Last week when American Apparel's largest outside shareholder, Johannes Minho Roth of the Swiss investment firm FiveT, expressed surprise over the firing of the company's founder and CEO Dov Charney, there were others who wondered why it took so long. Either way, it appears as though the story is far from over as Mr. Charney has made it clear he is not planning to go down without a fight.
A letter from a law firm representing Mr. Charney and published by The Wall Street Journal claims American Apparel's board first engaged in an "unlawful" and "coercive" attempt to get him to resign. When that failed, the board presented him with a termination notice based on allegations that were "completely baseless," claims the law firm. According to the letter, "Most involve activities that occurred long ago (if at all) and about which the board and company have had knowledge of for years. None of Mr. Charney's alleged actions caused injury to the financial condition or business reputation of the company, and none even comes close to constituting 'good cause' for Mr. Charney's termination under the employment agreement."
American Apparel's board has said that Mr. Charney was terminated for cause for unspecified misconduct. Press reports contain allegations that Mr. Charney used company funds to pay for his parent's travel. He is also alleged to have aided in the release of naked photos of a former employee who is suing him (the case is currently before an arbiter) as well as having lied in a legal deposition.
Stories about inappropriate, if not illegal, behavior by Mr. Charney with female employees and at least one member of the press have been around for years. He is alleged on at least once occasion to have danced around the company's office in his underwear.
American Apparel, under Mr. Charney, has lost $270 million since 2010 and seen its share price fall below $1 during that time. The company's board warned that in terminating Mr. Charney it risked going into default with some of its lenders. The company has begun discussions with banks and equity firms to avoid that scenario playing out.
Even though Mr. Roth has expressed support for Mr. Charney's efforts to get the company turned around, he told Bloomberg News that he does not plan at this point to support the ousted CEO in a proxy fight with the board.
- American Apparel's Charney Faced Ultimatum: Quit or Be Fired - The Wall Street Journal (sub. required)
- Termination of Dov Charney by American Apparel, Inc. - Glaser Weil Fink Jacobs Howard Avchen & Shapiro LLP - The Wall Street Journal (sub. required)
- American Apparel Investor Expects CEO to Fight Termination - Bloomberg News
- American Apparel Investor Not Planning to Support Charney - Bloomberg News
- American Apparel Is Firing Dov Charney - Slate