Meetings

What Is The Value Of Meetings? Industry Justifying Benefits

By Mary Ann Mcnulty / April 05, 2009

Federal, corporate and public scrutiny of meetings, events and incentives has now reached unprecedented levels. Fueled by new regulations and a bill that proposes to ban events for firms that accepted federal funding under the Troubled Asset Relief Program, companies are faced with justifying the purpose and return on investment of meetings, events and incentives.

The travel industry in recent months mobilized to join the fray with a public relations campaign (called Meetings Mean Business), lobbying and the introduction of a model board policy on meetings and events ( see below) that it asked the U.S. Department of Treasury to consider as it defines "excessive or luxury expenditures." The American Recovery and Reinvestment Act of 2009 signed into law last month tasked Treasury with defining provisions that require boards of TARP recipients (numbering 470 at presstime) to have "a companywide policy regarding excessive or luxury expenditures, as identified by the secretary," to include entertainment or events and aviation or transportation services. Treasury didn't respond to requests for a timeline for the definitions, and as of March 9 hadn't published any in the Federal Register.

News reports of meeting excesses, about "junkets" and "boondoggles," combined with political rhetoric and outrage put the travel and meetings industries on the defensive and then the offensive as they justify the value of meetings, events and incentives. The public relations response also is designed to curb cancellations that the U.S. Travel Association and partner organizations contend have expanded beyond TARP recipients at significant cost to hospitality suppliers and industry jobs.

Maritz Travel president and CEO Christine Duffy helped spearhead the campaign, which is designed to educate politicians and the public about the value of meetings to business sales, strategies and objectives; the economic impact of meetings to local communities and local, state and federal taxes; and the impact to jobs. "I don't believe people in Washington have connected the dots that jumping on this bandwagon and saying people should not move forward with meetings actually puts more people out of work," Duffy said.

[PULL_1]As a "direct result of the public backlash," 21 percent of 135 respondents to a Meetings & Conventionsmagazine survey in mid-February said they had canceled meetings. Nine percent said they worked for or with companies that received federal bailout money. More than half of those surveyed said the "mass-media backlash against meetings" was at least moderately influential in company decision-making. More than one-third said their companies were avoiding luxury or upscale hotels.

High-profile cancellations have included Primerica Financial Services' 55,000 delegate event in Atlanta in June, a State Farm Insurance agent convention set to bring 17,000 people to Las Vegas in October and more than 160 AIG conferences and events that reportedly were to cost $8 million, but were axed as part of AIG's agreement with New York's attorney general. Wells Fargo CEO John Stumpf took out full-page ads in major newspapers to report that he reluctantly canceled employee recognition events for the rest of the year. "Who loses beside our team members? The workers who depend on our business," the ad stated. One of its canceled meetings was in Las Vegas, where more than 30,000 hotel room nights booked for meetings and conventions have been canceled at a loss of more than $20 million to its economy this year, according to city officials.

USTA at presstime was unable to quantify the loss of meetings, revenue and jobs due to the backlash, versus those canceled because of the economy or other factors. Most major hotel chains in early March agreed to provide USTA with a list of all cancellations so the association could start to answer such questions. The association estimates that meetings, events and incentives are responsible for $101 billion in spending in the United States, $16 billion in federal, state and local taxes and 1 million jobs. Meetings are responsible for nearly 15 percent of the $737 billion in total travel spending in the United States. Business travel contributes $240 billion in spending, $39 billion in taxes and 2.4 million jobs, USTA stated.

Harder to pinpoint is the return on investment of various meeting and event types. The incentive segment can point to numerous examples and case studies of the ROI and economic impact of many of its programs. But that is mainly due to the fact that most dealer or distributor incentive programs are designed to fund the rewards from the increased sales generated.

In EventView--an annual global survey commissioned by event marketing firm George P. Johnson, Meeting Professionals International Foundation and the Event Marketing Institute--sponsors noted that about 300 senior-level marketing respondents in North America during the past five years have consistently ranked events as the marketing type that delivers the greatest ROI over print advertising, public relations and direct mail--and five times more than broadcast advertising. More than 80 percent of North American respondents said events deliver ROI because of in-person contacts. More than half also cited events as the marketing type that best allowed marketers to accelerate and deepen relationships. As to why they measure, 43 percent said to justify the expenditure.

