Experts analyzed the documents of 38 publicly traded gaming companies. See how the board of directors at the leading gaming companies performed this past year



HVS Executive Search’s 11th annual study of best practices in the boardrooms of public gaming companies indicates that governance behaviors are improving.

The mix of directors is increasingly independent and the frequency of board and committee meetings has increased. All positive trends.

In coming to our conclusions, we analyzed the documents of 38 publicly traded gaming companies. This is a slightly smaller list than last year, due to the privatization trend that took Harrah’s Entertainment and Station Casinos. As is our practice, we also conferred with other corporate governance experts to rate each company in the following four fundamentals:     • The size, makeup, and independence of the board;
  • Committee structure and effectiveness;
  • The presence of interlocks, insider participation, and related transactions; and
  • Fundamental commitment to pay-for-performance.
Our goal is to take the perspective of a well-informed investor and try to understand what is going on behind board room doors. Our intent is to see through the standard language of a proxy statement and “read between the lines,” to determine who is serving shareholders most effectively.  For each of the aforementioned categories, we have identified specific attributes or activities and awarded zero to 10 points accordingly.

We are pleased to report that positive trends in governance continue, and that shareholders will be the beneficiaries.  The average score of 28 has gone up slightly from last year, driven by higher percentages of independent directors and increased number of board/committee meetings. Backing out the “controlled companies” such as MGM Mirage, which are exempt from some SEC requirements, adds further support to this conclusion.

Board size and makeup

Most experts agree a successful board ideally be should have five to 11 members (an odd number in case of tie votes) and no more than one to three insiders.  Another standard of a truly independent board is the presence of an outside chairman. Other factors are the chairman’s characteristics. We also awarded a point to companies that named a lead director in the absence of an outside chairman. Lastly. we considered the length of term, with a one-year term as optimal.

Committee structure

The four committees that we and other corporate governance experts deem mandatory are audit, compensation, nominating and governance committees.

In evaluating this facet of a board, we looked for the existence of each of these committees as well as the frequency with which they meet. Insider participation on committees continues to decline, and we saw very few CEOs participating on the compensation committee.

We also reduced the score for companies that continue to have an executive committee. Executive committees that act with the power of the full board create the potential for serious conflicts of interest.

Every gaming company now has an audit committee; all have recruited or designated members who are qualified financial/accounting experts to satisfy regulatory requirements. Compensation committees have increased in number and have increased frequency of meetings.  In prior years we questioned the effectiveness of committees that only meet once a year, and we are happy to report that this occurred with only two companies. Most firms still combine  nominating and governance committees, which is not a concern.

Interlocks, insider participation

Even under our broad definitions, insider participation and interlocks continue to decline. With several “controlled companies” in our survey, this will never go away entirely, but the industry overall has performed well.

Pay for performance

Governance experts agree that management and shareholders must be committed to the same goals. A primary method for aligning the interests of both groups is a commitment to pay-for-performance. Only about half of the industry has truly implemented the components of a well-designed compensation program, although virtually all of them espouse this as the underlying philosophy/goal of their executive compensation plans.

The components we look for are:
  • A well-thought-out compensation philosophy;
  • Salaries set using peer group analysis;
  • Quantifiable, detailed bonus metrics;
  • Long-term incentives that are performance-based and are not excessive; and
  • Benefits and perquisites at appropriate levels.
In regard to director compensation, we like to see a mix of cash and equity. Cash compensation that is broken down into attendance fees, committee participation fees, and committee chair fees are preferable to retainers or other guarantees. While virtually all directors receive stock options, we look for performance metrics and longer vesting periods as providing better incentives. We also like to see a policy requiring a level of stock ownership.

Regarding executive compensation, we looked for plans that articulate how incentives are tied to shareholder goals.  The SEC and other governing bodies also believe that compensation committees should hire independent consultants to help make impartial decisions concerning compensation. In the interest of full disclosure, HVS Executive Search provides such services and has worked for Century Casinos, Full House Resorts, Las Vegas Sands and Shuffle Master.

Best performers

This year’s best performing board was Bally Technologies.  The company had a strong 2007, so President and CEO Richard “Dick” Haddrill and the entire Bally Technologies Board of Directors should be proud of their work. Other strong performers were Multimedia Games, Pinnacle Entertainment and Scientific Games.  

Rank Total Company Size & Markup Committee StructureInterlocks & Insider Participation Pay for Performance Total
1 Bally Technologies 9 10 10 6 35
1 Multimedia Games 10 9 10 5 34
3 Pinnacle Entertainment 9 8 10 7 34
3 Scientific Games 9 8 10 7 34
5 Carnival 5 9 10 8 32
5 MTR Gaming 7 9 10 6 32
5 Penn National 5 9 10 8 32
8 WMS Industries, Inc. 5 10 10 7 32
8 Trump Entertainment 5 9 10 7 31
8 Youbet 6 8 10 7 31
11 Body Gaming 3 10 10 7 30
11 Daktronics 5 10 10 5 30
11 Global Payment Technologies 9 7 10 4 30
11 IGT 4 10 10 6 30
11 Progressive Gaming 6 8 10 6 30
16 Empire Resorts 6 8 10 5 29
16 Gaming Partners International 6 8 10 5 29
18 Shuffle Master 6 8 10 5 29
18 Churchill Downs 6 7 10 5 28
18 Full House Resorts 7 6 10 5 28
18 Littlefield Corp. 9 5 10 4 28
22 Wynn Resorts 1 10 10 7 28
22 Century Casinos 5 5 10 7 27
22 Isle of Capri 6 6 10 5 27
22 MGM/Mirage 5 5 10 7 27
22 Monarch Casino 5 6 10 6 27
27 TransAct Technologies, Inc. 2 8 10 7 27
27 Lakes Entertainment 6 5 10 5 26
27 Ameristar Casinos 2 6 10 7 25
30 Canterbury Park 4 5 10 6 25
30 Nevada Gold 3 7 10 5 25
32 Dover Downs 5 5 10 3 23
33 Wells-Gardner Electronics 3 6 10 4 23
34 GameTech International 6 6 5 5 22
35 Global Cash Access, Inc. 5 7 5 4 21
36 Magna Entertainment (MEC) 4 7 0 7 18
37 Las Vegas Sands Corp. 5 5 0 6 16
38 Archon Corp. 2 3 5 4 14