Misconduct and shareholder lawsuits are costing companies and executives real money, and everyone involved is starting to pay attention.
On November 29th, 2019, it was announced that Steve Wynn would be cutting a $20 million check to Wynn Resorts as part of a settlement of a shareholder lawsuit relating to workplace misconduct at the company.
We filed our lawsuit in response to serious and repeated allegations of sexual misconduct by Steve Wynn and the prior board’s alleged failure to stop it. We are gratified that the reforms in this agreement and those undertaken following the initiation of our lawsuit will protect Wynn Resorts’ employees and shareholders against future harm.Thomas P. DiNapoli, New York State Comptroller
There are a number of important takeaways from the Wynn situation.
- Shareholders are increasingly litigious when workplace misconduct situations arise. Wynn Resorts is certainly not alone. Alphabet (Google), Twenty-First Century Fox, Nike, CBS, Lululemon, Liberty Tax, and countless other high-profile public companies have faced lawsuits from shareholders following the disclosure of workplace misconduct. Derivative lawsuits are alleging that directors and officers and boards of directors are liable in sexual harassment cases. Scott Carlton of Paul Hastings recently wrote for The American Bar Association that there are expanding theories of liability surrounding harassment and other forms of workplace misconduct that Boards need to be aware of. For example, “the reasonableness of the board’s conduct under the business judgment rules is bound to receive renewed scrutiny by courts” when #metoo-issues arise. Activist investors are increasingly focusing on environmental issues – social and governance issues are certainly on their radar as well.
- Again, It was a personal check… Executives need to be aware that, depending on the circumstances, they may have personal liability when workplace misconduct situations arise.
- Insurers are not always going to foot the bill (at least not all of it). In this case, insurers agreed to pay $21 million of the total settlement amount of $41 million (with Steve Wynn covering the remainder). As the dollar amounts related to workplace misconduct claims continue to skyrocket – particularly relating to derivative shareholder suits – companies can no longer depend upon their EPLI and D&O policies to cover the entire amount. Premiums are skyrocketing, and the company may still incur significant liability.
- Strong corrective action mitigated the damages. The total value of the Wynn Resorts settlement was actually $90 million, but it was reduced by $49 million based upon steps the company has taken to mitigate future risk. Corrective actions include several governance reforms (e.g. independent chair, majority vote requirement, Board diversity requirements), and policy changes, including enhanced harassment and workplace conduct training.
The scope of liability is expanding well-beyond the direct perpetrators of bad workplace behaviors. Board members and the C-Suite need to recognize this reality. pelotonRPM’s Workplace Conduct, Ethics & Leadership simulations can help prepare members of your Board and senior leadership team to mitigate the risks.