Hilton CEO Chris Nassetta on Leadership, Culture, and 18 Years of Growth

Rafat, thank you for having me. Love doing it. You're right. We always do run short in part because those that know me know I can be a bit loquacious. So when we're on stage with limited time, I don't really get to say everything that I want to say. So I'm thrilled to be here with you and thank you for what I would describe as an overly generous introduction. I don't know about institution. You could take institution a bunch of different ways these days. I think our institutions in America many of them not particularly well thought of. So hopefully I'm doing better than some of our other institutions. Thank you for the kind words.

Well, thank you. Yeah, I've been doing it a long time. So, it turns out if you hang around long enough, I mean, I've been running Hilton for 18 years, but if you add up my years in the industry, running host hotels and other various things that I'm embarrassed to say it's coming up on 40 years. So, yeah.

I'm a very I know people don't see a picture. This isn't video, it's audio, but if they did, they'd see a young guy. Maybe a little bit more gray hair. Well, more hair than you have generally, but yeah, definitely a little bit more gray and that's in part because you have one daughter and that is I think eight or 10 months and I have six daughters ages 22 to 32. So in addition to running Hilton and I love my girls but you know having six kids, six daughters that can accelerate the growing process.

Yeah. Well, what I mean, it's funny. All my kids are 22 to 32. So, they're most of them out, you know, they're all out of the house. Most of them out of the city. I only have one that lives in the I live in the Washington DC area, Northern Virginia. Only one is there. But when they were growing up, I love to cook. I mean, that's one of my one of my things that, you know, it's a release. It's fun. I'm, you know, I'm not a gourmet chef, but as I tell everybody, but I'm a pretty good cook and people like the food. You know, it isn't, you know, you're not going to read about it in magazines. People aren't necessarily taking pictures of it and posting it on Instagram, but when they eat it, they generally like it. And I've enjoyed doing it and sort of been expanding my horizons on different types of food. And when the kids were growing up, you know, I travel my whole career, you know, or most of most of my career, I've traveled a lot, particularly in the last 25 years. You know, I'm on the road. We measure my time, which I think is kind of creepy, but true. And so I'm on the road 75 or 80% of the time. And that's been true for a long time, even when my children were small and growing up. And so, you know, trying to be a good husband and good father. You know, I had limitations in the sense that I was gone a lot during the week, but I, you know, I did whatever I had to do to make sure that I was home on the weekends that I, you know, was home generally like for pizza night, Friday night, soccer games because a lot of my kids played all of them played soccer competitively in division one athletics and you know and I did all that. But the other thing is I you know I like literally my next door two nextdoor neighbors are sort of connected to us are my two little sisters and my brothers-in-law and all the you know my nieces and nephews. And so between us I think we had 14 cousins that lived in this little I know it sounds strange but this little you know this little ecosystem. And so and a lot of really I live where I grew up. I live a mile from where my parents my mother's still alive. My mother still lives there where I grew up. And so, you know, I would sort of combine some of my interests, some of the needs and desires of my friends and children into one by cooking for everybody. And so, like it would not be unusual, you know, if I were in town, which was very frequently on the weekend where I would text, I wouldn't call, I would just send like a text out. It was like a running text to like the family that was in the area, which was most of them. And then some of my closest friends and I and I would just say, 'I'm cooking tonight.' I wouldn't even tell them what. How many? That would literally be say, 'I'm cooking tonight. How many?' And the response would just be a number. It'd be like my sister, one sister, you know, you know, kids had events and people had had things to do and they would give me like we're eight, we're six, whatever. So, and then the kids would say, 'We're we're 15 because we have friends that we want to bring.' And there would be occasions where it would be probably at the smallest like 17 to 20 and sometimes it'd be 40 people. And so my ritual would be then I would say, 'All right, what is the menu?' Again, I had to think I'm cooking generally by myself. My brother-in-law is a fabulous friend would periodically help me. So, I'd have I'd have a bit of a sous chef, but I'd say, 'All right, what's the menu? What are we going to do? What does everybody want? What can I do in bulk because I got 30 or 40 people? Yeah. You know, I'd go shopping. I'd buy everything. I'd come and you know, you know, took it. But then, you know, every, you know, all the doors would open up. You know, generally at 6:30 was sort of the appointed time. Didn't even have to tell them. And like all of a sudden, the house was just full of people, full of friends and my siblings and their spouses and, you know, 15 or 20 kids and it was just a blast. And so now it's, you know, if I just sent that same text out, it would be a meager, you know, all of the cousins are off and, you know, have grown up. And so we do it, we still do it periodically. It's sort of, I have to admit, a little bit depressing to me. And it ends up being like, you know, six or seven of us sort of hanging around like, what happened to us? You know, like, oh my god, we're all the kids are gone.

