In Wynn vs. Wynn, Elaine faces two company-backed rivals for board seat

Elaine Wynn speaks during a Las Vegas Metro Chamber of Commerce Business Power Luncheon on Wednesday, May 8, 2013, at the Rio.

On Friday, stockholders will decide the outcome of Elaine Wynn’s heated campaign to stay on the board of Wynn Resorts by determining whether they prefer her or the two lesser-known nominees endorsed by the company.

Wynn and the company-backed candidates, John J. Hagenbuch and J. Edward Virtue, are all incumbent directors. But only two of them can survive this week’s election because when the board chose not to renominate Wynn, it reduced the number of available seats from three to two.

Following that decision, Wynn nominated herself, and she has naturally been the main character of the ensuing battle with the board. But she has recently attempted to shift more of the conversation toward Hagenbuch and Virtue — specifically, she has tried to show that she is superior to both of them.

In the end, Wynn’s chances of success hinge largely on her ability to convince enough stockholders of that point.

Who are the other nominees?

Hagenbuch and Virtue both joined the board in 2012.

Hagenbuch co-founded two real estate investment firms, M&H Realty Partners and WestLand Capital Partners, through which he “built a track record of successful real estate investment and land development and investment,” said a letter to stockholders from Wynn Resorts.

“These experiences allow Mr. Hagenbuch to contribute to the board’s strategic oversight of Wynn’s pursuit of development opportunities in new geographies,” the company said in an April 8 letter to stockholders signed by Bob Miller, a former Nevada governor who now chairs the Wynn Resorts corporate governance committee.

The company also underscored Hagenbuch’s background as a partner at a private equity firm and his work as an investment banker, writing that he developed expertise that would help steer Wynn Resorts through “today’s volatile financial environment.” Hagenbuch has served on the board’s compensation and audit committees.

Virtue, meanwhile, founded and led the alternative asset management firm MidOcean Partners, and also has overseen a $35 billion direct investment portfolio as CEO of a bank. The company letter said he brought “extensive corporate finance and capital markets experience” to the boardroom.

“Mr. Virtue possesses the financial acumen required to help oversee the company’s financial strategy and its strategic investments around the globe,” the April 8 letter said.

The company said Virtue’s background also included “sophisticated and broad” gaming industry experience. He has been the chairman of Wynn Resorts’ compensation committee and a member of its corporate governance committee.

Taken together, Wynn Resorts says, Hagenbuch and Virtue constitute a critical component of the board that must continue.

“Messrs. Hagenbuch and Virtue have a track record of using their diverse skills and experiences to bring fresh perspectives to the board and engage frequently with senior company executives to offer advice and counsel on market and financial strategies,” the letter said.

Why Wynn thinks she’s better

The process for choosing board members involves picking one of two cards, Elaine Wynn's or the management's.

In nominating herself to the board, Wynn is asking stockholders to pick her so-called proxy card to fill the two open seats. She had to choose someone else to be on the card with her, and she picked Virtue.

In an April 6 letter to stockholders, she shed some light on her problems with Hagenbuch. Wynn wrote that he couldn't match any of the attributes she brought to the board, and she said that, to her knowledge, Hagenbuch did not have “any substantial gaming experience” aside from his work as a director.

Additionally, she said other board members had similar financial expertise as Hagenbuch.

Wynn’s specific targeting of Hagenbuch has not amounted to an endorsement of Virtue. She’s been sharply critical of both board nominees, and has made it clear that she wants stockholders to see her as the best option among all three candidates.

For example, in an April 17 letter to stockholders, she dismissed the idea that Virtue’s financial background was an invaluable contribution to the board.

“Mr. Virtue may have financial experience, but it is impossible, in my opinion, to prove that he provides any sort of unique contribution that others do not,” she wrote in the letter. “By contrast, my contributions are unique.”

Earlier in the same letter, Wynn said that while Hagenbuch and Virtue might be considered “independent” directors under stock exchange standards, “they far too often act as rubber stamps” for CEO Steve Wynn, her ex-husband.

What the advisory firms say

Three advisory firms have made recommendations to stockholders about whom they should vote for on Friday. The first firm, Institutional Shareholder Services, withheld an endorsement from all three candidates. The second, Glass, Lewis & Co., endorsed the board’s nominees and the third, Egan-Jones, endorsed Wynn.

The first report had harsh words for all parties, but it took particular issue with Wynn Resorts’ executive compensation practices. Specifically, the report suggested that Wynn Resorts made it easy for executives to reach incentive-based compensation targets.

As a member and chairman of the compensation committee, Hagenbuch and Virtue “appear to bear direct responsibility for these continued compensation concerns,” the report said. But it didn’t let Wynn off the hook, either.

“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,” Institutional Shareholder Services wrote.

Glass Lewis also was frustrated by the entire field of candidates.

“Equipped with substantially no quantitative arguments from either side and, at best, patchy insight into non-public exchanges by and between Ms. Wynn and her boardroom peers, we find independent investors are left to evaluate the present contest furnished with little more than unsubstantiated declarations and ill-supported anecdotes posing as undisputed axioms,” the firm said in its report.

Unlike the first firm, however, Glass Lewis was ultimately convinced by the board’s argument that Wynn had allowed her personal interests to supersede her responsibilities as a director.

The third report, meanwhile, was sympathetic to Wynn’s argument that removing her would leave a company board composed entirely of men, a result which she has declared unacceptable. Egan-Jones said in the report that it was “not blind” to the problems with having the CEO’s ex-wife on the board, but it nonetheless called Elaine Wynn “functionally probably the most independent” director.

“We believe that the support of Ms. Wynn's election to the board of directors along with withholding support from all other nominees at this time is the course of action most likely to bring pressure to bear on the existing board with the aim of creating the exceptional board of diverse backgrounds and experience the Wynn shareholder’s (sic) both need and deserve,” Egan-Jones said.