Wynn case raises questions about responsibility to investors
NEW YORK » The scandal that forced the resignation of Steve Wynn as chairman and CEO of the casino and resorts company bearing his name is raising questions about the obligation of corporations to disclose sexual misconduct allegations to their investors — an issue complicated by a web of workplace and legal practices that companies have used to keep such situations under wraps.
The billionaire casino mogul’s resignation came less than two weeks after the Wall Street Journal reported that a number of women said Wynn harassed or assaulted them and that one case led to a $7.5 million settlement.
Wynn now faces investigations by gambling regulators in Nevada and Massachusetts, where the company is building a roughly $2.4 billion casino just outside Boston. Regulators in Macau, the Chinese enclave where the company operates two casinos, are also inquiring about the allegations.
Wynn has vehemently denied the report’s allegations, denouncing in his resignation statement an environment “in which a rush to judgment takes precedence over everything else, including the facts.” In accepting Wynn’s resignation, the company’s board of directors made clear it had done so “reluctantly.”
The scandal has cost shareholders money, leaving the company exposed to complaints that investors should have been informed about the allegations against a leader whose image and reputation were tightly tied to the brand. The company’s stock rallied Wednesday after Wynn resigned but has fallen almost 12 percent since the Journal’s Jan. 26 report.
Wynn remains the largest shareholder of his company and his signature is its logo. Additionally, in its annual filings with the Securities Exchange Commission, Wynn Resorts said the mogul’s “efforts, skills and reputation” are a large factor in the company’s ability to compete, and its business could suffer if he were to leave or lose his ability to focus on the company.
At least one shareholder raised those factors in a lawsuit filed Wednesday in a Nevada district court. The shareholder, Norfolk County Retirement, accused the company’s board of directors of breaching its fiduciary duties by “turning a blind eye and disregarding a sustained pattern of sexual harassment and egregious misconduct by Mr. Wynn.”
Joe Schmitt, an employment attorney with Minneapolis firm Nilan Johnson Lewis, said he would not be surprised if Wynn Resorts were to face more lawsuits from shareholders claiming the allegations against Wynn should have been disclosed.
“More importantly, in this case, the lawsuit is likely to result in a disclosure of the very facts that the company sought to keep confidential,” Schmitt said.
There is no law obligating companies to disclose internal allegations of sexual harassment or any settlements involvement employment-related complaints. The Securities and Exchange Commission, however, does have the power to require publicly traded companies to disclose litigation that could have a material effect on their financial results.
But so far, Wynn Resorts hasn’t been linked to any payments to Wynn’s accusers. According to the Journal report, Wynn did not use company funds to pay the $7.5 million settlement to a manicurist who alleged that he pressured her into having sex during an appointment. The newspaper reported that Wynn and his legal representatives set up a separate company to handle the settlement, which helped hide the payment.
However, under securities law, a company is obligated to disclose developments that might be important to investors considering buying its stock.
“It should have been disclosed,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management and an expert on corporate governance. “It’s not just his choice, his decision, but also his name and even his signature, so it’s hard to disentangle the value of his personal conduct and image with the brand value.”
A wave of sexual misconduct claims against prominent figures in entertainment, media and politics gained momentum last fall in the aftermath of articles detailing movie industry mogul Harvey Weinstein’s decades of alleged rape and harassment. But Wynn is the first CEO and founder of a major publicly held company to come under scrutiny since the Weinstein allegations surfaced.
In some ways, corporations may be facing new territory when it comes to their legal obligations to disclose sexual misconduct allegations against their star executives. Sexual harassment allegations are proving more damaging to reputations than even just a few years ago because public perception over the gravity of such conduct has changed, Schmitt said.
“#MeToo has changed the landscape dramatically,” he said. “Things that were not a big deal 10 years ago are a big deal now.”