Saturday Briefing

By Dr. Richard Kelley

This past week, I had the opportunity to address the approximately 100 members of our ‘ohana who attended our company’s Quarterly Business Review. Other speakers included Rob Solomon (Sr. VP & Chief Marketing Officer), Elizabeth Cambra (Dir. Revenue Operations), Dean Nakasone (General Manager, Waikiki Beachcomber Hotel) and Admiral Tom Fargo, USN Ret. (CEO, Hawaii Superferry). The following is an adaptation of my remarks.Aloha! I am pleased to be with you for this meeting.

Before we get down to business, I would like to recognize my wife, Linda, who is with us today. We are coming up on our 30th wedding anniversary. In 1979, I persuaded her to leave her job as a schoolteacher and join me in the hotel business. Like all members of our family who want to become hoteliers, including myself, she started in Housekeeping. Her workstation was in the basement of the Waikiki Village hotel (now the Embassy Suites® - Waikiki Beach Walk®). I am sure she wondered many times if she had made a good decision!

As most of you know, we moved to Denver to try retirement about 15 years ago. Linda will tell you that I flunked the course. I remain about as busy as ever.

The first thing I did there was to build a hotel near Denver’s new airport. I am happy to report the property is doing very well under the Hilton Garden Inn flag. It is managed by our California-based affiliate, Outrigger Lodging Services. In 2007, Hilton Hotels Corporation named our General Manager, Gian Gandolfo, General Manager of the Year for the Hilton Garden Inn brand.

I have also been involved with a number of educational and medical institutions in the Mile High City, and it has been very gratifying.

But my true loves are still the hotel business and Hawaii. I try to fly to Honolulu almost every month. United Airlines loves me. I recently flew my two-millionth mile on that carrier. Their management was “thrilled.” They sent me an iPod!

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These are turbulent times, probably the worst I have seen and understood in my 75 years on earth. We have gone from coping with overbooked hotels just a couple of years ago, to scrambling to fill our rooms at any rate just to get some customers in the lobbies and keep members of our ‘ohana employed as best we can.

As best-selling author and part-time Oahu resident Spencer Johnson might put it, somebody’s moved our cheese.

In Spencer’s book “Who Moved My Cheese?”, some mice living comfortably in a maze learn tough life-lessons about self-reliance, preparation, and recovery when unanticipated forces disrupt the cheese supply they relied on. The book is worth reading (or reviewing, if you’ve read it before).

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Are the economic woes we are experiencing today as bad as they were in the Great Depression of Herbert Hoover’s and Franklin D. Roosevelt’s time? No way.

Although I was too young to understand the Great Depression, I grew up in its shadow, and it affected me in many ways. So, rather than giving you economic charts and unreliable predictions, I thought you might be interested in a bit of history.

Maybe we can all learn something by considering how the Depression affected our company’s founders, Roy and Estelle Kelley. Perhaps we can guess what they might do if they were alive today. I’ve inserted a couple of cartoons by Michael Ramirez to emphasize some of my points. (Cartoons reproduced with the permission of Creators Syndicate.)

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The Great Depression began in 1929. It was a crazy time. The stock market had risen 40 percent in 1928. Yet, annual per-capita income was about $750, with more than half of all Americans living below a minimum subsistence level.

In 1929, the economy began a sharp slow-down. Inventories tripled. In August and September, production fell at an annual rate of 20 percent.

That year, Roy Kelley was working as a staff architect for a real estate development in San Juan Capistrano, about 50 miles south of Los Angeles. It was owned by California oil mogul Ed Doheny Sr., and managed by his son, Ed Junior, better known as Ned.

Both men, plus Ned’s friend and personal “secretary,” Theodore Plunkett, had been very much in the news for several years for allegedly bribing Albert Bacon Fall, U.S. Secretary of the Interior, to secure a lucrative contract involving Navy oil reserves at Teapot Dome, Wyoming, and Elk Hills, California.

Interestingly, the deal included a contract for the Dohenys to build the Navy oil storage facilities at Pearl Harbor.

After a great deal of publicity and criminal trials, Secretary Fall went to jail for his part in what is known today as the notorious Teapot Dome scandal.

Parts of the cases against the Dohenys went all the way to the U.S. Supreme Court. On October 11, 1927, the Dohenys were cleared of bribery, but the oil contracts were declared void, and the Dohenys had to pay the government a massive sum, $24 million, the equivalent of nearly $290 million today.

In 1928, companies belonging to the senior Doheny purchased a number of lots at Capistrano Beach. Ned

Newlyweds Estelle and Roy Kelley

formed a development company and began building a family home for the Dohenys and 22 other homes, including one for the project architect, Roy Kelley, and his new bride, Estelle.

The stock market continued to rise. As Spencer Johnson might say, “In 1928, the cheese was good and plentiful.”

