Outside shareholders of Red Rock Resorts demonstrated their dissatisfaction with the company’s directors at its July 6th meeting of stockholders, with the most opposition shown toward the independent directors.
Assuming all insiders voted their Class A and Class B shares in favor of management’s recommendation, then the total outside Class A shareholder vote “for” the directors was between 59% and 71%.[i] That means between 29% and 41% of outside shareholders did not vote “for” the company’s directors
Outside Class A Shareholder Support for Red Rock’s Directors
|Director||Outside Class A “For”||Outside Class A “For” %|
|Frank J. Fertitta III||47,606,865||71%|
|James E. Nave||40,389,581||60%|
|Robert E. Lewis||40,425,855||60%|
|Robert A. Cashell, Jr.||39,415,189||59%|
Ernst & Young reports that only 3.8% of Russell 3000 directors received less than 80% support from all shareholders (combined inside and outside) in 2017 (YTD, 5/31/2017). Therefore, a significant number of Red Rock’s outside shareholders expressed discontent with the entire board.
Alternatively, we can look directly at the “withhold” vote. Commenting on a 2012 study commissioned by the Investor Responsibility Research Center Institute, GMI’s Ratings director of research Kimberly Gladman said: “The average level of withheld votes in a director’s election is 5 percent; companies should be concerned when the level in an election exceeds 10 percent.”
To measure shareholder dissatisfaction this way at the recent Red Rock meeting, we reduce the super voting shares held by insiders to a one share, one vote standard. This adjusted votes figure more accurately reflects the desires of all equity holders, not just the Fertitta insiders. If all shareholders of Red Rock had equal voting rights and assuming no Class B shareholders withheld their votes, then the vote results show between 9% and 16% of shareholders withheld from the company’s directors.
Adjusted Votes Withheld from Red Rock’s Directors
|Director||Adjusted Votes Withheld||Adjusted Votes Withheld %|
|Frank J. Fertitta III||10,593,246||9%|
|James E. Nave||17,810,530||15%|
|Robert E. Lewis||17,774,256||15%|
|Robert A. Cashell, Jr.||18,784,922||16%|
Red Rock’s closing share price on July 5th (the day before the annual meeting) was down 3.1% year-to-date compared with NASDAQ Composite Index’s gain of 13.3%. As of May 8th, Class A shareholders held 58.4% of the equity but only controlled 12.9% of the vote.[ii]
Read the letter and report we sent to Red Rock’s public investors, criticizing the company’s independent directors for anti-shareholder corporate governance measures and related-party transactions and encouraging investors to withhold votes from its independent directors.
ISS recommended withholding on all of the company’s directors, which we fully supported.
See table below for how we calculated inside, outside, and adjusted votes.
Inside and Outside Votes
|Share Class||Number of Shares||Votes|
|Class A Shares Outstanding||67,778,152||67,778,152|
|Insider Class A Shares||516,326||516,326|
|Outside Class A Shares||67,261,826||67,261,826|
|Class B Shares Outstanding||48,327,396||456,799,632|
|Insider Class B Shares (1 vote per share)||2,941,592||2,941,592|
|Insider Class B Shares (10 votes per share)||45,385,804||453,858,040|
|Class A + B Outstanding||116,105,548||524,577,784|
|*Number of adjusted votes equals the number of Class A + B outstanding|
[i] At the July 6th annual meeting, Richard Haskins, President of Red Rock Resorts, said as of record date (May 8, 2017) there were 67,778,152 Class A shares outstanding, 48,327,396 Class B shares outstanding, and 45,385,804 Class B shares with 10 votes per share. These figures were used to calculate the number of Class B shares with one vote per share, the voting power and equity of each class, and to estimate the number of insider and outsider “for” votes. The number of insider Class A shares comes from Red Rock’s DEFR14A, filed on May 26, 2017, p. 47.
[ii] See note i