The Board of Directors: Hidden Conflicts

Board of Directors: Hidden Conflicts

At least one of RCI’s Directors violates SEC rules for an independent director, and two others have unreported related party transactions with RCI.

RCI Hospitality’s Board of Directors deserves significant blame for overseeing some of the worst corporate governance of any publicly traded company. 3 out of 4 non-employee board members have owned zero shares for years and have no interest in the direction of the company.

Shares Owned by 'Independent' Directors (RCI Proxy)
	FY2014	FY2015	FY2016
Robert Watters	0	0	0
Luke Lirot	0	517	518
Steve Jenkins*	0	0	0
Nour-Dean Anakar	0	0	0

*Has since stepped down

RCI reports that all four of its non-employee directors are independent and have no conflicts of interest or related party transactions to disclose. I believe that is inaccurate:

Nour-Dean Anakar: Nour-Dean is the brother of Ed Anakar, RCI’s Director of Operations. At least one other Anakar family member also currently or previously worked for RCI. RCI has never disclosed the relationship between Nour-Dean and Ed. SEC rules specify that a board member is not independent if they or a family member receive compensation or payments totaling more than $60,000 in any of the last three fiscal years. Ed’s compensation certainly exceeds $60,000, so Nour-Dean should not qualify as an independent board member, despite RCI holding him out to be Independent since he joined the board in 2010.

Luke Lirot: Board member Luke Lirot is a lawyer that frequently represents RCI in legal cases (a quick google search finds numerous cases: Kertesz v. Ricks Cabaret; Lusskin v. Ricks Cabaret; Saleh v. Miami Square Gardens (RCI), etc). However, RCI has never disclosed the business as a related party transaction. It is less clear if Luke Lirot’s total compensation for the RCI cases has exceeded the $60,000 threshold. Given that some of his cases went to trial, and that RCI has averaged more than $3 million annually in legal expenses in recent years, it seems likely that RCI paid him legal fees above the amount.

Robert Watters (Has since stepped down from the BoD): Robert Watters licenses the Rick’s name for a strip club and sports bar in New Orleans. Terms of his license are not disclosed, but it would seem to be another related party transaction regardless of the amount of money(or lack there of) that he is paying to use the name.