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Breakingviews - Crown Resorts disabused of gambler’s conceit

FILE PHOTO: Crown Resorts Ltd's flagship tower nears completion at Barangaroo, Sydney, Australia, April 17, 2020. Picture taken April 17, 2020. REUTERS/Stephen Coates/File Photo

HONG KONG (Reuters Breakingviews) - Crony capitalism was a losing bet at Crown Resorts. Regulatory inquiries into the $4 billion Australian casino operator exposed a board that was too cosy with billionaire founder James Packer, and failed to provide proper oversight. They’re the wrong people to lead the company out of a scandalous mess that has put a gambling licence for its luxurious new Sydney hotel in jeopardy.

Crown, already the target of multiple probes including into possible money laundering violations, came under fire from influential local pension funds. A group of them mobilised against three directors seeking re-election at Thursday’s annual general meeting. The sizeable protest vote came up against Packer’s 37% stake, but Chairwoman Helen Coonan received the message.

Adding “qualified and fiercely independent” directors, as she promised alongside an apology for governance failings, is long overdue. Together with the chief executive, Coonan introduced changes to improve compliance, including an option to claw back bonuses. Despite being re-elected, director John Horvath – a doctor who once counted James’ father, the media tycoon Kerry Packer, as a patient – said he would step down after receiving just 58% support.

The insurrection clearly mattered. Horvath was appointed as deputy chairman just months earlier. It was all part of the gambler’s conceit – the theory that a bettor can stop his own bad behavior while still engaging in it – at Crown. Five years after the controversial marketing operations that led to jail-time for employees in China, Crown kept chasing the country’s wealthy clientele, a practice also being investigated.

Horvath typified the lack of expertise and objectivity. Although most board members were technically independent, they weren’t in spirit. Several also held their seats for a decade or longer, giving cause to question their independence under Australian Stock Exchange guidelines. The longer directors stick around, the closer the ties that bind.

Crown’s predicament is not unique, to the industry or beyond. In Macau, rival Galaxy Entertainment has multiple members of the founding family as directors and several who have been there for over a decade. An entrenched, inexperienced and overly friendly board can enable value destruction, or worse. It’s a crapshoot best avoided.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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