By now, you've probably heard about The Wall Street Journal's article on allegations of sexual harassment and assault (which I will refer to in this article as alleged sexual misconduct) by Wynn Resorts (WYNN -1.16%) founder and CEO Steve Wynn. The allegations sent the stock lower on Friday and have sent the gaming world into a whirlwind.
Steve Wynn called the allegations "preposterous," but given that there were dozens of accounts of sexual misconduct, this is something that has to be taken seriously by Wynn Resorts as a company and its investors. I'll leave discussion of the legal and ethical issues to those more qualified, but as someone who writes for investors, I'd like to take a look at how the allegations could impact Wynn Resorts' business and stock.
Image source: Getty Images.
What's at stake
Allegations of sexual misconduct against a CEO should be taken seriously by any investor. But Wynn Resorts is in a particularly interesting position given Steve Wynn's importance to the company. Here's how Wynn Resorts' own 2016 annual report filed with the SEC put it [emphasis in original]:
The loss of Stephen A. Wynn could significantly harm our business.
Our ability to maintain our competitive position is dependent to a large degree on the efforts, skills and reputation of Stephen A. Wynn, the Chairman of the Board, Chief Executive Officer and one of the principal stockholders of Wynn Resorts. Mr. Wynn's employment agreement expires in October 2022; however, we cannot assure you that Mr. Wynn will remain with Wynn Resorts. If we lose the services of Mr. Wynn, or if he is unable to devote sufficient attention to our operations for any other reason, our business may be significantly impaired.
To be clear, Wynn Resorts wouldn't cease to exist if Steve Wynn isn't the CEO. But he's the vision and driving force behind its strategy and execution. More than most CEOs, he is a large part of why the company is as valuable as it is.
There's also the regulatory environment in which Wynn Resorts operates to consider. Massachusetts and Nevada regulators are already looking into the allegations and they could force Steve Wynn out as the operator and major shareholder of the company if they deem him unfit to hold a gaming license. Again, I'm not predicting regulators will strip Wynn of his gaming license, but in a highly regulated environment, when one man holds so much power in a company, these are consequences investors need to consider.
Violations of company policy?
Here's where the corporate repercussions could be severe for both Steve Wynn and Wynn Resorts if the inquiry into these allegations turns up serious wrongdoing. If the allegations against Steve Wynn are true, he would have violated Wynn Resorts' Code of Business Conduct And Ethics [emphasis in original].
2.2 Promoting a Diverse and Productive Workforce
The Company is an equal opportunity employer committed to complying with all state and federal fair employment practice laws, as well as maintaining a workforce that reflects the diversity of the community. The Company believes in and supports equal opportunity in employment to all persons regardless of race, color, national origin, citizenship status, sex, marital status, gender identity or expression, sexual orientation or perceived sexual orientation, age, religion, veteran status, military status, disability, history of disability or perceived disability. Harassment or discrimination of any sort will not be tolerated.
In Wynn Resorts' case, this isn't just a document it wrote to fulfill a corporate obligation. It was the Code of Business Conduct And Ethics that the company used to find Kazuo Okada -- an early investor and formerly the largest single shareholder of Wynn Resorts -- unsuitable to be a shareholder in the company, which ultimately led to not only his ouster from the Board of Directors but Wynn Resorts redeeming his shares.
I'm not predicting that Wynn Resorts would redeem Steve Wynn's shares, but investors should be aware of the company's policies and the severity of what's being alleged from a corporate governance perspective.
Understand the risk
I will point out that Wynn Resorts' standard SEC filings don't seem particularly focused on risks or consequences of sexual misconduct allegations. Even disclosures about potential violations of gaming license and concession rules in Las Vegas, Massachusetts, and Macau are more focused on things like illegal gambling, money laundering, and debt collection rather than sexual misconduct.
With that said, regulators and the Board of Directors may hold the fate of Steve Wynn and Wynn Resorts in their hands. And if either group forces Steve Wynn out based on the allegations, it could reshape one of the most influential gaming stocks in the world.
