Hilton Hotels started the year on defense after one of its franchisees was called out for cancelling the reservations of Department of Homeland Security agents.
Why it matters: This fallout highlights the reputational risk of operating a franchise model and brings in to question how much behavioral control a global brand actually has over its franchisees.
Catch up quick: On Monday, DHS posted a screenshot of an email exchange with Hampton Inn Lakeville, located in a Minneapolis suburb, which showed that federal agents' reservations were cancelled due to their "immigration work."
- MAGA media and influencers across social media descended, creating a media firestorm for the hotel chain.
- Hilton responded Monday evening, stating, "This hotel is independently owned and operated, and these actions were not reflective of Hilton values. We have been in direct contact with the hotel and they have apologized for the actions of their team, which was not in keeping with their policies. ... Hilton's position is clear: Our properties are open to everyone and we do not tolerate any form of discrimination."
- Everpeak Hospitality, the independent owner of that specific hotel, also responded saying the cancellation was "inconsistent with their policies."
Yes, but: Late Monday evening, a conservative journalist who was posing as a DHS agent and attempted to stay at the Minneapolis hotel was denied.
- He recorded the entire exchange and posted it on social media. Hilton responded by "removing the hotel from its systems," per a statement posted on X.
Reality check: Customers, regulators and markets don't always distinguish between corporate-owned and franchise-owned properties.
- "I think the bigger question for these companies is, how do you manage that? How do you integrate the franchisees into your communication strategy? At the very least, there must be a rigorous playbook on how you behave as a franchisee," Deirdre Latour, founder of Rebellis Communications, told Axios.
- Following the DHS's original post, shares of Hilton dropped about 2% and has since fluctuated.
- Of note, most of Hilton's 9,000 properties are operated by franchisees.
What they're saying: Franchise models accelerate reputational risk and create more opportunities for exposure, says Paul Argenti, professor of corporate communications at Dartmouth's Tuck School of Business.
- "When a franchisee makes a local decision, especially one like related to politics or values, the reputational liability is going to flow upward, even though the economic control doesn't," he says. "And they can't assume the disclaimers about independent ownership are going to inoculate them."
- "It's not just damage control. They have to clearly articulate their values and how they govern franchisees, adherence to those values and what it's going to do to prevent a repeat of that," Argenti added.
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