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McMahon TKO Resignation Invites WWE Scrutiny

In the wake of WWE founder Vince McMahon abruptly resigning Friday as executive chairman of TKO Holdings following a sex trafficking lawsuit, McMahon’s continued involvement with WWE may spark its own controversy.

Former WWE employee Janel Grant said McMahon, WWE and former WWE head of talent relations John Laurinaitis inflicted sexual coercion and other terrorizing acts on her. She is especially critical of McMahon, whom Grant portrays as brazenly abusing and harassing her while others at WWE watched or even joined in. Grant says she was treated like a “ragdoll” during her employment from 2019 to 2022.

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Grant’s complaint also bluntly critiques how WWE—a publicly traded company—acted in the latter half of 2022, by which point Grant was no longer employed. Her critiques invite questions about whether WWE met fiduciary duties in how it handled disturbing allegations about a legendary leader emboldened by stockholder voting power.

McMahon stepped down as chairman and CEO in June 2022 amid controversy over a reported $3 million “hush money” payment to a former employee with whom McMahon had an affair. There were reportedly similar nondisclosure agreements with other employees going back to 2006. McMahon retained his role in shaping WWE’s creative content until retiring from WWE a month later.

In connection to McMahon’s exit from WWE, the company formed a special committee of the board of directors that would investigate his alleged misconduct. McMahon’s daughter, Stephanie McMahon, was named interim CEO and interim chairwoman of WWE.

Grant claims WWE’s investigators never interviewed her or asked for any documents, despite telling them she would cooperate. As Grant describes it, investigators oddly ignored her—the accuser who signed an NDA calling for $3 million in payments. Grant’s depiction of WWE is one of conscious avoidance, more colloquially known as “hear no evil, see no evil,” where (as Grant tells it) they tried to avoid learning the truth. She insists the investigation “was a sham.”

In November 2022, WWE disclosed in a filing to the U.S. Securities and Exchange Commission the investigative committee had disbanded and its recommendations would be implemented. The filing also said Vince McMahon had or would pay for “previously unrecorded expenses” that caused “immaterial accounting errors” in financial statements.

A month later, the 11-member board denied McMahon’s bid to return to the board on account of fiduciary duties and protecting stockholders. “Your return to the Company at this time,” the board wrote in a Dec. 27, 2022, “would not be prudent from a shareholder value perspective [given that] government investigations into your conduct by the U.S. Attorney’s Office and SEC are still pending.” The board further stressed the need to consider a “shareholder value perspective.”

But the board’s rejection of McMahon didn’t last long.

In January, McMahon used his stockholder voting power to replace three board members with himself and two allies. The board unanimously elected McMahon executive chairman. Stephanie McMahon resigned her interim CEO position less than a week later.

The power play highlighted how McMahon had never really “gone away.” According to court filings he controlled about 81% of stockholder voting power. This reflected McMahon owning about 92% of Class B shares, each of which contained 10 votes.

In April 2023, Endeavor announced WWE and UFC parent Zuffa would merge through TKO, a publicly traded company. Until Friday, McMahon had served as its executive chairman.

McMahon flatly denies Grant’s allegations. He says her lawsuit is “replete with lies, obscene made-up instances that never occurred and is a vindictive distortion of truth.” In the weeks ahead he’ll answer Grant’s complaint, formally deny her claims and motion for dismissal.

As Sportico explained, enforceability of an NDA and accompanying mandatory arbitration clause will likely surface as key defenses. In a best-case scenario for the defendants, U.S. District Judge Jeffrey Meyer will dismiss Grant’s complaint to arbitration, which would be conducted in private and outside of journalists’ reach.

But if Grant’s lawsuit advances, pretrial discovery could expose WWE leaders and former leaders to damaging revelations via testimony and publication of old emails and texts. If even some of Grant’s historical retelling is accurate, it would suggest McMahon felt empowered by WWE to treat her—and perhaps other women—in degrading and abusive ways, without worry of ever being held accountable.

Like other companies, WWE has workplace policies that prohibit sexual and other forms of harassment and demand employees treat each other with respect. A typical employee who acted like the McMahon depicted by Grant would have been fired years earlier and never brought back. Stockholders could demand to know about the enforcement of WWE workplace rules for the boss and his inner circle.

Some have already asked that question through the legal system.

Last January, Detroit’s Police and Fire Retirement System sued McMahon and sought a court order that would have prevented McMahon from regaining control of WWE’s board. The complaint claimed McMahon had breached fiduciary duties by effectively forcing WWE’s board to acquiesce to his wishes. It insisted WWE lacked the right under Delaware law to alter its governance structure to transfer power to McMahon. Another stockholder, Scott Fellows, filed a similar complaint. The legal system didn’t stop McMahon’s ascension.

The boards of WWE and now TKO are required to satisfy fiduciary duties. The duty of loyalty obligates board members to act in stockholders’ best interests. The duty of care demands the board engage in due diligence and use the requisite care in making decisions. Meanwhile, the duties of obedience, good faith and fair dealing compel board members and other executives to follow and credibly enforce company policies and rules.

For now, it doesn’t appear controversies surrounding McMahon have substantially impacted TKO’s stock price. TKO closed at $86.54 on Friday, a drop of 1.11% from the previous close. Its stock price has largely hovered between $72 and $88 over the last few months.

By most accounts, WWE remains as popular as ever and is poised to succeed. Next year, Netflix will stream WWE Raw to subscribers in the streaming service’s new foray into live sports. To the extent McMahon’s issues don’t cause TKO’s stock price to drop, the harder it would be to prove WWE and TKO failed to meet duties to stockholders.

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