Intellectual Property. Russell L. Parr

Common Retirement Fund, claiming that executives and five board members engaged in insider trading when they sold company stock while aware of the sexual misconduct allegations. On February 27, 2018, women in Las Vegas and Chicago prompted police departments to begin an investigation. One woman told police she felt coerced into a sexual relationship with Wynn in the 1970s. In March 2018, two massage therapists filed civil complaints against Wynn for intentional misconduct and alleged being coerced into having sex with Wynn. On March 7, 2018, two board members announced their plans to step down.⁷

      On January 25, 2018, Wynn Resorts traded at $200.60. It dropped to $180.29 the next day and by January 29 dropped further, hitting $163.47. The $37.13 per share drop in value is an 18.5% loss in just four days. The share price bounced around at the $160 level for awhile and by mid-year recovered to its $200 level. After achieving the $200 level in mid-May, the stock steadily fell and as of this writing in early September has dropped to $128.38. If the entire drop is credited to Wynn's behavior, then he caused investors a loss of 36% of shareholder value. If we only attribute the immediate 18.5% loss to the revelations about Wynn, the shareholder loss is still huge. With 108.54 million shares outstanding, the $37.13 per share drop in value equaled a loss of $4 billion.

       HARVEY WEINSTEIN AND TOTAL LOSS

      A lifetime of allegedly atrocious behavior led to the total loss of a very successful company. While not a public company, all those involved with the financial performance of it have been wiped out.

      In 2005, Harvey Weinstein co-founded the production-and-distribution Weinstein Company. It produced and distributed the very successful independent films “Sex, Lies, and Videotape,” “The Crying Game,” “Pulp Fiction,” “The English Patient,” “Shakespeare in Love,” and “The King's Speech.” Weinstein's films have earned more than 300 Oscar nominations.

For more than 20 years, Weinstein had been trailed by rumors of sexual harassment and assault but allegedly a variety of moves, including legal threats and settlement payments, have suppressed his history. On October 5, 2017, New York Times reporters Jodi Kantor and Megan Twohey revealed multiple allegations of sexual harassment against Weinstein including unwanted touching, forced oral sex, and rape. The article led to the resignation of four members of the Weinstein Company and to Weinstein's firing. Allegations swirled that executives and board members were aware of Weinstein's behavior (on October 10, the Weinstein Company's board issued a statement, writing that “these allegations come as an utter surprise to the Board. Any suggestion that the Board had knowledge of this conduct is false”).⁸

      The New York Times article spawned months of other investigative articles and a New York City police investigation led to Harvey Weinstein being charged with rape. Weinstein was seen as repugnant and as his entity was closely tied to his company, Weinstein Company was an outcast.

      Victims of Weinstein, in a class action lawsuit, sued him and named his company as a co-defendant. Company employees, actresses, and models joined the lawsuit. A television production team sued the company over the collapse of a planned Amazon series, which was supposed to be produced by the firm but was scrapped after the scandal broke. The financial strain and unknowable outcome from the lawsuits drove Weinstein and company into bankruptcy.

Weinstein Company declared bankruptcy in March 2018 with less than $500,000 in cash, after failing to find a buyer that would give the company a second life outside the protection of the court. Delaware bankruptcy judge Christopher Sontchi signed off at a hearing on the company's bankruptcy auction agreement to sell its assets to the Dallas-based private equity firm Lantern Capital Partners for $289 million.⁹ All proceeds from the sales are expected to go to satisfy creditors and successful plaintiffs.

      It seems that although well-behaved CEOs may not be able to justify their large compensation packages with correspondingly higher company performance, when they misbehave, investors face risks and losses they never saw coming. The value of highly paid CEOs should be questioned when valuing a company's assembled workforce.

NOTES

      1 1 “The Highest-Paid C.E.O.s in 2017,” New York Times, May 25, 2018, https://www.nytimes.com/interactive/2018/05/25/business/ceo-pay-2017.html.

      2 2 Vanessa Fuhrmans, “CEO Pay and Performance Often Don't Match Up: The S&P 500 CEOs Who Received the Biggest Pay Increases Scored Middling Shareholder Returns,” Wall Street Journal, May 14, 2018, https://www.wsj.com/articles/ceo-pay-and-performance-dont-match-up-1526299200.

      3 3 Ibid.

      4 4 Matt Bonesteel, “Papa John's Tried to Blame the NFL for Bad Sales: That Clearly Wasn't the Issue,” Washington Post, May 9, 2018, https://www.washingtonpost.com/news/early-lead/wp/2018/05/09/papa-johns-tried-to-blame-the-nfl-for-bad-sales-that-clearly-wasnt-the-issue/?noredirect=on&utm_term=.95e1518f5a16.

      5 5 Tiffany Hsu, “Racial Slur Leads to Papa John's Founder Quitting Chairman Post,” New York Times, July 11, 2018, https://www.nytimes.com/2018/07/11/business/papa-johns-racial-slur.html.

      6 6 https://en.wikipedia.org/wiki/Les_Moonves.

      7 7 Khalon Richard, “After Sexual Misconduct Claims, Vegas Mogul Steve Wynn Fell Fast,” NPR, March 15, 2018, https://www.npr.org/2018/03/15/592318034/after-sexual-misconduct-claims-vegas-mogul-steve-wynn-fell-fast.

      8 8 Ronan Farrow, “From Aggressive Overtures to Sexual Assault: Harvey Weinstein's Accusers Tell Their Stories,” The New Yorker, October 23, 2017, https://www.newyorker.com/news/news-desk/from-aggressive-overtures-to-sexual-assault-harvey-weinsteins-accusers-tell-their-stories.

      9 9 Ryan Faughnder, “Bankruptcy Judge Approves $21-Million Price Cut in Weinstein Co. Sale, Expected to Close Friday,” Los Angeles Times, July 11, 2018, http://www.latimes.com/business/hollywood/la-fi-ct-weinstein-co-lantern-20180711-story.html#.