While many respondents expressed interest in measuring events, the budget allocation for such metrics was at an all-time low of less than 5 percent of the overall event marketing budget, down from 17 percent in 2007, said GPJ senior vice president of strategic marketing worldwide David Rich.

The problem, according to Maritz Travel vice president of marketing Chris Gaia, is that corporations are curtailing meeting budgets, not adding to them for such measurements. Maritz introduced a process for clients to measure such returns three years ago, but found that some clients can't get the additional costs approved in budgets.

Beyond perceptions of the value of events, the industry also is hard-pressed to quantify the value of meetings to corporate objectives. While they embarked on the 12- to 18-month study to gather such facts, eight industry associations led by USTA released a proposed code of conduct for companies using taxpayer dollars that all companies can consider adopting.

Maritz's Duffy said corporations should carefully consider the model regulations and perhaps adjust some of them based on their industry, size or event spending. "Given the economic situation, having nothing to do with TARP, some large corporation may say, 'We should practice this, too.' If they do that, some of these metrics should be reviewed."

Rich said that "there's a groundswell forming for corporations to consolidate or share their demand generation, return on investment or business value statistics from their events marketing programs [to] benchmark."

As an example, he added, "In one division of a well-known Fortune500 company, we helped them increase their return on investment ratio from $1:$8 to $1:$86 in a three-year period." For every dollar invested in events, the company had grown returns more than tenfold by "reshaping their event marketing."

It is metrics such as these that the industry seeks to quantify in the study, expected to cost about $1 million. As of February, Duffy said, the eight groups had raised about 60 percent of the funds necessary.

Two components of the model standards have drawn the most debate, according to Duffy and Rich: items three and four, which stipulate the percentage of sales and marketing budgets corporations should allocate to meetings, as well as the threshold of spending on incentive trips.

The EventView study consistently has found that corporations spend between 20 percent and 26 percent of marketing budgets on events. "I don't know what happens to the math when you add the average sales budget," Rich said. The model board policy limits meetings and event spend to 15 percent of the company's total sales and marketing spend.

"What's interesting to me about the dialogue going on now about TARP is that [regulators] are not making recommendations about how much should be spent on PR, direct marketing, interactive marketing or broadcast marketing," Rich added. "I'm not arguing that they should; they shouldn't. But each business should decide for itself what is the best way to spend money to drive sales in the nearest possible term to stimulate the economy."

Rich called such limitations a "dangerous recommendation. Meeting people face to face should be seen in this economy as a powerful competitive weapon. Why we would want the government to get into the business of legislating business strategy for major corporations is beyond my understanding."

However, Maritz Travel and others viewed congressional sentiment and the Treasury guidelines "as an opportunity to help elevate the collective performance of the industry. The challenge with the regulatory guidelines issued by Treasury is that they are incredibly vague," Gaia said. "What the people in this industry know and understand intrinsically is that these things do create significant value for organizations. We do have a pretty good view of what constitutes best practice, so let's offer some view of what that would look like."

Federal scrutiny of meetings, Gaia said, has altered corporate perspectives. "The change we really see in the current environment is the fact that organizations should no longer rely on broad studies, but really need to put in place in their organizations a much more vigorous process and review on how these programs create value for them. That is the big change," he said.

During an MPI meeting last month, former convention bureau exec and hotelier Mike Gamble, now president and CEO of executive recruiter SearchWide, noted that the issue is an "opportunity for the industry and every professional" to engage in dialogue with the C-suite. "Whether a company is receiving stimulus money or not, all meetings will be scrutinized by senior executives and boards for many months and years to come. It is critical for meeting professionals to have answers to the questions about the relevance of the meetings, as well as all line-item expenditures, before anyone has an opportunity to even ask those questions."

The focus of strategic meetings management initiatives at many companies has been about cost reduction. The opportunity here, said Gaia and others, is to add a new metric to the mix: value.

"The need to demonstrate ROO and/or ROI around meetings is crucial now," Cindy D'Aoust, Maritz Travel senior vice president and volunteer head of the MPI Future of Meetings task force, stated in a written reply to a question posed during the MPI conference last month.

