The latest to roll the dice with governance is online betting group 888, which recently removed its chief executive and suspended VIP customer accounts in the Middle East amid an internal investigation into a failure to follow anti-money laundering processes.
Shares in the Gibraltar-based group, which last year acquired rival William Hill’s operations outside the US in a £2.2 billion deal, plunged and remain off by around 30%. But this is not 888’s first rodeo with authorities and its market value has slumped by nearly three-quarters over the past 12 months.
Eye-watering stuff and a clear signal of how closely governance and financial reputation are entwined.
Of its VIP customer accounts, the company conceded that “certain best practices” had not been followed relating specifically to “know your client” and anti-money laundering regulations.
The company said in a statement: “While further internal investigations are under way, the board has taken the decision to suspend VIP customer accounts in the region, effective immediately. Based on the board’s current understanding, the process deficiencies identified are isolated to this region only.”
The suspensions account for up to 3% of group revenues, or about £50 million, according to 888, which also announced the immediate departure of chief executive Itai Pazner who had worked at the company for more than two decades and at the helm for the last four.
In an effort to calm jittery investors, 888 also asked chief financial officer, Yariv Dafna, who had previously announced that he was to leave at the end of March, to remain in his post until the end of the year.
Jonathan Mendelsohn has temporarily taken on executive responsibilities while the board seeks a replacement for Pazner, and he said: “The board and I take the group’s compliance responsibilities incredibly seriously. When we were alerted to issues with some of 888’s VIP customers, the board took decisive actions. We will be uncompromising in our approach to compliance as we build a strong and sustainable business.”
However, the Gambling Commission has fined 888 several times for compliance failures in recent years. In March last year it was fined £9.4 million — the third highest in the history of British gambling regulation — over multiple failings that led to customers racking up huge losses amid the Covid pandemic.
The Gambling Commission highlighted a series of transgressions that it warned could force it to consider 888’s suitability to hold a licence to operate in the UK. The regulator said 888 was not properly identifying customers who were at risk of harm because it did not carry out financial checks until they had deposited £40,000.
An audit carried out in October 2020 found that most of the company’s social responsibility interactions with customers consisted of a single email describing the available responsible gambling tools and did not involve customer interaction.
And in 2017, the company paid £7.8 million for “outrageous” failings, after more than 7,000 people who had voluntarily banned themselves from gambling were still able to access their accounts.
The company did appoint Andrea Gisle Joosen, Andria Vidler and Randy Freer as additional independent non-executive directors in the summer but the share price suggest that investors are far from convinced that the company has got to grips with its governance issues, hence the departure of its CEO.
“There are few things that can impact a company’s reputation as quickly and as deeply as clear evidence of poor governance, especially when that directly impacts people either working for the business or related companies, or consumers,” says Bridgehouse director Ibi Eso.
She adds: “Far too often companies put robust governance protocols and practices in place only after they have been pulled up by regulatory authorities or been threatened by customers disowning their brand. In fact, having those systems in place is probably the most effective and cost-efficient reputational protection that your company can employ.
“Companies sometimes view corporate governance as simply an added cost or a box ticking exercise but in reality there are huge financial benefits to implementing a well-managed governance system that will not only help your company meet its commitments but can also save vast amounts of money.”
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