In this year’s study of the gaming industry’s best boards, HVS Executive Search determines governance improves with shareholder activism

BY Keith Kefgen, Juliette Boone & Mandeep Singh, HVS Executive Search

While there is still room for improvement, continuous progress in corporate governance is the name of the game for the wagering industry.

For over a decade, HVS Executive Search has evaluated corporate governance practices in public gaming companies’ using our proprietary corporate governance model. As in years past, our study examined board makeup, independence, committee structure and commitment to pay-for-performance. However, there is a difference in this year’s HVS report-we have decided to add two new categories to our evaluation:

• Board self-evaluation and communication practices; and
• Tighter parameters for both board and NEO (Named Executive Officer) compensation that factor in a board’s stance on “say on pay,” claw-backs, stock ownership requirements, eliminating excise tax gross-ups and limiting excessive perquisites.

These refinements showcase boards that have achieved significant improvements and have raised the bar on governance best practices. Board diversity, another hot topic across all industries, will be incorporated into the evaluation next year. 

For gaming boards, the effects of the Dodd Frank “Say on Pay” legislation are slowly being brought to bear. Of the 31 companies reviewed, only four disclosed the outcome of the shareholders’ advisory vote on executive compensation. While some may disagree with the legislation suggesting that shareholders are ill equipped to evaluate the complexities of executive compensation, gaming companies will have to put policies in place to allow shareholders to weigh in on this sensitive subject. Increased influence of watchdog organizations such as ISS will continue to keep the pressure on.


In HVS’ 15th annual study of U.S. board performance, Bally Technologies continued to maintain the top spot on the list, widening its gap over last year’s second best board, International Game Technology. Interestingly, MGM Resorts came in a close third making a substantial leap from its eighth place ranking last year as a result of improvements in board structure. 

Other companies earning enough points to break into the study’s top 10 gaming boards include Churchill Downs (from 14th in 2011 to 4th in 2012), Multimedia Games (from 16th to 6th) and Scientific Games (from 17th to 7th). However, a number of companies did not score as well this year as last, and their ranking slipped accordingly. Among the companies falling out of the top 10 were Pinnacle Entertainment (from 3rd to 12th), Empire Resorts (from 6th to 13th), GameTech International (from 7th to 32nd), Penn National (from 9th to 16th) and Gaming Partners International (from 10th to 19th)   

The overall study focused on 32 companies this year, down from 33 last year due to UK-based William Hill’s acquisition of American Wagering. GameTech was fully operational throughout 2011 and therefore was included in the analysis (the company filed for bankruptcy in July 2012).

The ranking looked at the following five areas of corporate governance:

• Size, makeup and independence of the board;
• Committee structure, number of meetings and effectiveness;
• Extent of insider participation and related transactions;
• Board self-evaluation and communication; and
• Pay-for-performance models for board and executive pay.


Gaming boards continue to focus on improving director independence with 11 companies having appointed lead independent directors (versus nine companies last year), and two more companies that elected independent outsiders as chairmen. Only one company achieved a perfect score in size and makeup (Multimedia Games), one fewer than last year.

To achieve this, a board must have an odd number of directors (between five and 11), the chairman must be an independent outsider and more that 75 percent of the board must be made up of truly independent directors. While SEC rules dictate that a company insider is considered “independent” after three years of separation from the company, we apply the more stringent lens of ”once an inside, always an insider.”


Boards of directors are required by the SEC to form the following four committees: audit, compensation, governance and nominating. This year, two more companies (six total) achieved a perfect score for committee structure than in the prior year. Meanwhile, the number of committee meetings remained virtually unchanged, with only a slight decrease in audit committee and nominating committee meetings. 

Insider participation on subcommittees of the board is down 33 percent over last year; only six of the 31 companies have an insider sitting on a committee.


In prior surveys the presence of interlocks (“you sit on my board and I’ll sit on yours”) were tracked, but the practice has been virtually eliminated from gaming boardrooms. As a result, this category has been replaced by an analysis of “related transactions.” Overall, the presence of related party transactions among the group decreased to 23 compared to 25 last year.


A new category regarding board self-evaluation and shareholder communications was thoroughly vetted. Issues concerning the effectiveness of internal board operations, director evaluation and accessibility to shareholders were measured. Nine of the 31 companies received a perfect score in the overall category; a number that must improve in future years.

Boards that can measure their performance strive for continuous improvement and welcome two-way communication with shareholders will see an increase in their stock multiple and shareholder loyalty.

MGM Resorts International was the top-ranked developer in this year’s HVS Best Gaming Boards study.


An encouraging trend in the area of executive and director compensation is stock ownership guidelines. As pay-for-performance systems have improved, so has the transparency of pay practices. This year, a perfect score for executive compensation required consideration of more components, including clear articulation of compensation philosophy and incentives, articulation of a claw back policy, and absence of excise tax gross-ups and excessive perquisites. Average scores stayed around the same as companies balanced out each other as a result of better practices on one end, and scores fell as a result of a lack of change for others. Four companies achieved perfect scores in pay-for-performance this year, one fewer than in the previous year.

Even with improvements in areas such as increased director independence and the implementation of claw-back policies and advisory votes on executive compensation, average scores dropped slightly. This does not mean poorer practice; rather it is the result of stricter guidelines surrounding corporate governance practices. We hope that companies take these updates into account and continue to strive towards protecting the interests of shareholders through stronger board practices. 

Bally Technology holds on to first place in this year’s analysis continuing to serve as a “role model” for corporate governance practices. Kevin Verner, Bally’s chairman, as well as the company’s entire board of directors, through diligent application of governance strategies and policies, have achieved a praiseworthy benchmark level of excellence. Additionally, MGM should be congratulated on its notable stride upward from eighth to third place as a result of the board’s continued efforts to improve its performance.


Keith Kefgenis CEO of HVS Executive Search. With over 25 years of experience in the hospitality industry, Kefgen is a career hospitality executive. Having graduated from the Cornell University Hotel School, he went on to work at Waldorf-Astoria Hotel before embarking upon a career in hospitality executive search. A frequent lecturer on industry related issues, Kefgen has written more than 100 articles on the topics of executive selection, pay-for-performance, corporate governance and executive leadership. He is currently writing his first book,The Loneliness of Leadership.

Juliette Booneis managing director, North America of HVS Executive Search. Her passion for this business began at a very early age, mostly through a love of food that is likely part of her French ancestry. Culinary arts evolved into catering sales, then marketing, hospitality education and finally consulting. Boone brings to HVS a wealth of experience from her 18-year hospitality industry career. This experience is complemented with a Master’s degree in Hospitality Management and Bachelor of Science from Cornell University.

Mandeep Singhis vice president of HVS Executive Search. He spent a year in Switzerland learning the hospitality industry and holds a Masters in Hospitality Administration from Ecole hôtèlier de Lausanne’s Executive MBA program. Singh graduated with honors from Rutgers Business School, earning a B.S. in Finance. Previous experience includes Robert Half International as a sales consultant for professional staffing and consulting services. He was also an Associate at Ernst & Young and gained experience in international business with projects that took him to Germany, France, Italy, Spain, and the Netherlands.