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"Per our recommendations, clients are implementing strict approval processes and are more focused on policy compliance. Clients are implementing preferred hotel programs that exclude properties with resort, spa or casino in their names. Clients are asking for meetings to be in cities that do not have the stigma of being nonprofessional or expensive, and conducting regional rather than national meetings to minimize air travel. Clients are eliminating nonessential meetings and replacing them with teleconferences. They are also introducing pre-work prior to meetings in an attempt to shorten the length of the program," D'Aoust said.

As for the bigger picture of the role that Congress or the administration should play in defining how companies that accepted federal funds should use meetings and events to achieve corporate objectives and drive sales, Duffy noted: "It's a little bizarre that companies that we the taxpayers have invested in are going to be put at a competitive disadvantage by having to follow these rules."

"What was the inauguration?" Duffy asked in a keynote session at the MPI meeting. "The inauguration was a $150 million meeting where the president communicated a vision and talked about his strategy. How is that any different than a CEO or head of sales doing the same thing for their employees and their customers?"

Banning Events?

Even more stringent restrictions were proposed Feb. 24 by Sen. John Kerry (D Mass.) in a bill that would "prevent any recipient of TARP funds from hosting, sponsoring or paying for conferences, holiday parties and entertainment events for the year in which they receive TARP funds."

The bill calls for recipients to "seek a waiver from the secretary of Treasury for any event which the recipient believes is directly related to the operation of the business." The bill at presstime was before the Senate Banking Housing and Urban Affairs Committee. That committee is chaired by Sen. Chris Dodd (D-Conn.), who had introduced the amendment to the stimulus bill that requires Treasury to regulate TARP recipients.

In response to Kerry's bill, Association of Corporate Travel Executives chief staff officer and executive director Susan Gurley said, "Sen. Kerry is quite correct that it is an affront to the American taxpayer that troubled financial institutions and other companies would fund lavish parties and executive retreats in the face of massive layoffs. On the other hand, there are thousands of critical meetings and conferences that are made possible through corporate sponsorship, that are now jeopardized" by his bill.

"Both Congress and Treasury should be made aware of the advantages of having the corporate travel policy, already in effect at every company that controls its travel, extended and enforced to all levels of corporate leadership. CEOs, CFOs, presidents and vice presidents must be held accountable for their bad decisions without holding an entire industry accountable," Gurley said.

No matter what eventually comes out of Washington, the message at MPI last month and from Maritz Travel officials is that the executive view of meetings has been altered forever. "If you think this is going to blow over and you can go back to doing what you've been doing all these years, that's not good strategy," Maritz's Gaia told Procurement.travel. "Our view is that the world has clearly changed. There is a different set of views on what is acceptable and what kind of accountability people need to have" on meetings, events and incentive travel today.

Model Board Policy For Approval Of Meetings, Events And Incentive Travel

This model policy is proposed for adoption by companies receiving emergency lending from the federal government. If other companies are interested in adopting these guidelines, they may choose to alter metrics based upon industry size, company size and market sector.

1The CEO shall be responsible for implementing adequate controls to assure that meetings, events and incentive/recognition travel organized by the company serve legitimate business purposes that are cost justified.

2All proposed meetings, events and incentive/recognition travel organized by the company must serve one or more specified legitimate business purposes. Each proposed meeting, event or incentive/recognition travel with a cost exceeding $75,000 must be supported by a written business case identifying a specific business purpose.

3Total annual expenses for meetings, events and incentive/recognition travel shall not exceed 15 percent of the company's total sales and marketing spend.

4The amount spent for an employee performance incentive/recognition event [excluding dealer programs] shall not exceed 2 percent of the total compensation of eligible participants or 10 percent of total award earners' compensation.

5The process for approving meetings, events and incentive/recognition travel, and the procedures for assuring adherence to this policy, will be subject to independent audit to confirm policy adherence.

6At least 90 percent of incentive program attendees shall be other than senior executives (as defined by applicable Treasury Department guidelines) from the host organization.

7Performance incentives shall not promote excessive or unnecessary risk taking or manipulation of financial results.

8All internal meetings or events attended only by senior executives (as defined by applicable Treasury Department guidelines) and/or board members shall be devoted to specific business purposes, and participating senior executives shall be responsible for any expenses incurred for non-business-related activities.

9The CEO shall certify to the board at least annually that the policies are being followed and are sufficient to provide reasonable assurance that expenditures for such purposes are not excessive.

10These policies shall be subject to modification only with board approval stating the specific business rationale for the change in policy.