Crown Resorts Board Slammed in Regnan report.

James Packer resigned as Chairman of the Crown board last year, although he remains a member. A confidential report obtained by News Corp Australia says that he and his fellow execs need “substantial improvement.” (Image: Dinuka Lianawatte/Reuters)

Crown Resorts’ board of directors has been lambasted by a confidential report compiled for high-end stock market investors, according to News Corp Australia.

The report paints an ugly picture of James Packer’s Australian casino giant and its executives’ “lack of operational experience in gaming and in Asia,” in the wake of the arrest of 18 of the company’s staff in China.

The report, compiled by Regnan, a company set up by the federal government, gives the Crown board and its corporate governance a rating of two out of five and warns investors that it needs “substantial improvement.”

“Regnan maintains concerns over the absence of a lead independent director, lack of specific industry skills among independent directors and over commitment issues for some directors which could reduce director capacity to effectively discharge their duties.”

“Regnan notes that both independent members of the Risk Management Committee do not have deep operational experience in Asia, potentially reducing effectiveness of oversight,” it continued.

China Arrests

The 18 were detained by Chinese authorities on suspicion of illegally marketing gambling to high rollers on the mainland for its properties in Macau. Among them are four Australians, including vice president of its VIP division Jason O’Connor.

In the midst of a large-scale anti-corruption crackdown, Beijing takes such allegations seriously. China’s deputy director of the Ministry of Public Affairs recently told the press that overseas casinos soliciting Chinese customers poses “the highest danger to our nation and the Chinese people.

“These chain reactions have caused severe influence on the economic safety and social stability to our country,” he said.

While one of the detainees, a low-level administrator, has been released, Shanghai criminal lawyers told Australia’s Daily Telegraph this week that the others could face a further six months without any contact from their families before they stand trial.

Risk Management Failure

The report believes that a failure of risk management on behalf of Crown could be to blame for the detentions.

“The arrests raise the question about the extent to which (Crown’s) China-based staff, who were incentivized through a commission-based system, operated illegally to lure lucrative high-rollers,” the report said. “Regnan notes that both independent members of the Risk Management Committee do not have deep operational experience in Asia, potentially reducing effectiveness of oversight,”

“Following the arrests, a database of Crown’s customers was submitted to the police. A reduction in the number of VIP high-rollers from mainland China could impact Crown’s earnings.”

Crown’s stock has yet to recover from the beating it took in the aftermath of the arrests.