Colts and Conseco Fieldhouse and Arts & Entertainment, etc. and Lucas Oil Stadium and Pacers and Indianapolis Motor Speedway and NFL and NBA and Tourism & Hospitality and Sports Business

Are corporate gift policies inhospitable?

April 21, 2012
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Officials at Just Marketing International for years have sent a $125 bottle of champagne to a new business partner to celebrate the deal.

But in the last three years, that bottle increasingly is being returned—still full.

“I can tell you that’s happened more than once,” said Zak Brown, CEO of the Zionsville-based sports marketing consultancy. “At first I kind of shook my head. You wonder, what’s the issue? This is just a gift of appreciation, another way to build a relationship. Then at some point, you realize, this is a sign of the times.”

When it comes to gift horses—and corporate gatherings—it’s no longer business as usual. A gesture seen as hospitable just five years ago is now often met with a skeptical, even derisive response.

Many involved in corporate hospitality and in businesses driven by sales and relationships are having to adjust to a revamped corporate culture among firms large and small in this market and others.

With tighter budgets and stringent corporate governance squeezing companies, there’s a whole new view on corporate hospitality, meetings and gift giving.

Many companies have put the brakes on corporate gatherings and entertainment, if not outright halted the practice. Others have changed the focus of their own meetings and demanded new accountability from employees attending outside corporate conferences, meetings and other gatherings.

In the wake of recently publicized high-profile corporate boondoggles, business executives increasingly demand decisions be based on what’s best for the bottom line, not on who’s giving out the best gift or throwing the best parties. Shareholders are demanding profits fall directly to the bottom line and not be spent on lavish travel and company parties.

The issue gathered steam soon after the recession began in December 2007, then acquired a political tone in 2009 when Congress sharply criticized the struggling insurer AIG for spending $440,000 on a retreat for salesmen at the $1,000-a-night St. Regis Resort in Monarch Beach, Calif.—shortly after receiving an $85 billion government bailout.

Many luxury hotels responded by lowering rates and reducing amenities, said Jeff Higley, vice president at Tennessee-based Smith Travel Research.

“The underlying theme in play here is that luxury travel is actually taboo these days—and that goes all the way back to the AIG event,” Higley said.

Jay Gladden, dean of the School of Physical Education and Tourism Management at IUPUI, said the culture shift can be seen in numerous sectors, but is most prevalent in banking, financial services, insurance and health care.

“The bigger and more public the company, the more dramatic the culture shift,” Gladden said. “Many, many companies since 2008 have adopted strict written policies about corporate hospitality and entertaining.”

New York-based banking giant JPMorgan Chase is just one example. Its corporate policies state that employees are “permitted to accept tickets” to sporting and other events “on a case-by-case basis.” However, “legitimate business” has to occur at those events.

Local hospitality industry veterans felt a sharp pinch.

Debbie Locklear’s jaw dropped recently when she received a returned, half-eaten gift basket of Indiana-made edibles. A note from the employee at the receiving company said they were unaware of a new corporate policy banning such gifts until being informed by the company’s ethics department.

“It wasn’t even an expensive gift,” said Locklear, president and owner of Meeting Services Unlimited Inc., an Indianapolis-based corporate meeting and convention planner. “It was just a token from Indiana. I was shocked at first. But I’m not anymore. Now, there are an increasing number of companies that don’t take gifts of any kind.”

Some companies prohibit gifts for fear employees might not make the best decisions for the firm, said Richard Sheehan, a University of Notre Dame economist. More shareholders are uptight and demand greater objectivity and fiscal responsibility from workers.

Dave Moroknek sees changes, too.

His firm, MainGate Inc., an Indianapolis company that makes and distributes licensed sports memorabilia and other goods, uses suites at Lucas Oil Stadium and several other professional sports venues nationwide to build relationships and close sales. But more companies prohibit gifts or employee entertainment.

“These companies are telling us they want their people to make the best business decisions based on sound financial reasons and not make decisions because they were sitting in a suite at a Colts game,” Moroknek said.

A bottle of wine, gift baskets and game tickets aren’t all company executives are turning down. Brown, who runs a motorsports marketing firm, said a client used to give away a $2,500 watch to executive attendees at its annual corporate gathering.

Now, he said, almost half of those attending decline to take the watch.

“It’s all about transparency,” Brown said. “The whole corporate hospitality and entertaining issue is a bit of a hot potato right now.”

So what is Just Marketing’s policy?

“We tread lightly,” Brown said. “Our policy is respecting our clients’ policies.”

He’s still a big believer in relationship building through corporate hospitality events, but admits things have changed dramatically and doubts the environment will relax anytime soon.

Some companies are as strict about giving as receiving. It’s gotten so bad, Brown said, that one company he works with has a sign in its lobby stating that the firm’s employees can’t pay more than $25 for a client’s lunch.

Sports properties sacked

Many sports properties—which depend on corporate hospitality for a significant slice of their revenue—have gotten walloped by the downturn.

Within the last five years, about one-fourth of companies that had suites at race tracks and in NBA arenas and NFL stadiums have pulled the plug on those expenses, said Sheehan, who has written a book on professional sports operations.

NASCAR and the PGA Tour officials say corporate hospitality at their events is down 20 percent since 2007. Locally, there are a number of empty suites at Bankers Life Fieldhouse for Indiana Pacers games and at the Indianapolis Motor Speedway during May.

Due in part to the culture shift, Brown stopped leasing an IMS suite a few years ago.

The Indianapolis Colts have sold out all the suites in Lucas Oil Stadium. The team’s strong run the last decade—last year not withstanding—certainly helped. But the team also benefited from fortunate timing.

Colts officials were completing six- to nine-year leases on 140 suites in the stadium, which opened for the 2008 season, just as the economy bottomed and just before corporations fully tightened the reins on spending, entertainment and employee oversight.

Though the suites are full, activity during Colts games has changed, said Greg Hylton, Colts vice president of premium seating and ticket sales.

“It’s now very much a business environment,” Hylton said. “They’re there to enjoy the game, but there’s also a definite business purpose to a lot of the activity.”

Strategy shift

The shift has caused many companies engaged in corporate hospitality to call an audible.

“It used to be we’d just invite clients and prospective clients out for a day at the track,” Brown said. “Now, we’re more likely to invite people for a product demonstration or a business seminar. And as part of that, we’ll visit the track.”

The emphasis of trade shows and corporate gatherings is on education and networking, with entertainment as a side note, said Tina Mahern, president of Tina Mahern Events, an Indianapolis-based event planning firm.

“Companies involved in these events are insisting on accountability; they’re demanding a return on investment for having their employees involved in these gatherings,” Mahern said. “Companies want to know that they’re not just sending their employees out to play.”

In the last couple of years, Locklear, the meeting planner, has seen corporate meeting clients cancel light shows, bands, lavish buffets and open bars at their corporate gatherings.

Big bashes for a company’s own employees are almost extinct, Locklear said. “Companies just don’t seem to be celebrating their employees like they used to.”

Locklear and her peers hope part of the trend is temporary.

“There’s some merit to the entertainment and social aspect to corporate gatherings because it’s such a big drawing card,” Locklear said. “We think there’s a place for that within a business setting. But there’s just so much scrutiny on this, it’s difficult to say which way this will go.”•

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