Business

With Steve Wynn Gone, ‘Queen of Las Vegas’ Does Boardroom Battle

Posted May 10, 2018 5:45 p.m. EDT

Elaine Wynn, known as “the Queen of Las Vegas” for her long involvement with Mirage and Wynn resorts, the casino and resort companies she founded with her ex-husband Steve Wynn, might seem an unlikely champion of shareholder rights and good corporate governance.

She’s better known as a philanthropist (school reform, performing arts), an art collector (she paid $142 million for a Lucian Freud triptych, and is co-chairwoman of the board of the Los Angeles County Museum of Art), and a stickler for standards at the company’s high-end resorts.

“To be honest, I’d rather be designing hotel rooms,” she told me this week from her apartment a few blocks from the Wynn Las Vegas, the hotel she called home before being exiled by her ex-husband (she also has homes in Sun Valley, Idaho; Beverly Hills, California and New York City).

Instead, she’s had a crash course in corporate law and is working the phones to reach major Wynn Resorts shareholders, drumming up support to oust a long-serving Wynn board member who’s up for re-election at the annual meeting next week.

The outcome is of far more than academic interest, given that Elaine Wynn is now the company’s largest shareholder, with a 9 percent stake valued this week at nearly $2 billion.

For years, the terms of a shareholder agreement related to her 2010 divorce settlement prevented her from voting her shares independently of Steve Wynn. But that changed earlier this year after The Wall Street Journal reported that he had engaged in a long pattern of sexual harassment of Wynn employees, and had paid a manicurist $7.5 million after she told others in 2005 that Steve Wynn had forced her to have sex.

Steve Wynn denied the allegations and called them “preposterous.” But in the aftermath of the article, he agreed to pay Elaine Wynn $25 million and let her vote her shares to settle a yearslong lawsuit she’d filed to overturn the shareholder agreement. He also resigned as chief executive and sold his 12 percent stake in the company, one in a continuing series of executives of major companies to be swept out in the midst of the #MeToo movement.

Even though Steve Wynn is gone, Elaine Wynn worries that his cronies still run the company and have too many board seats. The board chairman, D. Boone Wayson, has been a friend of Steve Wynn’s since childhood. The current chief executive, Matt Maddox, was in Steve Wynn’s wedding party for his 2011 marriage to Andrea Hissom.

A number of board members have vacation homes close to Steve Wynn’s in Sun Valley, and have vacationed on his yacht. They include Elaine Wynn’s current target, John J. Hagenbuch, a board member who has also been on the committee that routinely approved Steve Wynn’s outsized compensation: $28.2 million in 2016. He’s also a member of the board committee investigating the allegations of sexual misconduct by Steve Wynn.

“This is the only megaphone I have,” Elaine Wynn told me, referring to the proxy fight. “It’s the only way I can send a signal to the board and the investor community that the largest shareholder wants changes made.” She said that she’s not seeking a board seat herself, or the right to name any board members. She’s not opposing two other board nominees of more recent vintage who aren’t old friends of Steve Wynn.

“My mission is to resurrect the integrity of this extraordinary company that is really the capstone of my professional life,” she said. “I could just quietly sell my shares and go off into the sunset and pursue philanthropy. But my mantra is, it’s not where you start in life, it’s where you end up. And I’m not about to go off and leave this company that I helped build as tarnished as it has become.”

The company opposes Elaine Wynn’s effort to remove Hagenbuch, and has repeatedly dismissed her efforts as those of a disgruntled “ex-wife,” a phrase that irritates Wynn, who is a co-founder who was on the board for years. The company has alleged that she is acting out of personal animosity stemming from her bitter divorce.

No matter what her motives, the company may be underestimating Wynn’s campaign. All three major proxy advisory services — Institutional Shareholder Services, Glass Lewis and Egan-Jones — have endorsed her effort to replace Hagenbuch. As Egan-Jones put it, “We believe that the mere presence of Jay Hagenbuch in the Board presents a strong conflict of interest, given that he has close ties with Mr. Wynn. Mr. Hagenbuch, as a member of the Special Committee that investigates the misconduct of Mr. Wynn, makes the credibility of the whole probe in question. As such, the reputation of the Company and the Board is also compromised.”

The firm also faulted Hagenbuch’s role on the compensation committee.

Glass Lewis said, “missteps include appointing a personal friend of Mr. Wynn to a special committee charged with reviewing accusations against him, as well as publication of an awkwardly fawning press release regarding Mr. Wynn’s resignation which shows no recognition of the gravity or severity of the claims against him.”

Wynn Resorts has drawn the scrutiny and criticism of corporate governance experts for years. Since it went public in 2002, Steve Wynn effectively controlled the company by voting his and his wife’s combined 21 percent share and naming directors.

As is the case in many public companies controlled by the founder and chief executive, there was little board dissent. Elaine Wynn had influence outside the boardroom, but once the couple became estranged (they were divorced, remarried and divorced again), her objections were routinely silenced, she said. After she asked a question in one boardroom exchange, Steve Wynn slammed his first on the table and yelled, “No more stupid questions,” Elaine Wynn recalled.

She was forced off the board in 2015 and lost a subsequent proxy contest to be reinstated.

“That’s always a problem when you have a controlling shareholder,” said Charles Elson, a professor and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “If directors disagree they risk being replaced.”

It’s also no surprise that in such a culture, no one was willing to blow the whistle on what appears to have been increasingly brazen sexual misconduct by Steve Wynn.

Elaine Wynn has testified that she learned about the $7.5 million settlement with the manicurist in 2005 and reported it to Kimmarie Sinatra, the company’s general counsel and corporate secretary, in 2009. After consulting with lawyers, Sinatra told her the issue had been successfully “handled personally” and wasn’t a company concern, Eliane Wynn testified. She acknowledged in testimony that she did not tell any of her fellow board members. The company has disputed Elaine Wynn’s account, but didn’t call any witnesses to offer its version.

The Journal’s coverage portrayed a culture in which many Wynn Resorts employees covered up for Steve Wynn and denigrated women who tried to register complaints.

“That would be a toxic cocktail for any company,” Elson said, “but especially one with such serious governance issues. It’s a combination of a family fight, which is always unpleasant, and a hot-button political issue, sexual harassment.

“In this environment, the optics matter. You can’t have Wynn’s friends investigating the allegations. Elaine is absolutely right that the board needs to be refreshed and the legacy directors should go.”

The proxy advisory services did credit Wynn Resorts for moving swiftly to distance itself from its founder and to appoint three new directors, all women, with no ties to the scandal. But Wynn Resorts continues to back Hagenbuch, arguing that he has valuable experience and, in supporting Elaine Wynn, Institutional Shareholders has “placed symbolism over pragmatism.” Sinatra, who remains as Wynn Resorts’ general counsel, told me this week that, all things considered, Wynn has made “amazing progress” in its abrupt transition from a founder-led company to “a more typical global public company.”

She noted that with the addition of three new female directors, 40 percent of the company’s board members will be women. “That has nothing to do with Elaine, but with the board’s attending to long-standing issues of corporate governance that are common at founder-led companies,” she said.

Elaine Wynn said she wants to get through next week’s vote and annual meeting, and then “we’ll see about the next steps.”

“I’d really like go back to playing with my grandchildren,” she said, “knowing that this tremendous company has good leadership and that my shares will continue to have value.”