The gaming industry is one of the most regulated businesses in the world. With a colorful past, the industry has gone to great lengths to earn a reputation as "squeaky clean." But has that translated to the boardroom and corporate governance in general?Casino Journal and AETHOS Consulting Group have been analyzing board practices for more than a decade – rating gaming companies on how well they are organized, managed, communicate with shareholders and pay themselves and executives. In the annual study, five categories are judged and graded:- Board size and makeup;- Committee structure;- Related party transactions;- Evaluation and shareholder communication; and- Board and executive pay-for-performance.
"This year's study included 26 companies that have significant business concerns in the gaming industry," explains AETHOS CEO Keith Kefgen. "Of those 26, MGM Resorts took the top spot for a fourth year in a row, receiving 38 points of a total of 42. In particular, MGM led the industry in board diversity, committee activism, performance evaluations and shareholder communications. Interestingly, MGM Growth Properties, the MGM spinoff, only received 27 points, lagging behind its parent organization."Penn National jumped from 18th place last year to second place in this study with strong upward trends in board makeup and executive pay practices. Rounding out the top five boards were Everi, Gaming & Leisure Properties and Wynn Resorts.SIZE MATTERSIn determining the effectiveness of the size and makeup of a company's board, the AETHOS Gaming Boardrooms survey looked at several key attributes. The results highlight these notable findings:

  • Total number of board members: A board should be comprised of an odd number of members between five and 11 – a range that most experts consider to be optimal. Fifteen of the 26 companies have an odd number of board members, still leaving 11 companies outside the norm in this area.
  • Length of term: Board members should be elected annually, rather than a staggered multi-year term. Twelve companies had multi-year terms or nearly half of the industry.
  • Chairman characteristics: In today's environment, the chairman should be an independent director. Chairman and CEO responsibilities are different and should be treated as such. Nineteen gaming companies out of the 26 surveyed had an inside chairman role.

"There is only one reason why a CEO wants to be a chairman," says Kefgen, "and that is the consolidation of power. By next year, I suspect most of these companies will have an independent chairman proposal in their proxies."

  • Ratio of insiders and outsiders: Boards should have a super-majority of independent board members. Only eight companies in gaming had the super-majority of independent directors.
  • Diversity: Companies received points by having a formal policy around gender and racial diversity. Board diversity is socially responsible as well as good for business. Only MGM, Carnival and Boyd met all of these criteria.

COMMITTEE STRUCTURE

The SEC requires public companies to have the following four committees: audit, compensation, governance and nominating. Nine companies achieved a full score in this area, including MGM Resorts, Everi, and Golden Entertainment. They had all four committees, an official charter, independent directors and met at least four times a year.

TRANSACTIONS WITH RELATED PARTIES

"If you want to sit on a board, don't do other business with the company," states Kefgen emphatically. Companies including Carnival, Boyd Gaming, and Scientific Games Corporation scored well in this sector.

EVALUATION AND COMMUNICATION

Issues concerning the effectiveness of internal board operations, director evaluation and accessibility to shareholders were measured in this section. MGM, Penn National, Everi, Gaming & Leisure Properties, and Carnival received full scores in this area compared to just MGM Resorts last year. The best way to keep shareholders happy is to communicate with them.

PAY-FOR-PERFORMANCE

The final area of the survey focused on how the CEO and board are paid; gaming CEOs make considerable amounts of money, but they also run large, highly profitable businesses. The real issue shareholders should be focused on is the measurement metrics for pay. Penn National, Wynn Resorts, Eldorado and MGM Growth Properties are the few that received full scores for appropriate pay for performance.

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About AETHOS Consulting Group is a global advisory firm serving the hospitality industry. The firm enhances value for its partner organizations via access, know-how and fresh thinking. Core competencies include executive search, compensation consulting, business strategy and psychometric assessments. The firm is designed as a single partnership operating from ten locations in North America, Europe and Asia Pacific. www.aethoscg.com.

Leora Lanz (for AETHOS)
LHL Communications
AETHOS Consulting Group