Yeah. But it was a lot of fun. It was a great joy of mine and it was a great the truth is, you know, hopefully the food was pretty good. I was told it was. I ate it all.

I cook I do American. I do a lot of Italian. A little bit of everything. But I'd say when I had to cook for really large crowds, some of the Italian dishes were easiest because you could do I could do like my grandmother's pot, whatever. I could cook for 50 easily, right? You know, sometimes we grill, but it tended to be probably, you know, American and Italian more than anything. As I said, I am not a gourmet chef. So, it had to be things that were easy I could do relatively quickly, relatively by myself, and that people would finish and be satisfied that they'd like it. Yeah, that ended up leading to those sort of cuisines.

I know. It sort of we lived like we were an odd it was you know it was funny when I would tell people you know sort of what my existence was they would sort of like get tilt their head and look at me like wow I mean that you know that happened in other parts of the world and it's a fairly standard way doesn't happen in America like literally the way our my house my they're you know my sisters on either side of me and like the our backyards are connected and you can open up a gate and everybody floods in like literally and like people would say like yeah it's a little like that you hang out with your family a lot or whatever. I was like, I love my family. I love, you know, and my my kids growing up with their cousins was hugely beneficial. They're even though they've all flown the coop, they're all I mean, a bunch of them are in New York now. There's probably half of them are in New York and they, you know, they're still close. And, you know, the fact that they had that kind of relationship with their grandparents, it wasn't just cousins, it was grandparents because my parents were nearby. They were a mile away. it was their aunts and uncles. And so like there were huge benefits just you know having the support system particularly for a guy like me that was traveling all the time that I had you know not just my wife but sisters, brothers-in-law that were there but also we all know with our children like sometimes we're the last person that they want to get advice from. And so I mean where would you rather them turn? A friend that doesn't have, you know, a ton of experience or their aunt or uncle or maybe even their cousin who can be objective. And so I found it was a spectacular way for my kids to have an outlet to express themselves, to learn, to get advice, um, you know, in a way that maybe they just, you know, don't tend to think of doing with their mom and dad.

