Inside the boardroom of Wynn Resorts is a power struggle being fought publicly

By J.D. Morris

Monday, April 13, 2015 | 2 a.m.

It has all the trappings of an intense political campaign, with contentious allegations, appeals to voters, a sleek candidate’s website and, of course, a high-stakes election.

But the battle between Elaine Wynn and Wynn Resorts is not political — no one is running for public office. Rather, the company is trying to remove Wynn from its board of directors, while she fights vigorously to keep her seat at the table.

The parties have traded attacks for more than a month, since Wynn Resorts revealed it wouldn’t renominate Wynn, the ex-wife of CEO Steve Wynn. She has been a director since 2002.

At stake is the role of one of the gaming industry’s most powerful women in a company she co-founded and what she says is an invaluable voice — the only woman’s — on the board. But the board says she needs to go because she no longer represents the best interests of shareholders and a legal dispute she initiated threatens to force the company to refinance debt under unfavorable terms.

To complicate matters further, a third-party advisory firm recently recommended that Wynn shareholders vote for none of the candidates nominated to the board. The firm expressed such dissatisfaction with the way the company is run, it said stockholders should send a strong message by rejecting all of the candidates.

The battle is playing out in a way that provides an unusually public glimpse into the corporate drama of a major casino company. Sorting through the allegations on both sides shows how complex the dispute has become.

Why the board wants her out

Much of the battle deals with a former stockholder’s agreement between Elaine and Steve Wynn.

When the Wynns divorced in 2010, Steve Wynn split his shares with Elaine Wynn. Though she was permitted to sell a limited amount each year, she became bound by a pre-existing agreement that otherwise limits her ability to sell and requires that her and her former husband’s shares be voted together.

In 2012, Elaine Wynn sued to try to dissolve that agreement. She said its purpose was no longer relevant, because it was drafted between Steve Wynn and businessman Kazuo Okada, who no is longer a major shareholder.

Together, Elaine and Steve Wynn own more than 19 percent of Wynn Resorts. The board fears that if Elaine Wynn is allowed to sell more of her piece of the pie, the two Wynns may no longer have a controlling interest in the company. If that happens, the company says, a provision may be triggered that could require it to refinance a significant portion of its debt, which would be bad news for the financial health of Wynn Resorts.

The issue existed when Elaine Wynn was last up for election to the board in 2012. But Wynn Resorts said in regulatory filings the board renominated her then because it was satisfied by her assurances the suit wouldn’t interfere with her work as a director.

Now, the company says it thinks the lawsuit, which has yet to be resolved, creates a conflict.

Wynn Resorts pointed to an incident last year when the board restructured Steve Wynn’s compensation so more of it was awarded in stock than cash, therefore tying it to the performance of the company. When Elaine Wynn was asked to let Steve Wynn sell the stock so he could access his full compensation, she tried to increase the amount of shares she could sell under the old agreement, according to the company. The board says that demonstrated she cares more about her interests than those of stockholders.

“After a lengthy discussion, our final determination was unanimous — that the independent directors had simply lost confidence in her judgment to make the right decisions for the company and shareholders,” said Bob Miller, the former Nevada governor who’s now chairman of the board’s governance committee. “We felt that because her judgment had become impaired, she couldn’t be counted on to put other shareholders’ interests ahead of her own, and we determined that, based on her actions of the last three years, we simply believed that Wynn shareholders deserved better.”

Wynn Resorts has other reasons, too. Former Wynn executive Andrew Pascal, who is Elaine Wynn’s nephew, was part of a group that bought land, the site of the former New Frontier, across from Wynn Las Vegas that Wynn Resorts had looked at acquiring. The company has suggested Elaine Wynn should have disclosed her nephew’s competing bid to the board.

The company also says she doesn’t qualify as an independent director under Nasdaq standards, which means she can’t participate in important committee work.

Why Wynn thinks she should stay

Wynn maintains the lawsuit doesn’t interfere with her work on the board. She says it’s simply a disagreement between two stockholders and not a board-related issue.

She wants to maintain her level of control over the company, she says, so she has a vested interest in making sure a refinance is not triggered.

As for her nephew, Wynn says she never knew of his involvement while the board was looking at the site.

She also has said she thinks she could qualify as independent under Nasdaq standards.

More than that, though, Wynn points to her long history with the company and the gaming industry in general.

“I have a very proprietary feeling about the company,” she said. “I believe I am part of the DNA of Wynn Resorts, and I invested my time, my effort, my blood, sweat, tears and love in helping to co-found that place.”

Few others can match the decades she has spent watching and taking part in the gaming industry’s growth in Las Vegas and beyond, she said. Wynn made similar points in regulatory filings and on a website she launched, elaineforwynn.com, that outlines her campaign to stockholders.

Wynn says she has played a crucial role in building the Wynn Resorts brand over the years, giving her a unique perspective from which to criticize management if necessary.

Additionally, her interests are in sync with stockholders’, she says, because she’s the third-largest stockholder and doesn’t intend to change that by selling a lot of shares.

Wynn also noted she is the only remaining female member of the board. Removing her would create what she calls an “appalling lack of diversity” at the highest level of the publicly traded company.

Wynn Resorts promised to add “one or more diverse directors” to its ranks by the end of the year.

What happens next?

The campaign is building to an April 24 stockholders meeting, during which the final result will be determined. There are two open seats on the board. Wynn Resorts renominated two other directors to fill them. Elaine Wynn nominated herself.

It’s possible both Wynn and Wynn Resorts will lose this fight, and stockholders will reject all of the candidates, as advisory firm Institutional Shareholder Services recommended.

“There appears to be no daylight between Elaine Wynn and the rest of the board on tolerating weak governance practices, poor pay practices or an overall corporate governance profile that ranks among the worst, not the best, of U.S. companies,” the Institutional Shareholder report said.

If she were to lose, Wynn said she would “continue to watch the affairs of the company very carefully.” She has other commitments, including being president of the state board of education, but she’ll never take her eye off Wynn Resorts, she said.

“The name on that building is mine, too,” Wynn said. “And although people may want to identify solely with it as Steve’s, I would hope people would remember that it was a partnership and that Wynn is my last name, as well.”

Even after the Wynns divorced — for the second time — their partnership remained surprisingly intact. Steve Wynn told Las Vegas Weekly in 2010 that “she’s my buddy, she’s my best friend” and “we’re still partners … I respect and value and really covet her opinion on issues.”

That partnership now seems to have entered its most strained state, with one Bloomberg columnist going so far as to say the dispute is ending “America’s best business marriage.”

But Elaine Wynn doesn’t think her fight to stay on the board will destroy it. In fact, relations remain amicable between the Wynns, she said.

“Steve still has the good habit of reaching out to me and calling me on unrelated items,” she said. “He’ll call me and ask me questions about education, about the margins tax. I still get calls to discuss things other than business. We’ve been roommates since we were 19 years old, and that’s a relationship that’s very difficult to unwind.”