PENN Entertainment Shareholders Back Board Declassification Proposal

• PENN Entertainment investors approve union proposal to declassify casino operator’s board of directors, pushing for annual elections instead of staggered multi-year terms
• This marks the second time in the company’s history that investors have backed a declassification initiative
• However, the PENN board is not legally required to implement the changes, leaving the next corporate governance steps entirely up to leadership

At the casino operator’s annual meeting, PENN Entertainment (NASDAQ: PENN) shareholders voted in favor of an advisory board declassification proposal pushed by a labor union.

UNITE HERE, a labor group representing approximately 300,000 hospitality and leisure workers across the US and Canada, is behind the proposal to declassify Penn’s board. The union touted the success of the June 16 vote.

PENN shareholders have spoken clearly: they want annual elections for all directors,” said Michael Hachey, director of gaming industry research at UNITE HERE, in a statement. “The Board should now take the necessary steps toward implementing declassification.”

In simple terms, the union wants Penn, which has previously endured criticism for how it conducts board of directors’ additions, to hold annual, transparent elections.

Penn Not Obligated to Play Ball

As the Securities and Exchange Commission (SEC) notes, board elections allow shareholders “to participate in corporate governance.” Think of it is a form of investor democracy.

In fact, Penn investors in 2010 voted in favor of similar plan, but the Ameristar operator maintained a classified board structure. This time around, some well-known proxy advisor firms supported the UNITE HERE pitch, though it remains to be seen if the casino operator takes action.

“Investors will be looking for real, timely responsiveness here; not performative action that kicks the can down the road, and certainly not silence from leadership,” said Derrick Wortes, founder and principal of Cora Strategies, in a UNITE HERE press release.

A Fight Against ‘Insulated’ Boards

Some shareholder groups believe that regardless of the industry in question, declassified boards are indicative of solid corporate governance and signs companies’ interests are aligned with those of shareholders.

For its part, UNITE HERE, which had success in 2019 in pushing for board declassification at Caesars Entertainment (NASDAQ: CZR), notes that Penn is an outlier in the gaming industry.

The union notes Penn rivals, including Boyd Gaming (NYSE: BYD), Caesars and MGM Resorts International (NYSE: MGM) all hold annual elections of directors. The labor group adds declassified boards can “insulate” directors from shareholder criticism while muting responsiveness to investor worries.

“PENN shareholders have spoken clearly: they want annual elections for all directors,” said Michael Hachey, Director of Gaming Industry Research at UNITE HERE. “The Board should now take the necessary steps toward implementing declassification.”

“By adopting annual elections, PENN would strengthen alignment between directors and shareholders and bring its governance practices more closely in line with investor expectations,” concludes Hachey. “We look forward to seeing how the Board takes action.”