Odinian Beta

It has been a bad year for Crown Resorts (“Crown”).

First, the Bergin Inquiry set up by the NSW regulator found that Crown was unsuitable to continue to give effect to the restricted gaming licence (i.e. VIP casino) at Barangaroo.

Pressured by the media and the usual anti-gambling suspects, both Victoria and Western Australia subsequently announced Royal Commissions to investigate whether Crown Resorts and its associates remained suitable to hold the casino licences in Melbourne and Perth, respectively.

As I noted last week, the Victorian Royal Commission has since identified further failings by Crown Resorts.

But contra to the barely disguised glee of anti-Crown and anti-gambling activists, I am not sure the revelations uncovered by the Victorian Royal Commission will ultimately result in Crown being stripped of its licence. Instead, I think it is more likely that the Commission will find Crown unsuitable and recommend the changes that it must make to again become suitable.

In any case, whether it is deficient anti-money laundering controls, insufficient investigation into junkets and customers for Know Your Customer purposes, alleged underpayment of Victorian casino tax, responsible gaming or other issues, it is clear from both the Bergin Inquiry and the ongoing Victorian Royal Commission that strong leadership will be required to right the ship.

McCann the perfect choice

As such, Steve McCann, Crown’s new Chief Executive Officer (pending probity approvals), is the perfect choice to lead these changes.

And his performance at the Victorian Royal Commission last week certainly hasn’t hurt Crown’s cause.

McCann was previously CEO and Managing Director of Lendlease for 12 years from 2009 up until he took the job at Crown. Before that, he held other roles at Lendlease, including the Chief Financial Officer role.

While Lendlease operates in a different industry – namely, construction, development and property funds management – issues of culture are just as important for Lendlease as it operates in a potentially highly dangerous industry.

As McCann noted, up to 350,000 contractors worked on Lendlease’s various sites at any one time under his command. As readers would agree, ensuring a safe workplace on construction sites is highly important. Quite simply, people die if this doesn’t occur.

And while it’s not a perfect analogy to the apparent disregard by Crown for its regulatory obligations in favour of maximising profits, with construction being a low-margin business there is obvious pressure to cut corners on matters which don’t directly affect the bottom line, such as safety. The low margins mean there isn’t the cash to make significant investments in such matters, so they need to be dealt with through other means.

Runs on the board

And its McCann’s experience at Lendlease in dramatically improving its culture, especially with regards safety in such a low-margin environment, that makes him a great choice to lead Crown’s cultural renaissance.

McCann became CEO of Lendlease in October 2008 at the height of the GFC. As he noted in his testimony before the Royal Commission:

The culture at the time, I would describe as one of a lack of accountability and a siloed mentality across the businesses, and a lack of purpose.

Anyone who has read the Bergin Report or has been following the Victorian Royal Commission can see the similarities with Crown here.

So how did he change this culture?

To paraphrase his testimony, he noted that any cultural change within an organisation not only requires leadership from the top but also requires setting a purpose and vision that people can buy into and be motivated by.

However, you also need systems and processes to allow people to follow this leadership, to keep them accountable and also protect them from failure because people are human and make mistakes.

And McCann was certainly very successful at changing the culture at Lendlease:

There was a significant reduction in fatalities, from an average of nine fatalities a year around the world in the 10 years leading up to and including my first year as CEO…that was reduced to four fatalities in the next decade, and when I left there were none. When I left Lendlease, we had record low incident rates across every metric.

McCann’s runs on the Board at Lendlease will place him in good stead when he tries to repeat this feat at Crown, albeit in a slightly different way.

Findings

Of course, this could all be for naught if the Royal Commission’s report, which is due on 15 October 2021, strips Crown of its Melbourne licence.

Whatever its findings, the Commission’s report is unlikely to make good reading for Crown shareholders. As noted previously, both the Bergin Inquiry and the Victorian Royal Commission have identified multiple issues during their review of Crown Resorts and its associates.

Yet based on the Commissions’ hearings and its Terms of Reference, I continue to think there is only a small chance that Crown is ultimately stripped of its Melbourne licence.

I think it is more likely that Crown is found unsuitable – although even here, Crown has made, and continues to make, great strides in reforming itself – and that the Commissions’ recommendations detail how Crown can again become suitable and hence keep its Melbourne casino licence.