one senior attorney in Orlando. Since 11 September, a further 20 per cent cut in overheads has been called for. But MVCI executives are demanding a continuance of their existing level of legal support and this latest proposal has led to a split between the running of the Marriott International legal department on the one hand and the MVCI legal function on the other. Cole’s superior at MVCI’s Orlando base will now report to the president of MVCI rather than directly to Marriott International’s headquarters in Bethesda, Maryland. Attorney recruitment for MVCI will now be dealt with from Orlando.
“The hotel side has experienced immediate financial weakness, whereas the ultimate effects on the timeshare division remain to be seen,” says Cole. The organisational structure of the internal legal department is being realigned to reflect this.
For Cole’s team in London, the current climate means more
pressure than ever before to keep legal costs down. “There have been a variety of cost-containment measures put into place at Marriott, involving dismissals and compensation rearrangements. We haven’t been subjected to that in MVCI and London hasn’t been subjected to that,” says Cole.
“If an attorney did a fabulous job but then there’s something with a bit of fat, in the past I would have let that slip”
Jonathan Cole, MVCI
Instead, he is having to manage external counsel more aggressively. He is now more likely to ask for bills to be marked down if there are areas where he thinks the charges are not fair or if the work has not added significant value to the business. “There has to be some formula in billing which takes into account the value added by the attorney’s work. If no value is added, the firm has to at least consider writing some time off,” explains Cole. This would be his normal practice even in a good economy, but he is now looking even more closely.
“It’s a question of degrees,” he says. “If an attorney did an absolutely fabulous job on something, creating huge value, but then there’s something else with a bit of fat, maybe in the past I would have let that slip. But now each part of the bill will have to stand on its own.”
Cole, who is New York-qualified, heads a team of two other lawyers, a paralegal and a legal secretary in London. He joined Marriott in 1994 from Spanish firm Bufete Mullerat to help expand the business into Europe. He launched MVCI’s UK legal department two years later.
Cole focuses on new project acquisition and development work and was closely involved in the company’s debut European resort, which opened in August 1997 in Marbella. It was followed by Club Son Antem in Mallorca in 1999. The Marbella resort will be sold next year and MVCI has already announced plans to open a sequel resort in the area in 2003.
MVCI’s main adviser in Spain is Bufete Mullerat, but the bulk of the acquisition and development work is kept in-house. Cole explains: “In the development area, we don’t tend to use outside counsel. Marriott’s general counsel Joe Ryan has always said that he likes to keep the most challenging and value-adding work in-house. That’s very much our philosophy. We know the business best and have the strongest relationship with our clients [within Marriott]. We use outside counsel for things we can’t reach, such as dealing with the Egyptian authorities in Arabic on regulatory issues.”
Cole himself worked as an attorney at Bufete Mullerat in the early 1990s and maintained a relationship with the firm after joining MCVI. Last year he recruited former Bufete Mullerat partner Juan Albos to his in-house team. Albos had managed the timeshare work at the firm. “I’ve worked in Spain myself, but having someone with the level of seniority that comes from being a partner in a prestigious Spanish firm is extremely valuable,” says Cole. “He’s very much a peer to me. He can go off and do the transactions.”
Cole’s third team member is former Edge Ellison lawyer Felix Martin. He handles startup issues relating to sales sites, regulatory compliance issues for existing resorts, consumer finance and general corporate support such as employment matters and data protection.
This core group forms the fourth arm of the MVCI in-house team, which is based predominantly in Orlando. The US-based practice areas cover vacation club development, sales and marketing support and resort operations support.
Cole’s team also handles a huge amount of work in the Middle East, related predominantly to its sales and marketing offices and to its Egyptian resort. US firm Bryan Cave, which has a strong presence in the Middle East, acts as MVCI’s main external adviser for this work. “Everything tends to be not only complicated, but also sensitive in the Middle East,” says Cole.
He recently worked with Bryan Cave on an acrimonious dispute with an agent in Dubai, MVCI’s main market in the Middle East. The dispute went to arbitration and was settled.
Now that MVCI has tested out markets in the Middle East, it has changed its approach away from using local agents. “What we’ve ended up doing is setting up our own branches in Lebanon, Dubai and Sharjah and we’re finalising the establishment of an office in Egypt. If it’s going to invest millions of dollars, the company wants greater control of the business than an agency arrangement will allow,” he says.
Other firms on Cole’s list include Lovells’ Paris office, which is used for specialist securitisation work relating to customer finance. A number of sole practitioners are also used by the company in Europe.
In London, Paisner & Co (now Berwin Leighton Paisner) worked on the setting up of MVCI’s initial structure in the UK. UK-based work subsequently tailed off, leaving only matters such as employment issues and data protection, as MVCI’s legal needs shifted to Europe and the Middle East. But MVCI is now working on its first UK project, involving a complex acquisition. Gibson Dunn & Crutcher is working on the corporate and property aspects of the deal, while Macfarlanes is advising on tax planning.
If the project proceeds, Cole would have several options with respect to legal support, including returning to Berwin Leighton Paisner. “We’ve liked what we’ve seen from the merger of Paisner & Co and Berwin Leighton,” says Cole. “I think they’ll only get stronger from it, and in the event that our UK workload does increase, we’d be looking seriously at moving some more work back to them.”
Cole’s other main area of responsibility is working with timeshare industry group the Organisation for Timeshare in Europe. This week he will appear before the legal affairs committee of the European Parliament to discuss the future regulation of timeshares in Europe.
“Marriott supports that work because the timeshare directive enacted in 1994 had some quite restrictive provisions,” says Cole. “There was a perception that the industry had no voice to get across its point of view and the directive has been implemented in a very uneven way across different member states.
“We’re convinced that this is just the beginning of a decade of timeshare regulation on a European level. It’s important that we contribute to that. If legislation is too restrictive for us to be profitable, it will present a big problem for us.”
Senior counsel for Europe and the Middle East
Marriott Vacation Club International
|Organisation||Marriott Vacation Club International|
|Sector||Leisure and hospitality|
|Legal capability||Three lawyers, one paralegal, one legal secretary in London and a 60-strong legal department in the US|
|Senior counsel for Europe and the Middle East||Jonathon Cole|
|Reporting to||Senior vice-president and associate general counsel Joseph Scalo|
|Main law firms||Berwin Leighton Paisner, Bryan Cave, Bufete Mullerat (Spain), Gibson Dunn & Crutcher, Lovells (Paris), Macfarlanes|