I did. I learned how to host from my dad is the truth. My dad he was in the hospitality business in a sense. My dad was a real He passed away three years ago at 93 after a spectacular life. And I used to describe my father. I marveled at my father. I used to describe him as the mayor of everywhere. I mean as a little kid, as a big kid, as a full grown adult, even doing this job, everywhere my dad went, he was like a magnet for people. He was fun, high energy, thoughtful, caring, and he just, you know, everybody, you know, everybody wanted to be around him. And so I grew up in an ecosystem of like, you know, more is better, you know, like, you know, my dad wanted like if five people is good, then 10 or 20 is even better. And a lot of diversity like embracing not just your direct family but friends and a broader community. And so you know I've had a lot of extraordinary influences in my personal life and professional life none more than my father just growing up sort of watching how he behaved how he embraced life how life embraced him how he embraced people from all walks of life, how they embraced him. Might add I said he died at 93 I gave his eulogy which was probably the hardest thing I've ever done and I knew it would be. I think there were I mean usually in 93 in fact the priests were Catholic so the priest was there we had three priests there because that's because he had so many friends and they said they do a lot this is true story they were saying in part of their introduction the three of one of the three of them maybe more said like we do a lot of funerals sadly this is sort of the business we're in and we do a lot for people in their 90s and you know it sometimes comes with great sadness because there's not a lot of people here. A lot of, you know, it's their family, you know, their peers are gone and their radius has come so far just because of lack of mobility and they're not moving around. There were six or 800 people in my dad's funeral. Wow. Yeah. I mean, from every walk of life, the guys that mowed his lawn and took his trash out or, you know, the people he did business with, the people he knew from his gym, the people at all the restaurants that were his haunts. And so, you know, I hope that I certainly have some of his DNA. I was brought up sort of watching and marveling at that and the lessons I learned from that is that's a very good way to live your life and my dad had a long life and nobody wants to leave this earth but died a very happy man because of the richness of all those relationships and so that is sort of how I approach life is I got some of that DNA from him but also, you know, just watching it, it was joyful to watch. And so, you know, the reality is I didn't start out as a hospitality person. I, you know, I by background I'm a finance person. I mean, I went to UVA McIntyre School, finance degree, numbers guy, and got out and was in finance and real estate development and had a private equity company. I did a bunch of things. Yeah. And then I sort of like kept in various ways whether it was in the finance side or development side or private equity side getting involved in hotels early in my career and it wasn't really I'm not going to say I wasn't smart enough it was not like conscious but I started to realize like this is my calling and I never really you know like it finally I can look back on it and understand it but in the moment I didn't but what it was was we're talking about it was the people. It was the hospitality. It was the joy you get in the fabric of life and the diversity of the people that I work with and partner with and, you know, the travels and it was really all of that that brought, you know, sort of got me into hospitality and that, you know, finally I realized that this was what I was meant to do. And obviously I've been doing it now a long time and it will be what I do until I don't do anything.

Well, I mean different circumstances require different applications and skill set. So I'd say I have been building my sort of skill set in some cases by getting hit in the head with a 2x4 over the years and some very purposefully around being able to be well-rounded and do a number of different things reasonably well. So if I think about all of my career obviously finance background but understanding the development business understanding the people side of the business as a leader of at a very young age of reasonably large groups of people trying to figure out the organizational things being a person that can fix things and so you talked about the Great Recession I think you mentioned and whatever those were big fix it jobs at when I was running host 911 and the dot com bubble burst and you got to have the dexterity or the agility to be able to like when things are going wrong if all you can do is when things are good grow something but you can't deal with the other side of it it's really hard to sustainably deliver performance and be a good leader but also recognizing that part of it can be at times fixing things, but it also all business is a function of growth. And so you can't just be a great fix it guy. You also have to be somebody that could really take something grow. Alla, Hilton was a big company when I got here. We're two and a half, three times larger than we were when I got here. So, and we lived through some existential threats with the Great Recession, with COVID, etc. And so I, a long-winded way of saying like to me it's not, it's all of it. It's not like, at host when I ran host, the host was myriad split into two pieces. It was good co and bad co. By the way, they used words that I'm not going to use in your podcast to describe that that are different than that, but that's the gist of it. And we took hosts from Badco, the Fortune 500, S&P 500, one of the America's great place to work, yada yada. We really did a fix it job, but we also grew it from a very small company to being the biggest, most dominant player in that space, similarly at Hilton. And so I would say like all those fix it jobs made me a better leader. All the growth opportunities both at host and of course at Hilton made me a better leader. Being a PE guy gave me a different way to filter things. That helped me be both better at growth and fixing things. And being owned by private equity, which we were for the first part, for eight years of my 18 here at Hilton by Blackstone, that made me a better executive. So it's a long way of saying like it's all of it's like I view like as we all develop ourselves it's sort of like you're weaving a web of trying to get a number being able to be very agile and meet the market in terms of what's going on and what the needs in the moment are. And I'd say from a leadership point of view, to be really successful, you can be successful as a leader in short sprints, I think a lot of people can, but how do you know like I think about I've been running the company 18 years. I think the average S&P 500 is maybe six. So I'm 3x the average already. I think it was six when I looked at don't fact check me, but it's low lower than you would think. And I think, and again, I'm not trying to say I'm so special. I'm not. I'm a regular guy. It's not like DE or when I was a development guy. It's all of the above have given me a skill set and a filtration system and agility to be able to pivot and lean and I've always sort of had the desire to want to do it. You have to be able to adapt like you just as a leader particularly if you want to do it for a long period of time the world changes. Think about what's going on in the world now with AI and everything like how do you think about cost structures in an AI world how do you think about your marketing strategies sales strategies your broader distribution go to market strategies how do you think about the customer experience in a generative AI world that's evolving at the speed of light. You have to be willing to and able to reinvent yourself. And so that's sort of how I've trained myself is like no matter how much success we've had incredible success. I spoke at an event for one of our largest shareholders a couple nights ago downtown DC and they were hosting their most important clients and the introduction they talked about the background and when Blackstone bought it and the fix it job and then they said like and I hadn't even calculated they said listen in the 10 year analysis since they've been public they've delivered almost a 19% compounded annual return against the S&P 500 that is I forget the number but a lot lower than that and so the way we've been able to deliver the growth and cash flow and ultimately deliver the returns has been reinvention as a leader and as a team to realize that what gets you from A to B is almost never what is going to get you from B to C. So, I'm going to thank my mother for this. I talked a lot about my father who I miss and love dearly as I do my mother who's living at 92 years old, but she was tough and she sort of taught me to wake up every day, thinking you're not that special. She was lovely. She's an amazing human to this day, but it was like you're never good enough. And so don't, you know, it takes a village. You've been fortunate, but you need to wake up every day an underdog. And so I wake up every day and I'm not like I do celebrate our successes and we've had plenty, but I really can't stop myself from thinking about what the next leg up is. What is it that we're not doing as well as I'd like where in the world what brands what segments innovation technology what can we do differently to ultimately deliver a uniquely better customer experience and that will ultimately allow us to drive the next leg in performance and that's just who I am again it's not for everybody and sometimes it drives my team crazy including this morning I was driving them crazy I know. But it's worked for me.

