Red Rock’s All-White, All-Male Board Draws Calpers’ Attention

(Bloomberg) -- Red Rock Resorts Inc. operates 20 casinos, employing nearly 14,000 people. Its board of directors, however, has just five members. Two are brothers. All of them are white men.

That’s not enough diversity, according to the California Public Employees’ Retirement System. The largest U.S. pension, with almost $360 billion in assets, is sponsoring a proposal at Red Rock’s June 13 annual meeting requiring that board nominees running unopposed receive majority shareholder approval. Under Red Rock’s current voting rules, opposition votes don’t count when a nominee is unopposed.

“You want a director to be elected to by a majority of votes cast, so you know your vote counts,” said Simiso Nzima, who leads the Calpers corporate-governance program. “If they receive one vote, there’s no accountability.”

In its shareholder filings, the company said it opposes the nonbinding measure because the casino business requires an extensive licensing process for board members that makes it difficult to find qualified candidates. The company also said shareholders who are dissatisfied with directors can demonstrate that by withholding their votes.

In Control

Through a class of supervoting shares, brothers Frank and Lorenzo Fertitta control 86% of the votes at Red Rock, which dates back to a business founded by their father in 1976. Frank serves as Red Rock chairman and chief executive officer, while Lorenzo is vice chairman.

The company is a leader among casinos catering to Las Vegas locals, with net income of $219.5 million and revenue of $1.68 billion in 2018.

Institutional Shareholder Services, a proxy adviser that works with Calpers, has recommended its clients back the pension fund’s proposal and oppose all of Red Rock’s nominees, citing the company’s dual-class voting structure.

The Red Rock proposal is part of a larger effort by Calpers to increase diversity in corporate America. Arguing that more diverse boards lead to better investment returns, the fund reached out to over 700 companies in the past two years, some 40% of which have taken steps, such as adding more women or people of color to their boards, according to Nzima.

Red Rock was among 114 companies that didn’t respond to its queries, typically at least five letters from Calpers seeking changes. That led the pension fund to introduce 79 shareholder resolutions so far, with a goal of submitting similar resolutions at the others.

One in Five

Red Rock is increasingly in the minority these days. Only about 20% of Russell 3000 companies have no female directors, according to a recent report from the Conference Board and ESG Research, an advocacy group focused on environmental issues, diversity and governance.

While the Fertittas will be able to elect any board candidates they want through their special class of stock, the majority vote proposal is worth supporting, Nzima said.

“Even though they are in control, you should still engage, you should always go back to best governance practices,” he said.

To contact the reporters on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net;John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum

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