After accusations of sexual harassment and misconduct, the American Apparel (APP) Board of Directors has fired long time CEO and founder Dov Charney. The highly anticipated announcement was released two weeks ago. However, the outspoken and flamboyant Charney has made it clear that he will not go down without a fight, vehemently defending himself from the company he established.
Charney founded American Apparel in 1997 after he began manufacturing t-shirts in Los Angeles. From there, Charney grew the brand and entered the retail market in 2003. In 2006, the Endeavor Acquisition Corporation, a small investment group based in New York, invested $382.5 million in American Apparel to take the company public. After the acquisition, Charney remained CEO, controlling roughly 47% of the company’s stock.
However, for the past decade, Charney has been the subject of sexual misconduct claims. These include accusations that he posted nude pictures of models on the Internet without their consent, ran butt-naked through his office, and inappropriately fondled female employees. Despite such egregious claims, the American Apparel Board has supported Charney, stating that all lawsuits were meritless. This is, until the company began its tragic fall from grace.
At one point in early 2008, American Apparel’s stock price had surged to over $14 per share. Business was booming as Charney, and the rest of the American Apparel Board, basked in the company’s substantial profits. It seemed that American Apparel’s business model, of producing colorful hipster clothing, paying its workers twice the federal minimum wage, and providing all employees with health insurance, was working. However, in 2009, the stock price began to plummet, and fell to below $2. The stock now trades for roughly $0.82. The company has not posted a profit in its last 17 quarters and lost $46.5 million in Q1 2013.
Naturally, the company’s losses led to unrest among Board Members and its institutional investors. As a result, Charney’s compensation was changed; his ownership stake decreased to some 25%. Now, more than ever, Charney has less control over American Apparel and its future.
The unrest brought by the company’s losses also increased the Board’s impatience with Charney’s antics and the accusations against him. Whether true or false, the company’s Board Members no longer had strong profits, as an excuse, to shadow the CEO from his actions. In June 2014, Charney was fired.
After his removal, Charney made it clear that he would not go down without a shareholder fight, and he hasn’t. According to US News, Charney partnered with an investment advisory firm, Standard General LP, to increase his ownership to over 40%. However, on June 28th, the Board posted resolutions that prevent him from voting his newly acquired shares. In response, Charney has asked for a meeting of the Board in September, but it is unlikely that this meeting will occur.
In all likelihood, the battle for control over American Apparel will end up in court. Charney has avoided serious punishments in four prior sexual harassment lawsuits, three of which are still being decided. Regardless of American Apparel’s struggles, it may be time for Charney to cut his losses, clean up his act, and let the company he founded move on without him.