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Things aren't looking good for Wynn resorts and casinos these days. Institutional Shareholder Services, a proxy advisory firm, issued an unusually strong condemnation of Wynn and its management, saying that it had created a corporate governance record that is "among the worst" in the U.S. It urged shareholders to withhold votes for every nominee to the board.
Elaine Wynn, one of the resort's co-founders, has been campaigning to rejoin the board. The board had voted to allow her seat to expire this April, reducing its size from eight to seven, and had supported two incumbent directors, but not her, for re-election.
As a co-founder of the company and director for 13 years, the proxy firm held her responsible for many of the failings at the resort company. Here are three lessons to be learned from their report:
Independent Directors Must be Independent
The ISS report savaged the resort for week governance and poor pay practices. According to ISS, Wynn's ex-husband (and resort co-founder) had been allowed to misuse corporate aircraft, treating them as personal planes instead of limiting their use to corporate activities.
The problems weren't just of Ms. Wynn's doing, either. The report noted that there was no daylight between Elaine Wynn and the rest of the board on tolerating week governance." Indeed, the report stated that the directors had demonstrated "a stunning failure of judgment by ... ceding -- not delegating, ceding -- control to two individual shareholders" -- namely, Elaine and Steven Wynn.
Have a Transition Plan in Place
Much of the turmoil at Wynn arose after Ms. Wynn sued her ex-husband to get out of a shareholder agreement that required them to vote in tandem and limited her ability to sell stock. Should her suit succeed, control of the company could change, resulting in an expensive and complicated buyout process.
Even so, the ISS report blamed the company for failing to establish plans for the future. While recent ISS reports have praised increased "refreshment" of corporate boards, or turnover to new, younger governance, Wynn had taken no concrete steps to ensure a smooth transition after its 73-year-old chief executive leaves.
Don't Complain About Problems You Created
Ms. Wynn had argued that if she lost her seat, the board would be lacking any female members. This is true, but the ISS report noted that Wynn had done nothing during her tenure to increase diversity on the board or within corporate management. Greater diversity of directors has been found to increase effective corporate governance.
Even though the odds in Vegas are weighted in favor of the house, when it comes to corporate governance, GCs need to make sure that corporate boards aren't rigged in favor of one or a few influential directors.