I think I by the way I'm gonna sound terrible. I think I invented it. Not that I invented net unit or gross but I think I was the first one to put it together. And call and make it an acronym. And we did it when we were going public because I'll tell you why. But we sort of created the acronym for reasons. Keep going. I'll answer the question.

No. No. Here it's much more complex than that. If you were to go on an earnings call, which you guys I don't know if you do. I hope you do, but your team certainly does. Yes. Yes. Because I read Skift notes from the various things I say. And you guys do a generally a very good job of covering it. It's much more complicated than that. You're talking about like on an earnings call which everybody can hear because it's public you know everybody can access it. That is one of the key outputs. Okay. So from a shareholder point of view, I mean it's a complex equation, but our shareholders look at the reason we perform so well is they believe we have a very simple what they call algorithm and that is you have same store growth and unit growth and that those two x 1 plus 1 equals 2 and then you have some degree of operating leverage that drives free cash flow growth and then what we do as a capital light business because almost all the growth comes from the building of hotels by third parties. We produce a lot of free cash flow and that cash flow then gets allocated by returning it back to shareholders mostly in the form of buybacks. And so I think from an investor point of view they would say we're a serial compounder meaning when you start doing that you don't need a lot of capital for growth, you're disciplined about your cost structures and you drive free cash flow at an increasing rate and you're disciplined about how you allocate capital, aka buying back your own shares. When you compound that out over three, five, seven, 10 years, it has a dramatic impact on returns. And you know, the reality is our business model is spectacular and there just aren't that many serial compounder businesses out there. There's a lot of businesses for various reasons. They're great business, but they're much more capital intensive. So, you know, the franchise model, which is the largest part of our model, happens to be one of those. If you do it well, you could be a real serial compounder. So, that's what you hear on an earnings call. That's why we traded a good multiple. That's why we've delivered an 18 or 19% compound annual return. But why we care about it is something very different. I mean we care about that too. I don't want to suggest because shareholders can listen. We care about that output. But what we're really trying to do is create a network effect. Meaning what we're trying to do is be able to serve any customer for any need they have anywhere in the world they want to be within reason with the right product in the right location. And if we do that well, and we have done it pretty well, and we're still doing it, we believe that the result is that we get an increasing share of our customers' wallet, existing customers, and it affords us the opportunity to bring new customers into our ecosystem. And as a result of that, and if we give them good product, service, technology, loyalty matters. And we do that well. We drive unfair share. As that network grows, it becomes very hard to compete with and we drive what I would say is like unfair levels of share. So our brands perform better than the competition. You take our I'm not going to get into the specifics. We won't talk numbers, but our average market share of all of our 24 brands combined is meaningfully higher than any other competitor if you put theirs together. What does that then mean? That then means that we're serving customers well, which is what we obviously need to care about first and foremost and giving them what they need at the right price point, right product type, where they want to be. But as a result of serving them well, we're driving high market share, which translates into higher returns for owners and better returns for owners than they can get with our competitors. And what does that mean? It means that they allocate more capital to our system and they will invest and build more hotels and it becomes a virtuous cycle that allows us to continue to grow by building that network effect and produce more and more units in the right places with more and more cash flow that allows us to be a serial compounder. So the shareholder while obviously critically important is the last link in the chain. The first link is the customer. The second link is the owner and the third is the beneficiary at the end of the day is the shareholder.

