That Dov Charney, CEO of American Apparel, was finally fired for inappropriate behavior isn’t shocking. What is a bit surprising is that he is fighting to stay onboard the company he founded.
Elizabeth A. Harris had this story in The New York Times:
Dov Charney, the founder and longtime chief executive of American Apparel who was ousted last week by the company’s board, filed a formal notice on Monday indicating that he did not plan to leave quietly.
A regulatory filing with the Securities and Exchange Commission stated that he was in talks with supportive shareholders about making changes to the board and company management in an effort to seek reinstatement.
After years of accusations against Mr. Charney that included sexual harassment and assault, the American Apparel board voted to remove him as chairman and to end his relationship with the retailer altogether. It outlined accusations such as repeatedly violating the company’s sexual harassment policies and arranging financial settlements with employees that would insulate him from personal liability.
But according to Mr. Charney’s lawyer, many of the issues the board outlined had been on the company’s radar for years.
The Wall Street Journal story by Suzanne Kapner and Tess Stynes had this background about Charney’s legal troubles:
Mr. Charney had weathered years of lawsuits that alleged sexual harassment and abusive behavior in painfully explicit terms. But recently, a group of directors troubled by his responses to some of the suits began to doubt his trustworthiness, The Wall Street Journal reported last week.
Mr. Charney founded American Apparel as a wholesale T-shirt business in 1998, choosing to produce the garments in America and speak out in favor of immigration reform and better wages.
But American Apparel has suffered from weak sales and adverse publicity surrounding its CEO. His overt sexuality—he frankly discussed his own sex life, sometimes wandered around his factory in his underpants and staged provocative photo shoots in the basement of his mansion—precipitated lawsuits by former employees.
And as only it can, the New York Post was able to put “sex slave” in the headline of its story by James Covert:
As first reported by The Post on Friday, the ouster is related to the case of Irene Morales, who had unsuccessfully accused Charney of making her his “sex slave.”
The board cited allegations that Charney had allowed a former employee to create a 2011 blog with nude pictures of Morales purported to be authored by her, sources said.
But Charney is expected to argue that he had no knowledge of the blog before it was published, and therefore isn’t responsible for legal liability cited by the company, insiders said.
Moreover, Charney’s lawyers note that the board renewed his employment contract in April 2012, more than a year after the allegations surfaced.
As reported by The Post, American Apparel’s liability in the Morales case has been well short of the $260 million she had originally sought in her sensational lawsuit.
In fact, it was Morales this spring who was ordered by an arbitration judge to pay American Apparel $800,000 in damages for appearing on NBC’s “Today” to accuse him of sexual harassment, sources said.
The Los Angeles Times piece by Shan Li detailed the allegations around Charney and his misconduct:
American Apparel has said the termination “grew out of an ongoing investigation into alleged misconduct.” A person familiar with the matter said the investigation found that Charney allegedly stayed in corporate apartments when he wasn’t on business, used company funds to book airline tickets for his parents, and helped leak nude photographs online of a former worker who was suing him, among other alleged improper decisions.
Charney’s lawyer said the allegations are “completely baseless,” according to the letter.
Also on Monday, American Apparel said it has hired advisory firm Peter J. Solomon Co. to ensure it has access to affordable capital.
The Los Angeles retailer has been struggling to turn around its fortunes after years of poor performance and high debt.
“We believe the hiring of a financial and strategic advisor at this important juncture is in the best interest of our stockholders and will help maximize long-term shareholder value,” John Luttrell, the interim chief executive, said in a statement.
Businessweek called Charney’s behavior “expensive” in a story by Susan Berfield:
Dov Charney’s behavior has never been a secret. For starters, as the chief executive of American Apparel (APP), he occasionally walked around the Los Angeles headquarters in his underwear. He was open about his libertine attitudes toward sex in general and sex in the workplace in particular, at one point “putting on a show” for a journalist on assignment for Jane magazine.
So when Charney was fired last week “for cause,” it was reasonable to wonder “why now?” In his termination letter, posted on BuzzFeed yesterday, the board accuses him of sexually harassing employees, paying off some of them with “significant” severance packages, and refusing to participate in sexual harassment training.
It is true that Charney’s antics are not new, but apparently they have grown unacceptably expensive. The letter to Charney eventually comes around to this point:
Your conduct has required the Company to incur significant and unwarranted expenses, including expenses associated with litigation and defense costs, significant settlement payments, substantial severance packages that were granted to employees, and unwarranted business expenses that you incurred for personal reasons. The Company’s employment practices liability insurance retention has grown to $1 million from $350,000. … The resources American Apparel had to dedicate to defend the numerous lawsuits resulting from your conduct, and the loss of critical, qualified Company employees as a result of your misconduct cannot be overlooked.
Also, investors’ tolerance has worn thin. It has been hard for American Apparel to raise money, and it is getting harder.
And it’s never good when the CEO is actually costing the company its ability to attract investors and capital. I remember reading about Charney’s antics years ago and wondering why he still had a job. It’s shocking that it took this long for the board to do something. It’s also stunning that workplaces like these still exist. It’s a business story on one hand, but it’s also an equality issue on the other.
