In my last blog post, which focused on identifying the main areas of risk in an organization’s meetings and events program, I promised that in my next blog post I would look at mitigation strategies for these risk areas.
To recap from last time, there are six main types of risk in a meetings program, and they are:
- Duty of Care Lapses
- Fiduciary Breaches
- Signature Authority Breaches
- Cancellation & Attrition Penalties
- Reporting Inaccuracies
- Regulatory Violations
In this post I will focus on the first five risk types, and in the next post I will focus on Regulatory Violations.
Risk management overall is a hot topic for most companies, but very little is known about the specific risks as they apply to the meetings and events space, and the strategies that can be applied to mitigate these risks.
The stakes of not managing meeting risks are high, as corporations leave themselves open to significant brand damage, financial penalties and losses, law suits, loss of competitive information, duty of care failures, employee safety and security, embezzlement, and bribery. Employees are at risk, damages can be in the millions, and the harm to a company’s brand can be inestimable.
Duty of Care Lapses
There are two main areas in meetings and events in which duty of Care lapses can impact your company, and they are (a) safety and security and (b) brand exposure; both of which can lead to financial and legal impacts. Solutions should be built to address each of these areas, including the following:
1. Develop processes to find, contact and evacuate meeting attendees in emergencies
2. Ensure the pass through of contact information and location of attendee data to your security services provide
3. Develop policies regarding driving after late night arrivals
4. Develop policies regarding alcohol consumption at company events
5. Contract with a security services company to distribute pre-trip health and security advisory information
6. Develop a data protection policy for travelers (locks, safes, seizures, etc.)
7. Include room safe requirements in venue RFP and hotel addenda
8. Include fire system requirements in venue RFP and hotel addenda
9. Develop a policy on meeting optics (resorts, pheasant hunts, etc.)
10. Develop a policy on venue sharing with competitors
11. Include venue RFP & hotel addendum language regarding competitors
12. Develop a policy on acceptable event activities (fire walking, arrow breaking, etc.)
13. Develop a policy on acceptable gifts (varies by industry)
14. Develop a policy on spend per diems (varies by industry)
Generally speaking, to protect employees and avoid prosecution for Duty of Care lapses, organizations should be certain of the following:
15. The Board of Directors and executive leadership should overtly demonstrate a commitment to Duty of Care
16. The organization should provide mechanisms for upward and downward communications regarding Duty of Care
17. The organization’s workforce should be engaged in promoting and achieving safe workplace conditions
18. High quality training should be provided to all appropriate employees regarding any area of operations where Duty of Care is impacted
19. Health and safety risks should be proactively identified by the Board of Directors, enterprise risk management (ERM) specialists, and employees
20. The Board of Directors should access and follow competent advice regarding all aspects of the Duty of Care program
21. The Board of Directors should monitor performance of the various aspects of the Duty of Care program
One of the best sources I have found on Duty of Care is a guidance on the Corporate Manslaughter and Corporate Homicide Act, 2007, issued in the UK by The Institute of Directors and the Health and Safety Executive, which can be found here.
The three big areas of potential fiduciary breaches in meetings are (a) not achieving the maximum amount of savings during contracting (b) misappropriation of funds, and (c) process inefficiencies. Solutions in this area include:
22. Use internal or external sourcing professionals to drive the highest level of savings obtainable
23. Develop a savings program, including documenting saving types that can be achieved
24. Operationalize the savings program through the automated workflow of your meetings software
25. Develop reporting mechanisms to track and evaluate saving results
Misappropriation of Funds:
26. Conduct periodic and randomized audits to identify embezzlement of fund schemes, such as:
- Shell company schemes
- Pass-through schemes
- Pay-and-return schemes
- Personal-purchase schemes
27. Periodically review venue contracts for the misappropriation of hotel reward points and merchandise
28. Conduct periodic process reviews to evaluate the end-to-end sourcing and planning processes to determine if they can be made more efficient, thereby enabling headcount reductions
Signature Authority Breaches
In a meetings and events context, a signature authority breach typically means that an employee of your organization without the proper signature authority level has signed an agreement with a venue, thereby binding your organization to the terms and conditions of the agreement. Internal procedures and controls, such as signature authority matrices, approval processes, employee training and contract reviews, are essential to prevent these types of breaches.
29. Design and implement procedures to ensure compliance to signature authority
30. Educate signers and their leaders as to appropriate signature levels, and the potential consequences of signing above the signature authority level
31. Implement contract reviews for contracts over a certain amount
32. Conduct periodic and randomized audits of venue contracts to validate signature level of contracting party
Cancellation & Attrition Penalties
This is an area where inexperienced employees negotiating venue contracts can expose the organization to considerable risk. Generally cancellation and attrition penalties are incurred on guest sleeping rooms and food and beverage. Some level of penalty makes sense because hotels remove the meeting space and guest room from inventory once a contract is signed, and there is an opportunity cost to the hotel if the event is cancelled. The question is, “What is the correct level of compensation?”
Hotels will often try to maximize revenues from a cancelled event by offering a cancellation schedule that imposes the highest level of penalties as possible, as far out as possible. They will also try to collect for sleeping rooms, even if those room nights were later sold to other guests. Penalties should only be applied to the net profit the venue stands to lose, as opposed to the negotiated rate for the room, This is because the hotel only stands to lose the net profit, and not the fixed cost of preparing the guest room for occupancy, which it incurs anyway.
