Airbnb during the COVID pandemic: stakeholder capitalism faces a critical test
The Business Roundtable released a revised statement on...
"The Purpose of A Corporation" - signed by 181 CEOs - statement argued for a new business model, with stakeholders at the center - the long-term goal for a corp was shared prosperity for both business and society (deliver value to customers, invest in employees, deal fairly and ethically w/ suppliers, support local communities, generate long-term value for shareholders)
5 key stakeholders
guests, hosts, communities, shareholders, employees
critics alleged that airbnb operated as a
"de facto" hotel chain- they should be subject to taxation like the rest of the hospitality industru
Chesky dubbed his company
"one that would have an infinite horizon, improve society, and serve all of its stakeholders including guests, hosts, employees, communities, and shareholders
In December 2018, the WEF adopted the stakeholder and revised its Manifesto accordingly...
"the purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders but all its stakeholders- employees, customers, suppliers, local communities and society at large"
how did hosts react
- angry - prior to the change, hosts had their own cancellation policies - some complained the compensation fund was far too little given the circumstances - believed they favored the guests - some sued, switched platforms, or changed to long-term rentals
beginning covid impact on airbnb
- bookings began to fall in march by 42%, then by 72% in april - prospects for an IPO grew increasingly remote
airbnb embraces the stakeholder model
- chesky indicated that he wanted airbnb to help solve society's problems - he added "Head of Community" to his CEO title - he envisioned airbnb as a company that should surive to see the next century, not just the next quarter, and serve all of its stakeholders along the way
what were some of the positive impacts of covid on airbnb
- guests found new uses for airbnb such as using it to relocate to care for relatives, help with homeschooling, or work remotely - 3/4 guests indicated a preferance for staying in an airbnb rather than a hotel for health reasons - the company pivoted to online experiences and virtual offerings (opportunities to interact with sports personalities, tik tok celebs, etc.) - sought was to contribute to local communities in ways such as launching Frontline stays, where they waived fees on the first 100,000 listings booked by healthcare workers fighting the pandemic
how did airbnb cut costs amid the pandemic
- hiring freeze in march - laid off majority of its contract workers in april (more than 500 ppl) - cut marketing expenses by $800 million - stopped paying bonuses - cut exec teams pay by 50% for the next 6 months - suspended pay entirely for the founders and slashed discretionary expenses
what were some of the problems faced by airbnb
- hosts suffered losses due to damages made by guests - guests reported misrepresentation of rental properties - short-term rentals made long-term rentals hard to find - gentrification
the company believed that the future of growth would come from
- increasing the # of hosts and guests - international expansion - innovation on the platform
shareholders
- investors who purchase shares of stock in a corporation. - the corporations true "owners"
covid's impact on the travel and hospitality industries was particularly severe
- marriotts business was down 75% - hilton hotels projected global occupancy rates to fall to 10% (down 90%) - zombie airports (70% cut in flights)
airbnb employees
- more than 6,000 - called themselves the "airfam"
the stakeholder theory was frowned upon because
- people found it logically impossible to maximize in more than one dimension at the same time - without the clarity of a mission provided by a single-valued objective function, companies are bound to experience managerial confusion, conflict, inefficiency, and perhaps complete failure
what were some of the arguments against stakeholderism from leaders
- some labeled it "virtue signing", or empty rhetoric that would have no teeth when it came to making difficult decisions - may in fact hurt society - increase the insulation of corporate leaders from shareholders, reduce their accountability, and hurt economic performance
airbnbs purpose to ensure that its vision was good for society, kept in mind the interest of 3 stakeholder groups
- the company (its employees and shareholders) - the airbnb community (guests and hosts) - the world
stakeholders
- the people whose interests are affected by an organization's activities - employees, customers, etc.
chesky launched 4 guiding principles at the start of the crisis
1. be decisive 2. preserve cash 3. act with all stakeholders in mind 4. play to win
5-step roadmap
1. define the five key stakeholders 2. establish a set of principles for each stakeholder group to guide decisions and actions (13 principles: make guests feel like they belong, treat hosts as partners, etc.)- chesky established metrics to track this (ex: safety, tracking negative incidents) 3. establish corporate governance and compensation practices that would support the principles 4. creation of an annual Stakeholder Value Day 5. direct $100 million in grants over 10 years to local communities in which its hosts resided to support the global community
in 2018 a new person vouched for the stakeholder model
Blackrock CEO Larry Fink in his letter to CEOs "every company must also show it makes a positive contribution to society"
"airbnb initiative"
San Fransisco ballot measure sought to cap private rentals at 75 days per year and impose hotel taxes on rentals
2020 emerged an active debate regarding the nature of capitalism, and asked the question...
Why do we exist? what is our responsibility, if any, to society? environmental issues gained traction in many companies, even in traditional industries like oil and gas (employee compensation tied to reducing carbon emissions)
airbnb logo
a "belo" - symbol of belonging, became widely recognized
Friedman believed
a corporations primary goal is to maximize shareholder returns (SVM: shareholder value maximization) this was widely accepted and taught in most business schools
The book The Modern Corporation and Private Property stated the idea that
companies should be run to meet SHAREHOLDER (equity holder) objectives concept gained attraction when Nobel-prize winning economist Milton Freidman published a variety of articles in the NYT stating that corps have no higher purpose than maximizing profits for the shareholders
unicorns
companies worth more than $1 billion airbnb hit this metric prior to the covid 19 pandemic
the "stakeholder" theory
developed by Professor Klaus Schwab in the 1970s there was an emerging debate around whether corps ought to have a broader mandate that included relevant stakeholders as well as shareholders this theory served as the founding credo for the World Economic Forum (WEF)
the Davos Manifestos
drafted by the WEF, a conference held in Davos, Switzerland "the purpose of professional management is to serve clients, shareholders, workers and employees, as well as societies and to harmonize the different interests of the stakeholders"
one of the first concrete steps toward realize the broader stakeholder model was to
elect the company's first independent direct, American Express CEO Ken Chenault "corps exist bc society allows them to exist, therefore we have an obligation to improve society"
in the end of april, airbnb decided to raise additional capital from who
outside investors 1. two private equity firms ($1 billion of debt with 5-year maturity) 2. institutional investors
"hollowing out"
people leaving neighborhoods due to noise, drunk visitors, trash, parties, etc.
what was chesky's "design challenge" to implement the stakeholder model
required a 5-step roadmap
the idea at the core of airbnb is
the universal human desire for belonging airbnb represented a break from the transactional nature of traditional travel in favor of a new model based on connection and community
how did airbnb cope with cancellations
they allowed guests to cancel reservations and receive full refunds for travel booked before march 14th and occurring before may 31st, 2020 these refunds exceeded more that $1 billion this was problematic for hosts who relied on this income to pay bills
how did airbnb mitigate the lost income hosts faced
they committed $250 million to reimburse hosts for up to 25% of the funds they would have earned during the period superhosts were eligible for grants from a new fund to assist with mortgage payments and other life expenses during the period the 17 million dollar fund was created with contributions from airbnbs founders, employees, and investors
TAM
total addressable market
airbnb adventures
trips organized by hosts for up to 12 guests that lasted several days (ex: 6 day safari) allowed the company to capitalize on the growing interest in adventure travel
in an attempt to help airbnb hosts, airbnbs leadership team...
wrote a letter to speaker of the US house of reps (nancy pelosi), asking the congressional coronavirus relief efforts such as the disaster loans through the small business administration to be extended to short-term property renters