This installment of "HR Legal Briefing" is written by David W. Garland, a Member of the Firm and Chair of Epstein Becker Green’s National Employment, Labor & Workforce Management Steering Committee. Garland is frequently retained in matters involving clients’ most senior executives and in high-profile, high-stakes, and highly sensitive cases. He can be reached at [email protected].
In last month’s column, we wrote that boards of directors need to pay more attention than ever before to HR issues because if not handled well, they can lead “to reputational damage, to the loss of key leaders and talent, and to possible loss of shareholder value.” If anyone doubted the wisdom of that advice, they should look no further than the events that recently unfolded at Wynn Resorts.
On Friday, Jan. 26, The Wall Street Journal reported that a number of women had accused Steve Wynn, the company’s founder, chairman and CEO, of sex harassment. The company issued a statement saying that it was committed to operating with the “highest ethical standards and maintaining a safe and respectful culture.” Wynn denied the allegations in his own public statement but on the same day the story broke, the company’s stock dropped by 10% — a loss of $2 billion in shareholder value in an afternoon. (In a recent securities filing, the company had said that if it lost the services of Wynn, then “the business may be significantly impaired”).
In the days that followed, the company’s board formed a special committee to investigate the allegations against Wynn. Regulators also took notice of the allegations and announced that they would monitor them. More women came forward telling their own stories, and a $7.5 million settlement paid to a former employee who claimed to have been harassed by Wynn came to light. By Monday, Jan. 29, the company’s stock was down another $1 billion. As the Journal put it that day, “the price of sexual-misconduct accusations has never been higher.”
The allegations also brought attention to the board’s executive compensation and corporate governance practices. In less than a week, they also placed at risk a major company project in Massachusetts. Wynn initially dug in and sought to rally support, but by Feb. 6, he was forced to resign from the company. He ended up losing up to $330 million in severance payments. The resignation, however, hardly put an end to the company’s problems.
Without explanation, the special board committee fired the outside law firm that it had retained only weeks earlier to investigate the allegations against Wynn. Within days, the board hired a different firm to conduct “an expanded and comprehensive review” of the company policies.
Then the shareholder litigation started. On Feb. 7, a Wynn Resorts shareholder filed a lawsuit against Wynn and the company’s board of directors for allegedly “disregarding a sustained pattern of sexual harassment and egregious misconduct” by the former chairman and CEO. The complaint seeks unspecified compensation from the injury and losses as a result of breaches of fiduciary duty, abuses of fiduciary power, sexual harassment and violations of law allegedly committed by Wynn.
Two additional lawsuits followed, and the claims should grab the attention of executives and board members everywhere. One alleged that the “unwaveringly loyal” board “turned a blind eye to reports of sexual harassment and coercion” and “through its action and inaction” allowed Wynn “to repeatedly coerce his female employees in sexual conduct.” The other alleged that the board engaged in a scheme to conceal and cover-up Wynn’s sexual assault and harassment.
If these developments don’t grab the attention of the C-Suite and board members, then what will? Oh, wait, did we mention the New York State Attorney General’s recently filed a lawsuit against The Weinstein Company that put a stop to the sale of the company? More on that next time.