In the discussion case Corporate Governance and Executive Misconduct at Wynn Resorts on page 303-304. How do you feel about Steve Wynn's behavior? Why is it inappropriate and what laws were violated? Was Steve Wynn's compensation justified why/why not? What should the board of directors have done to eliminate the impact of Mr. Wynn's behavior?

www.ecgi.org lly responsible individual investors www.issgovernance.com European Corporate Governance Institute www.calpers.ca.gov ISS (formerly Institutional Shareholder Services) www.sec.gov bows California Public Employees Retirement System U.S. Securities and Exchange Commission provib Discussion Case: Corporate Governance and Executive Misconduct at Wynn Resorts On January 26, 2018, The Wall Street Journal published an explosive story about Steve Wynn, the chief executive and chairman of the board of Wynn Resorts, a leading operator of luxury hotels and casinos. The Journal reported that dozens of people had recounted "a decades-long pattern of sexual misconduct" involving Wynn's unwanted advances on mas- sage therapists, cocktail waitresses, and other women who worked at his properties. One of the most serious allegations was that in 2005 the CEO had forced a manicurist to remove her clothes and have sex with him. After the woman filed a detailed complaint about the episode, Wynn had settled privately with her for $7.5 million. The executive immediately challenged the Journal story, saying, "The idea that I ever assaulted any woman is preposterous." The day the article came out, the share price of Wynn Resorts dropped by 10 percent, ul poranso wiping out $2 billion in shareholder value. Steve Wynn, 76, had begun his career as a young man by taking over his father's bingo parlors in Maryland. He moved on to Las Vegas, Nevada, where he renovated the Golden Nugget, and later developed (and sold) the Mirage, Bellagio, and Treasure Island proper- hiswon or no ties. Over his long career, Wynn was widely credited with driving the transformation of Las Vegas from a seedy strip into a world-class destination for entertainment and gaming. A larger-than-life character, Wynn was said to be inspiration for the casino owner played by Andy Garcia in the "Ocean's" films. In 2018, Wynn Resorts owned the Wynn Las Vegas and two hotel casinos in Macau, an autonomous zone in southeast China that permitted gambling, and was in the process of building a new property in Massachusetts, expected to open in 2019. The firm had more than 24,000 employees and earned revenues in 2016 of $4.5 billion, about three-quarters of which came from its Macau operations. Wynn's signature was the company's logo. In 2016, Steve Wynn's total compensation was $28.2 million, placing him tenth on the list of top-paid U.S. CEOs. The research organization As You Sow ranked Wynn sixth on its list of "most overpaid" CEOs, based on a comparison of his compensation with total return to shareholders over the prior five years. But the company defended Wynn's com- pensation package, pointing out in its proxy statement that between the initial public offer- ing in 2002 and 2017, shareholders had averaged a total return of 19 percent per year, well above the 9 percent return of the S&P 500 during that period. "Mr. Wynn is the founder, creator and name behind our brand," the company said. "We believe he brings extraordi nary talent . . . that is unrivaled in our industry." Wynn Resorts' board of directors was comprised of ten people. Wynn served as chair- man, a role he had held continuously since the company went public. The other nineSix Business and Its Stakeholders directors, although nominally independent, had close personal ties with the chief execu- tive. They included D. Boone Wayson, whose father had been Steve Wynn's father's part. ner in the bingo business; Edward Virtue, who had managed the Wynn family money; and Robert Miller, a former Nevada governor, who had known the CEO for more than 40 years, Patricia Mulroy, the sole woman on the board, was a former member of the Nevada gaming commission. The nine outside directors served staggered terms, with three standing for election or re-election to three-year terms each year. Their annual compensation ranged from $362,406 to $517,973. Wynn Resorts' board was widely viewed as compliant with the CEO's wishes. The board had voted against Wynn only three times since 2002. The sole board member who was ever opposed for re-election was Elaine Wynn, Steve's ex-wife, who lost the support of the other directors after the couple's divorce. Glass Lewis, a proxy advisory firm, had given the company's corporate governance practices an "F" grade in both 2016 and 2017. In the latter year, 41 percent of shareholders-including the big institutional investors Van- guard Group and BlackRock Inc.-had opposed the company's compensation policies in a "say-on-pay" vote. On the day the Journal article broke, the board issued a statement affirming the compa- ny's commitment to maintaining a respectful culture and announced it had formed a com- mittee, headed by Mulroy, to investigate the allegations. But these actions failed to stem a tide of negative press. On February 6, Wynn resigned as CEO and chairman, saying he could no longer be effective. The board accepted his resignation "with a collective heavy heart," calling Wynn a "beloved leader and visionary." A week later, it hired Gibson Dunn, a law firm that had represented the board in earlier litigation, to conduct an inquiry. Less than four weeks after the publication of the allegations against Steve Wynn, New York state's public pension fund filed a lawsuit against the Wynn Resorts board of direc- tors, saying the board had done nothing to prevent the CEO's sexual abuse and harassment and had allowed him to resign without being held accountable. The pension fund called for the defendants to "disgorge" (give back) all compensation obtained from wrongful con- duct. Other states, union pensions, and individual shareholders also filed suit, and gam- bling regulators in Massachusetts, Nevada, and Macau opened investigations. "The story of Steve Wynn is a cliche: a powerful man preying on the powerless," said the state of Oregon in its shareholder lawsuit. "But the directors of Wynn Resorts were not powerless. They were the only people with the knowledge and ability-and duty to the company-to investigate and stop Steve Wynn's conduct." Sources: "Dozens of People Recount Pattern of Sexual Misconduct by Las Vegas Mogul Steve Wynn," The Wall Street Journal, January 26, 2018; "Wynn Board Faces Scrutiny Following Allegations Against Steve Wynn," The Wall Street Journal, January 30, 2018; "Wynn Steps Down as Wynn Resorts CEO," and "The Board of Wynn Resorts Needs to Go, Too," The Wall Street Journal, February 7, 2018; "Who's Going to Fix Wynn Resorts? Not Its Board," February 14, 2018, www.bloomberg. com; "Stockholders File Class Action Lawsuit Against Wynn Resorts," The Real Deal, February 23, 2018: "Oregon Sues Steve Wynn, Board of Directors for Failing to Stop Sexual Misconduct," March 7, 2018; www.hollywoodreporter.com; "steve Wynn Remade Vegas, But China is Where He Makes Real Money," January 29. 2018. http:/money.cnn.co. y cnn .com ; " Steve Wynn's Tarnished Name and Now a Tainted Brand," The New York Times, February 11, 2018; and John L. Smith, Smith , Running Scared: The Life and Treacherous Times of Las Vegas Casino King Steve Wynn (Cambridge, MA: Da Capo Books, 2001)- ussion 1. Do you think Steve Wynn's executive compensation was justified, and why or why not. of good