Board clean-out on the cards for The Star as review told of mass resignation plan

Board clean-out on the cards for The Star as review told of mass resignation plan

The review of Star Entertainment Group (ASX: SGR) by the NSW gaming regulator has revealed a mass resignation of the board is on the cards as the casino group begins implementing a raft of changes to boost oversight of its high-roller activities.

The Star director Sally Pitkin, who is also chair of Super Cheap Retail Group (ASX: SUL), has told the NSW Independent Liquor and Gaming Authority (ILGA) review that she intends to resign before the end of this financial year.

Pitkin also revealed that the ‘employment arrangements’ of senior managers who have already given evidence to the inquiry remain under scrutiny amid a widespread shake-up of the company’s operations.

“I offered to my colleagues to be the first director to step down from the board,” Pitkin said in evidence on day 33 of the inquiry, which is seeking to determine the suitability of The Star to hold a casino licence in NSW.

“I anticipate that will happen by the end of the financial year and then other directors will leave when it's appropriate for the company. The board in the meantime has to be governing and overseeing the company in the best way that it can.”

Pitkin joins Katie Lahey and Gerard Bradley who have revealed to the inquiry their intentions to resign from The Star’s board, as the company reels from evidence that describes a culture among senior management that exposed the casino group to serious risk of money laundering over many years.

The board clean-out comes on the heels of the departure of CEO Matt Bekier in March, when the review began, and follows the resignations last week of three senior executives – CFO Harry Theodore, chief NSW casino officer Greg Hawkins and chief legal and risk officer Paula Martin – all of whom have given evidence to the inquiry over the past month.

Pitkin told the ILGA review the board is ‘working at speed to identify a new chief executive officer’.

“Interim appointments have been put in place in terms of the three other senior executives who are leaving the organisation, and that will continue through all of those key areas of business where that change is needed.”

Pitkin said changes were already being implemented at The Star to address the shortfalls in risk management and the culture of acquiescence that allowed it, including the engagement of external expertise to oversee ‘critical areas to manage risk’.

“There is a program of work under way in terms of identifying those who have given evidence before this review and their employment arrangements. The board has started with the most senior people first and is working its way down the list.”

Asked by Adam Bell SC, who is leading the ILGA review, for her thoughts on what went wrong at The Star, Pitkin identified three issues including an ‘indifference’ by some senior managers to legal and ethical standards.

“(These are) people who you would normally describe as being people of good character,” she said. “I think the organisation culturally must understand the harm that comes from money laundering.”

Pitkin conceded that during the period investigated by the review up to 2020, there was pressure on senior managers from Crown Resorts’ (ASX: CWN) looming entry to the Sydney casino market with the Barangaroo development.

“The company was responding to this competitive threat that was coming from Crown,” she said. “The senior leadership had for a long time carried the notion that Star was not like Crown. Crown was the company that benefited from the Packer influence and Crown had these advantages and Star was the underdog.”

However, Pitkin noted that it wasn’t The Star’s surveillance team that wasn’t doing its job.

“It was people in higher management. So, I think that drive in the VIP business meant that those people at the client-facing roles under Mr Hawkins leadership were just ignoring the rules.”

Pitkin also revealed that The Star did not have a ‘sufficiently high level of capability in some of the very key roles’ with those people failing to bring ‘judgement and higher order thinking to the issues’.

The ILGA review has found a culture of silence and cover-up within The Star in relation to breaches by clients in the VIP gaming business, including junket operations from China, over an extended period from 2013 to 2020. The review has heard senior management failed to escalate problems to the board and failed to act in a timely manner to curtail suspicious activities, including verifying the source of significant sums of money being gambled in private gaming rooms at The Star’s casinos.

Pitkin said the risk of money laundering is so significant within casino operations that another pillar of the governance framework is needed.

“I think that if the board can commission, through a program of rolling reviews, independent reviews, (where) the reviewer reports to the board, has full access to personnel with full access to data and can do that deep dive into different areas of the business whenever the board chooses. I think that would be best way of illuminating if there were deficiencies and problems either in a technical sense, or a cultural sense.”

The review continues with The Star chairman John O’Neil scheduled to give evidence next week.

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