Dov Charney may be back at American Apparel
If you typically feel as though you need to shower whenever a discussion about former American Apparel CEO Dov Charney comes up, now might be a good time to reach for your bodywash and a towel.
Mr. Charney (he of sexual harassment suits and prancing around the office in his underwear, etc.) was recently fired for cause by the American Apparel’s board. While many outside the company wondered why it took the board so long to conclude that Mr. Charney had to go, others continue to support him. Mr. Charney himself has railed against what he sees as an illegal dismissal from the company and has steadily been at work trying to engineer a return.
For those without a scorecard, here’s how the American Apparel saga has played out so far.
- After his removal, Mr. Charney began a public back and forth with the board via the media.
- Lion Capital, which had extended a loan to American Apparel, demanded immediate payment of $10 million from the company. The action was triggered by a clause in the contract that called for immediate repayment if Mr. Charney was no longer with American Apparel.
- Standard General, a hedge fund with a roughly 10 percent stake in American Apparel, offered its stock to Mr. Carney to help him regain control of the company. Mr. Charney and Standard General together own about 44 percent of the company’s shares.
- Unable to move the board, Mr. Charney turned over his stock to Standard General, giving the firm control of his voting rights.
- Standard General has negotiated with American Apparel’s board with the result that three members will lose their seats, the positions to be filled with one person from the hedge fund as well as two others of its choosing.
- No word has been given on whether Mr. Charney will be back with American Apparel as CEO, but signs certainly point to that as a possibility. A Los Angeles Times report has Mr. Charney returning to American Apparel, at least for now, as a strategic consultant.
One of the key aspects of the negotiations is that American Apparel will continue to make its clothes in the U.S. The chain, which promotes its sweatshop-free clothing, has always used its "Made in the USA" positioning as a differentiator in the marketplace.
Discussion Questions
How do you think the drama being played out between American Apparel’s board and former CEO Dov Charney is affecting the people who work for the company? What effect is it having on consumer attitudes to American Apparel?
It’s hard to imagine how Mr. Charney’s reported (and recorded) antics were tolerated for years, until the board apparently lost patience with his results—not with his behavior. Now the maneuvering between Mr. Charney, his investors and the board continues to threaten a company that was on shaky ground in the first place. American Apparel was already bleeding consumer relevance fast.
It’s hard to imagine how any company directors—public or private—allowed the sort of shenanigans that reportedly took place at American Apparel, and put the company at grave risk for lawsuits. It’s just plain awful corporate governance, and to see a potential outcome where Mr. Charney is running the company again is baffling.
I assume anyone who is in a position to is desperately seeking another job. If they aren’t they are a.) independently wealthy; b.) people who flourish under intense levels of uncertainty and chaos; or c.) brain-dead and therefore of no real value to American Apparel.
Ah, we return to the topic of the brain-dead in the second question as well.
For those naive enough to believe American Apparel was kind to its workers just because it employed them within the borders of this country, or that Mr. Charney’s previous escapades were just grist for the fashion mill—or that American Apparel was anything besides an overpriced gimmick line in the first place—my guess is it won’t mean much.
For anyone else … well, my guess is that they have already moved on, which at least partially explains American Apparel’s operating statements.
The rank-and-file are getting whipsawed by the actions at the top: The hedge funds, Mr. Charney, the board. They’ve had to deal with already poor financial results and stock price slides (over past five years, from $4-per-share to $0.88-per-share).
Assuming consumers are aware of this saga, it would be difficult for them to separate the allegations and the drama from the brand’s image.
Hard to find a silver lining in all of this.
Despite his perceived shortcomings, Dov Charney is a brilliant man and an overachiever. He has accomplished great success at a young age. Obviously the money behind him is willing to overlook his personal issues. Most consumers are probably oblivious to what is going on.
It would appear that the board of American Apparel did not seek the advice of corporate council prior to dismissing Charney. Did no one tell them that a $10 million dollar note would be due? Did they not consult with major shareholders? These idiots should be fired for messing around and making emotional decisions (had to be emotional as it would appear that creditors, stockholders and council were not consulted prior to making a decision). Is the board composed of people with no business experience?
Charney, warts and all, would seem to have all the cards at this point in the game. The people of American Apparel are probably more disturbed by the possibility of bad press depressing their business and causing cutbacks. Frankly, I don’t think the consuming public cares. If the merchandise is fashionable, well-made and priced right, all will be OK. If not, then look for production to move off shore and the company to change its name to “Politically Correct Apparel.”
This is steadily becoming more of a situation where everyone loses. Those people still employed there should be looking for a new position elsewhere. What good can come of this? Mr. Charney is obviously on a major ego trip. The board is no better by battling through the media.
Not mentioned here though detailed in both the WSJ and the Financial Times was that the transgressions had less to with Mr. Charney’s overactive libido and more to do with good (or bad) old-fashioned managerial incompetence. That the company lost a reported $270M over the past 4 years should be mentioned to supporters of his “brilliance”. (Anecdotes that checks stacked up in his house as he tried to review each and every one of them will bring either a smile or shudder of terror to any finance person who has had to deal with a meddlesome owner.)
Most people don’t have any particular talent. Mr. Charney should be grateful that he, perhaps, had exactly one, stifle his conceit that he has more than that, and move on.
As for the customer effect of all this, I doubt there is any given that even we retail savants need to reminded of the situation. AA has many problems, but this one is far down on the list.
I wouldn’t want to be a senior manager at American Apparel right now, but I doubt the 3,300 workers on the factory floor in L.A. are feeling much of an effect from the Dov Charney circus.
In the midst of the high-profile corporate crisis, nobody is talking much about what’s happening in the company’s 249 stores, which generated about $453 million of the company’s total $634 in annual revenues in 2013.
Also worth a look: Bloomberg Business Week’s article on Charney’s ouster, just published but apparently written prior to his “reinstatement.”
As for American Apparel’s shoppers, I’d doubt that they know or care very much about the corporate infighting.
Say what you will about Mr. Charney, but he’s definitely the driving force behind the American Apparel brand. Without him I think they have no chance for survival because the brand is really ho-hum. He has kept the brand alive through some pretty rugged times in spite of himself and his antics.
As for the effect his and the boards shenanigans are having on their customers? Probably nothing as they probably don’t know or care.
The interchange between Dov Charney and the American Apparel board is a disaster on so many levels. On a personal level, Charney’s antics long have been the reason I refuse to shop the stores. His behavior, in my view, mitigated any goodwill generated by his whole Made in America spiel.
Furthermore, beyond the domestic manufacturing angle, there’s the whole issue that the company largely trades in apparel basics, peddled as fashionable only through the use of overtly sexual advertising. This company has been on life support so many times over the years…isn’t it time we pulled the plug?