Casino mogul’s multi-year divorce takes sexual harassment accusations to the next level, destroying billions overnight. Can shareholders protect themselves?
Insiders at Wynn Resorts have been telling reporters that the boss pressured female staff to have sex with him, paying them off with 7-figure settlements when they protested.
He says his ex-wife is behind the whisper campaign. Whatever the truth is, what’s clear is that the mood on Wall Street has gotten so brittle that just the whiff of scandal can trigger panic selling.
Just the rumor of Wynn abusing his position in the manner of Harvey Weinstein was enough to destroy $2 billion in shareholder value on Friday.
And with labor regulators digging into corporate records, it’s an open question how deep the damage will go before institutional investors force the board to remove the problem permanently.
There’s no legal complaint or even a formal breach of the Wynn corporate code, which now seems almost tailored to ignore management poisoning the work environment.
What we have here is a trial by stock exchange. Steve Wynn is losing in that court.
Shadow accusations enough to spook shareholders
The Wall Street Journal didn’t talk to anyone claims Wynn harassed her on the job. Instead their sources were people in the company who filled in a narrative of predation and cover-up campaigns.
Apparently Wynn paid his manicurist $7.5 million to keep quiet. She worked in the hotel salon. Other salon workers reportedly hid in order to avoid getting caught alone with him.
Odds are good his ex-wife Elaine was a factor in how this all went public.
He says she’s trying to smear his reputation with “preposterous” rumors. She says she tried to raise the issue three years ago and was purged from the Wynn board — she still owns 9% of the company — as payback.
Unless victims come forward or payment records materialize, I don’t know if we’ll ever know for sure. The board has a reputation for being a rubber stamp. They don’t want to rock the boat.
As it is, the current Wynn governance documents don’t get into sexual predation on the job at all. There’s a blanket “harassment or discrimination of any sort will not be tolerated,” but that’s it.
Is that an open invitation for a predator? Technically being coerced to sleep with the big boss is an illegal form of discrimination, but there’s still a lot of cultural wiggle room there.
Likewise, perpetuating a corporate system that acknowledges that the boss is out of control is technically grounds for litigation and fines, even if most of the activity was driven by a desire to prevent or minimize incidents.
At a minimum, the company needs a revamped written code of executive conduct to eliminate all room for error or misinterpretation. In the meantime, shareholder lawsuits are multiplying fast.
The backlash hasn’t wrecked Wynn’s share price but it’s definitely knocked the air out of what was once a chart open to the stratosphere. We’ll have to see where the bounce comes.
Right now, the selling is more a matter of pure reflex revulsion than a sense that the business itself is in danger — earnings targets are as healthy as ever and no analyst has yet weighed in to say Steve Wynn’s reputation is now too toxic to keep the company afloat.
Either way, we’re feeling the immediate impact of reputation collapse here now. Call it the “predator put,” if you like. This time around, it’s enough to knock 10% off the company’s share price, so far.
Elaine may yet get revenge
That 10% drop is significant because it also reflects the price of separating either Steve or Elaine from the company.
Steve is the CEO and until last week called just about all the shots. He’s got roughly 9.7% of the shares.
As part of the 2010 divorce decree, Elaine — who has argued for ages that she helped build and run the enterprise — got about half of Steve’s stake, or 9.4% of the company.
Both stakes represent a healthy pool of capital even after Friday’s slide, generating about $19 million a year in passive dividends as well as their potential liquidation value.
But that’s a problem. Steve doesn’t want to sell. He still remembers the bruises from losing control of his old casino company, Mirage, when raiders talked the share price down to the point where they could squeeze him out and take over.
On the other hand, Elaine can’t sell. The settlement kept that power under Steve’s control so he could outvote everyone else with any form of ownership interest.
When she was on the board being treated like the major shareholder she is, that restriction was apparently tolerable. But after she lost her seat in 2015, she’s been increasingly ready to sell and walk away.
She’s suing right now for the right to do that. And if she gets her way, Steve’s going to find himself with an even less sympathetic new shareholder making demands and watching his moves.
If she’s motivated strongly enough, she could even dump at well below current value in order to help an aggressive buyer amass a takeover stake on the cheap.
It’s a nightmare for Wynn. While the current accusations aren’t likely to help or hurt Elaine’s case in court, all of this shows how frustrated she’s gotten.
She’s willing to come out with all the dirty laundry she can find, even if it cost her almost $200 million on paper overnight.
Arguably she’s found the perfect Wall Street weapon for this moment in history. And she’s using it. The weight of the scandal has already knocked Steve out of the Republican inner circle.
If she’s got any more dirty laundry to distribute, I don’t think its legal legitimacy really matters. It’s hurting Steve. Hurt him enough, she gets what she wants.
While previous “me too” accusations may have been weaponized in this way — I’m looking at the links between Harvey Weinstein and Woody Allen — this is the first one to play out on Wall Street.
It probably won’t be the last. Corporate boards need to weigh the risks and rumors right now. They may think the boss is irreplaceable but there’s only so much outrage a stock can bear.
