Wynn Resorts’ Slide Shows Sexual Misconduct Is a Financial Risk

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There are some risks that investors can’t price. An allegation of sexual misconduct against a chief executive has now been added to that list. Wynn Resorts shares plunged more than 10 percent on Friday afternoon, wiping $2 billion off the company’s value, after The Wall Street Journal reported that such accusations had been leveled at the company’s founder, chief executive, chairman and biggest shareholder, Steve Wynn. Mr. Wynn promptly dismissed the allegations to Reuters as “preposterous.” The loss of value is a reminder to directors on all company boards that even an unproven suggestion of sexual harassment is now a financial risk.

Casino companies face manifold pitfalls already. Wynn Resorts, which gets most of its earnings from operations in the Chinese enclave of Macau, is effectively a punt on the whims of politicians in Beijing, who mostly turn a blind eye to the 20 million citizens who flood over the border in a year to engage in activity forbidden back home. Wynn Resorts also faces a continuing lawsuit between Mr. Wynn and his former wife, Elaine, who is suing to regain control of a nearly 10 percent stake she currently cannot vote or sell. Mr. Wynn, in a statement, said it was the fight between him and his former wife that had started the allegations, underscoring the friction between the company’s top two shareholders.

Awareness has grown in the past six months as women — from boardroom executives to Hollywood stars to assembly-line workers — have started speaking out about workplace mistreatment. Executives haven’t gone unscathed. Travis Kalanick resigned as Uber’s chief executive last year in the wake of harassment allegations, among other problems. Unlike Uber, which worked through its own scandal in private, Wynn Resorts is exposed to the public ire of shareholders.

The question, though, is what specifically investors are now pricing in. One risk is that regulators make it difficult for Wynn Resorts to expand. The Massachusetts gaming watchdog said on Friday that it would review plans for a new casino in Boston.

The threat of parting ways with an influential executive, until now a reasonable steward of shareholder value, is also potent. Over the past decade, Wynn Resorts’ average 10.5 percent shareholder return is a shade higher than that of the Standard & Poor’s 500-stock index — despite a slump in 2014 after China toughened rules on holiday gamblers.

Investors’ strong response to the reports is now the problem of Wynn Resorts’ 10-person board, which contains just one woman. Others surely will learn from how the Wynn board responds.

As for investors, the private nature of such allegations means they have little visibility on such risks or how they will develop, which may explain why many sold on Friday. Even for those comfortable betting on the roulette wheel, this is a difficult kind of uncertainty to bear.