On February 18, 1929, Roy and Estelle found their cheese had been moved. On that day, Ned Doheny and Theodore Plunkett were both found shot to death in the Doheny mansion, located near Beverly Hills at the site of what is now the Le Montrose Hotel operated by Outrigger Lodging Services.

Some say the allegedly mentally unstable Plunkett shot Ned and then took his own life. Unfortunately, there was a delay in calling the police and perhaps a cover-up by the family physician, so we may never know what really happened.

The bottom line was that the senior Doheny shut down the Capistrano Beach project. Roy lost his job and could not find a new one in Southern California.

Somebody told Roy that an architect in Honolulu needed a draftsman. After a few cables were exchanged, Roy and Estelle loaded their belongings onto a boat in September and headed for a new life in the Territory of Hawaii.

My grandmother was sure they were totally out of their minds.

The stock market crashed on Black Monday and Tuesday, October 28-29, 1929, about six weeks after Roy and Estelle arrived in Honolulu.

Over the next few years, the nation’s unemployment rate rose to nearly 25 percent – one worker in four was out of a job! At the time, neither unemployment insurance nor Social Security were yet in existence.

Congress then passed the Smoot-Hawley Tariff, which put duties of 40 percent on imported goods. This exported the Depression to Europe.

Roosevelt took office in 1933, the year I was born, and one of the results of his New Deal legislation was that government raised taxes on the rich to fund government spending intended to help the poor. The top Federal income tax rate climbed to 79 percent.

Despite these moves, or, some believe, because of them, the Great Depression lasted over 10 years. It finally came to an end only as a result of World War II, which put everyone who was not drafted back to work and created huge pent-up demand, thanks to rationing, which the nation’s businesses could only satisfy when the war was over.

During the Depression, Roy and Estelle worked hard and developed a new supply of cheese when they built some apartment buildings near the corner of Seaside and Kuhio. They knew their tenants well and took good care of them.

The bombing of Pearl Harbor in 1941

But their cheese was moved again when the bombs fell on Pearl Harbor in 1941 and again in 1942, when Roy lost his sight due to cataracts.

Those were tough times for everyone. My mother was sometimes driven to tears, but it was years before I understood why.

I think we are much luckier in 2009, at least up to this point. The unemployment rate is still below 8 percent, less than a third of Depression levels. Thanks to New Deal legislation, we now have a “social safety net,” however imperfect, in place.

However, the Obama administration and Congress appear to be heading down the same path that Roosevelt took in the 1930s.

Only 10 days ago, President Obama said, “A failure to act, and act now, will turn crisis into a catastrophe.”

My fellow Harvard Medical School graduate and Washington Post columnist Charles Krauthammer comments, “So much for the president who in his inaugural address two weeks earlier declared, ‘we have chosen hope over fear.’ Until, that is, you need fear to pass a bill.”

In the stimulus bill the House and Senate hammered out this week, the Smoot-Hawley Tariff is now called “Buy American.”

It is frightening how few of the items in the stimulus bill will quickly stimulate job creation. Instead, the bill contains a massive amount of pork-barrel spending for “critical” things like golf courses, public radio, condoms, insurance for honeybees and farm-raised fish – and, of course, “neighborhood stabilization,” which many fear will end up in the hands of the controversial, activist Association of Community Organizations for Reform Now, or ACORN.

No matter what kind of lipstick one puts on this beast of a stimulus bill, it is still “pork.”

The Congressional Budget Office admits that most of the items in the bill won’t be spent until 2011 or beyond. So much for “acting now” to avert “catastrophe.”

Remedies like these did not shorten the Great Depression. Keeping in mind Einstein’s definition of insanity – “doing the same thing over and over again and expecting different results” – you have to wonder if our government’s current effort will be more successful.

AND, nothing under consideration is addressing the coming wave of “Baby Boomers” rapidly approaching retirement, which will create unprecedented funding problems for Social Security and Medicare.

I think we should all pay attention and let our congressional representatives know how we feel.

Given that background, we need to approach today’s challenges the way Roy & Estelle Kelley did in their time.

Understand that somebody or something can move your cheese at any moment.

Be ready for your cheese to move and be ready to change your ways.

The changes that our company has made, and continues to make, in its marketing plans are good examples of how we are responding to today’s world.

Work hard.

Work smart.

Learn new things and adapt quickly.

Our earlier speakers, Dean Nakasone and Tom Fargo, certainly did this when they moved into their new jobs.

Don’t forget to know and take care of our customers.

Finally, don’t get too complacent.

Your cheese will move again.

It did for Roy & Estelle. And for me too. And it will continue to move for our company and for each of you in the years to come.

I wish you good luck and much success. I have great confidence in you all.

Enjoy the challenge of the journey and all of the tasty new cheese you will find along the way.

ALOHA!