Yeah. Nobody else in our space has been number one great place to work in the US and in the world. Nobody. Nobody in the airline. No. So and you're right. So I left that link out intentionally because I knew we were going to talk about culture, but if you think about the other beneficiary, there are two other really important beneficiaries in that ecosystem and for expediency you probably skipped them and I probably shouldn't. What one is um I'll finish with our employees our communities. So the more we grow and the more people we have the more opportunities there are for employment and the more benefits there are to the supply chain. I mean every hotel is an essential part of every little community or big community that it's in. So you know they are the more we grow the more we build network effect our communities are huge beneficiaries and the most important in the end of all of our beneficiaries because they make it all happen are our team members and you know our team members are benefiting because it's more opportunity. It's more opportunity to bring more team members on as we grow. Every time we open a hotel, we need more team members. And every time we open a hotel, it's an opportunity for upward mobility for our teams because you need a general manager, a head of sales, a do, you know, you need the whole suite of people to do it. And so it creates a very dynamic ecosystem of opportunity for our team members. I kid our teams all the time. I said, 'What would you all do when I do a leadership talk? What would you all do if I sent the memo out and said, we just decided we growth is, you know, we've been doing a lot of that. We're not going to do it anymore. There's going to be we're not going to grow anymore. What would you guys do?' And I sort of like, you know, they all laughed. It's like, yeah, we, you know, we'd get our resume ready. We'd start looking somewhere else because we all, you know, everybody wants upward mobility. And so it gives us extraordinary opportunities to create a dynamic environment for learning growth and opportunity for our team members.

It's really complicated is the short answer and so I would say when I got here 18 years ago, we were a company that had invented the business as you know it most of what you know was everybody all of us take for granted Hilton was the tip of the spear and the pioneer that figured out a long long time ago but to be truthful we had gone through a period of decades where, you know, because we split the company apart, international US, and just put it back together and they really were very different companies. As well as, I think culturally had not, you know, sort of been as focused as maybe we had been.

In our early days, we did not have a, what I would say is a terrific culture and certainly not a hyperconnected culture. There was very much a corporate culture. That was one thing. I'll believe not the best in my opinion, but of course I'm going to say that, but I think objectively it wasn't. And then there were, you know, there was a very different sort of culture in the hotels, not just a subculture by hotel, which of course you're going to have because these are living, breathing beings, you know, these hotels with the, you know, people that live in them and, you know, work. They're open 24/7. It's the difference in our business than, you know, a lot of other business. Like you open a hotel, it's open forever. Forever. Every holiday, every weekend, forever.