Steve Wynn, king of Las Vegas, has surrendered his crown. Investors seem to be pleased.
Shares of Wynn Resorts Ltd WYNN 8.64% , which had plunged in the wake of reports alleging a decadeslong pattern of sexual misconduct by Mr. Wynn, climbed 8.6% on Wednesday.
No doubt part of investors’ relief relates to the investigations launched by casino regulators in Massachusetts and Nevada. Losing licenses as a result of Mr. Wynn’s alleged conduct would be a huge blow to the company, but it isn’t clear that his resignation removes the risk.
Mr. Wynn has said it is “preposterous” that he would assault the woman to whom he paid a financial settlement and who accused him of forced sex, but he didn’t address the other allegations of sexual misconduct originally reported by The Wall Street Journal. Wynn Resorts has said it is committed to maintaining a safe and respectful culture, requires annual anti-harassment training for all and offers an anonymous hotline. The company’s board has also formed a special committee to investigate the allegations.
The investigations by regulators could broaden beyond Mr. Wynn. The allegations, if substantiated, could suggest a corporate-governance failure that extends to the company’s board.
Indeed, the only thing more surprising than Mr. Wynn’s sudden resignation is the tone with which the board “reluctantly” announced it.
“It is with a collective heavy heart” that they accepted his resignation, said nonexecutive chairman of the board Boone Wayson. Mr. Wayson went on to praise Mr. Wynn as “a philanthropist and a beloved leader and visionary”–builder of the most iconic resorts, creator of modern Las Vegas.
That hardly sounds like a board that sees something amiss in Mr. Wynn’s alleged conduct. Like Mr. Wynn, the board hasn’t taken any responsibility for the alleged abuse of female employees.
Board members, which include only one woman, are widely viewed as lacking independence—one of the many reasons that Wynn Resorts ranks last in corporate governance among 108 companies in the gambling and casino business, according to Sustainalytics.
To make matters worse, company executives resorted to a troubling strategy in the past week in attempts to defend Mr. Wynn. As the Journal reported, company film crews videotaped salon employees, asking them questions like, “Do you feel comfortable with Mr. Wynn?”
The board’s credibility will be further tested in the coming months by a lawsuit filed by former Wynn partner Kazuo Okada, a Japanese pachinko magnate. The Wynn board voted in 2012 to take away Mr. Okada’s 20% stake in Wynn after a company investigation alleged that he bribed gambling officials in the Philippines, where he wanted to build a casino. Mr. Okada has denied the allegations and sued Wynn Resorts.
The board argued that Mr. Okada’s presence as a shareholder created a risk to Wynn’s casino licenses. The board might have difficulty explaining why allegations against Mr. Wynn, who remains the largest shareholder and whom they praised, don’t also pose a risk.
“There will be more attention now paid to sexual misconduct in this industry,” says Jon Hale of Morningstar.
Without Mr. Wynn at the helm, the board could become the target of activist investors who want to improve governance and boost returns. Though Wynn shares have rallied, they remain well below their price prior to the Journal story about alleged misconduct. Investors could demand new board members take over and, if the company resists, could run a proxy fight to get their own slate elected.
Mr. Wynn’s departure also leaves the company open to takeover bids. Its two casinos in Macau, which account for 70% of the company’s earnings before interest, taxes, depreciation and amortization, would be attractive for companies such as Caesars Entertainment, which missed the boom there because it was struggling with a leveraged buyout gone wrong. Despite that bad experience, private equity has long been interested in casinos, and could make offers for all or part of Wynn.