Similarly, they will try to collect fees on food and beverage, even though supplies for the meals to be served at the cancelled event will not have been purchased until a few days before the event, and the meals will not be prepared until the day of the event.
Following is best in breed cancellation and attrition language for guest rooms and food and beverage that counter the penalties as proposed by most venues.
33. Develop or modify hotel addendum cancellation language to reflect best in breed:
|Sleeping Rooms – Duration Prior to Operation||Cancellation Penalty|
|271 + Days||No Cancellation Fee Imposed|
|270-180 Days||25% of Anticipated Net Profit Less Any Sleeping Rooms Resold|
|179-90 Days||50% of Anticipated Net Profit Less Any Sleeping Rooms Resold|
|89-31 Days||70% of Anticipated Net Profit Less Any Sleeping Rooms Resold|
|30 Days or Less||80% of Anticipated Net Profit Less Any Sleeping Rooms Resold|
“Net Profit” is defined as up to 70% of estimated total sleeping room revenue (excluding tax)
|Food and Beverage – Duration Prior to Operation||Cancellation Penalty|
|60-20 Days Prior to Event||80% Can be Cancelled at No Cost|
|20 Days or Less||20% Can be Cancelled at No Cost|
“Net Profit” is defined as up to 30% of estimated total food & beverage revenue (excluding tax, gratuity, and service fees)
34. Develop or modify hotel addendum attrition language to reflect best in breed:
|Sleeping Rooms and Food & Beverage – Duration Prior to Operation||Attrition Guidelines|
|Date of signature of addendum up to Departure Date||20% of the contracted sleeping room block and 20% of estimated total Food and Beverage charges maybe cancelled without penalty|
As I discussed at length in my blog post on data management, data entry errors can lead to a number of serious risks in your meetings program. By incorrectly entering (1) event dates (2) number of attendees (3) attendee names (4) contracted rates per attendee, or (5) venue locations, you could have impacts to the safety and security of your travelers, or legal and financial impacts to your company. The following steps will help avoid these problems:
35. Do not be overly demanding in data collection requirements, collecting only absolutely necessary information
36. Cut down on data errors by using drop down menus, mandatory fields, and tab next to walk through data entry
37. Implement intermediary processes to check data quality and ensure accuracy and completeness
To bring it all home, I have provided below a few examples of risks and their potential impacts to your organization. These are fictional examples, although many of them are based on real life experiences.
- An article appeared on the front page of a major newspaper taking your company to task for having Jane walk across burning coals at a corporate event.
- Jane is currently suing the company for $1,000,000 because of second degree burns she sustained during the team building event.
- At a corporate training event, Joe, meandered from bar to bar at the reception, becoming quite intoxicated. At the end of the evening, Joe, being a local attendee of the meeting, stumbled to his car and became a traffic fatality statistic. His survivors sued the company and won.
- John, VP Sales, embezzled $35,000 from the company using a shell company scheme by having his brother-in-law submit fake invoices for meeting services for an event that never took place.
- Jane, head of meetings at a global company, couldn’t, in the immediate aftermath of a bombing at London Heathrow airport, provide a list of meeting attendees in London, or passing through Heathrow, during the time of the bombing.
- Unfortunately, an employee injured in a terrorist attack in Mumbai, could not be located in order to provide medical and evacuation assistance, because he was accidentally left off the Excel spreadsheet his company uses for meeting attendee tracking.
- John crashed his car while driving home at 1am, having just arrived at his local airport after a five day trip and an eight hour flight. His wife is suing the company for his lost wages, and the company has lost a key member of its mergers and acquisitions team.
- Jane, a corporate meeting planner for a global pharmaceutical company, pays a customs official in Turkey $500 cash to release materials she needs for an investigator meeting starting in a few hours. Both US and UK authorities become aware of the bribe and launch an investigation, which uncovered numerous other irregularities.
- Among other things, investigators discovered that procedures to train employees about what constitutes bribery and to monitor their expenses were not in place, leading to authorities in the US and UK initiating legal proceedings.
- As a special treat, a group of President’s Club winners was taken on an all-expenses paid trip to the south of France, where they stayed at a luxurious chateau. Unfortunately a fire broke out during their first night, and John and Jane, being exhausted from jet lag, did not hear the hubbub in the halls as the other guests evacuated. Because the chateau did not have sprinklers Jane and John never stood a chance.
- During an investigators meeting, a scientist attending a different meeting at the same hotel, unobtrusively attended the cocktail reception of his arch competitor and learned that the company’s product was experiencing significant problems in human trials. The next morning the whole world learned of the problem on the front page of a major newspaper.
- Late Friday afternoon, an administrative assistant signs a hotel contract for a $1,200,000 event in Houston. First thing Monday morning the administrative assistant gives the signed contract to her manager, the VP of Sales, who says, “I changed my mind over the weekend. We’re going to have the meeting in Dallas instead. Can you make the change?” The assistant calls to cancel, and is reminded of the $700,000 cancellation fee in the contract.
In summary, many of the risk types associated with meetings are avoidable, and by following the steps I outlined above these don’t have to happen to your organization.
Join me in the comments area and share your thoughts on this important topic, and let me know if you think I have missed any risk types or mitigation strategies.
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See the other posts in this series: