Wednesday, February 25, 2009

“Nobody Wants to Be Perceived as the Next A.I.G.”

UPDATE (Feb. 28, 2009): Click here for the latest perpetuation of the "AIG Effect."

As our last post revealed, the well-publicized actions of a minority of companies has sent shockwaves throughout the travel and meeting industry, potentially affecting millions of jobs. Rather than risk a public relations backlash, many companies are cutting back or eliminating their travel and meetings.

An article in the New York Times sums it up:

According to a survey released last month that was conducted by the industry trade group Meeting Professionals International and American Express, 7 percent of business meetings already scheduled for 2009 have been canceled. And attendance is expected to be down by about 5 percent at those meetings that are still being held, the survey found.

While anecdotal reports indicate that few industries have been spared, a large number of the canceled events appear to be in industries hit hardest by the recession: banking, mortgage lending, credit cards, housing construction and renovation.

Reasons behind the cancellations vary. In some cases, image — not wanting to appear to be spending lavishly in a recession — is the impetus.

“We’ve received notices of cancellation along with a check for the full amount,” said Steven Rudner, a hotel industry lawyer. “Nobody wants to be perceived as the next A.I.G.”

[…] One conference planner, who did not wish to be identified because of continuing hotel negotiations, canceled a two-day seminar a month before it was scheduled to take place when only 16 delegates had registered. The event had drawn an average of 125 people in years past. The organization refunded registration fees for the handful who had signed up, and offered a credit toward a future event to offset the expense of canceling their flights.

[…] Canceling an event is not cheap. Costs can run into six figures, starting with the hotel’s cancellation fees and including any planned entertainment and functions planned outside the hotel.

Holding a conference with a drastically reduced head count is not much better, though. Typical contracts include clauses that require the host to compensate the hotel for the difference between the number of guest rooms held for the group and those actually filled.

As a rule, hotels would rather have fewer guests than receive a cancellation check, because conferences usually generate revenue from purchases like minibar snacks or fitness center passes.

Obviously, the lavish spending of AIG executives and other PR missteps such as the Big Three Automaker private plane debacle has the public angry and companies gun-shy about meeting and incentive travel.

Kansas City special event professionals Bill Svoboda and John Short believe that trend will exacerbate the problem. They own EventPros, Inc., a leading special event and communications firm in Kansas City and have more than fifty years of special event experience between them.

“Unfortunately right now everyone has the perception that all conferences are lavish junkets,” said Short. “That perception factor leads to the bottom dropping out of the industry.”

“The business community as a whole has been at one big party the past decade,” Svoboda said. “Well, the party’s over and we have one huge hangover.”

Svoboda believes that events and conferences became more lavish partially because employers wanted to reward performance and felt a need to “top themselves” each succeeding year.

“You want to reward performance, it builds every year,” he said. “But you often have poor communications in a company—departments have different perceptions of what is appropriate, and that can get out of hand quickly.”

“And then because of the public’s perception, all the meetings go away,” Short added. “Unfortunately the spotlight goes on the people who misbehave or are insensitive to the current economic situation and in the mind of the public that perception becomes the reality.”

Short believes the Keep America Meeting strategy of educating the public about the real need for business travel and meetings—as well as the jobs lost when travel and meetings are cut—is the best way to calm the public fervor fueled by sensational news reports.

Svoboda agrees that there is a perception problem, and that companies should employ a third party to review their public activities.

“When you’re not doing business as usual as we are now its important to have a third party take a snapshot (of what you’re doing) to keep you out of hot water,” Svoboda said. “This would have made a huge difference in AIG and the Big Three.”

“It’s too bad this (AIG Effect) occurred, because many of these events and conferences are part of incentives for the ‘little guys’ who make their goals,” Svoboda said. “Not only do they suffer for the actions of a very few, but industry employees also are at risk of losing their jobs.”

“It’s overcompensation,” he said. “The pendulum is swinging too far in the opposite direction.”

“You see news reports that show events being held in Las Vegas, for example, as if that were bad. Las Vegas is a top meeting and convention location,” Svoboda said. “You can do a conference in Vegas inexpensively. Flights are cheaper, there’s lots of reasonably-priced meeting space. But because it’s Vegas, people freak out.”

Dollars and Cents

Besides the “AIG Effect,” there’s also the matter of dollars and cents.

In an announcement on, it was announced that the “high-profile launch of Reed Travel Exhibitions’ first U.S. conference—the Americas Incentive Business Travel & Meetings Exhibition—will be delayed at least a year.”

According to RTE Meetings and Incentive Events Group Exhibition Director Paul Kennedy, the “global economy is the reason for the cancellation of the Baltimore event, which expected to attract more than 400 VIP buyers and 250 exhibitors.”
“We have decided to delay the launch until 2011 or 2012 because of the macroeconomic climate," Kennedy told the Australian meetings magazine Conference & Incentive Travel. "We look forward to staging this event in Baltimore, but later. I am very sure about the health of the meetings industry, and I am very sure about the health of our portfolio, but this would be a bad time for such a major investment."

Frequent business traveler and trade show exhibitor Brian H., a manufacturing marketing executive in the Midwest, said he has seen changes in business travel and conferences recently.

“I spend at least twenty-five percent of my time on the road,” he said. “I see trends where sales conferences and training have been canceled in favor of webinars, conference calls or incorporation of training into downtime during trade shows.”

Looking Ahead and Staying in the Game

Pros like Svoboda and Short believe that now is the time for companies to step up to the plate with reasonable, well-considered meetings and events. In fact, they believe that companies that do not continue to expand revenue streams and invest in employee growth and training will suffer.

“Long-term, this situation will weed out weak businesses,” Svoboda said. “And someone will need to fill that void. A long-term growth strategy is key. The American economy thrives on growth, and companies that cut back completely are ultimately self-defeating.”

Both are optimistic that companies that focus on their current clients—finding ways to help them through the tough economic situation—will prevail.

“You have to help your clients stay in the game,” Short said. “If you do that, you will be rewarded when times get better. That’s why we will continue to work with our standing clients, even with reduced budgets.”

Echoing that perspective, marketing executive Brian H. says now is the time for companies to be planning for the recovery.

“Smart companies are going to be thinking far enough ahead to position themselves to grow when things improve. The ones who are retracting will suffer—they won’t be ready to run when the economy recovers.”

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