When Dov Charney arrived at American Apparel Inc.’s annual meeting Wednesday, he was given a choice: resign as chairman, president and chief executive officer in return for a cushy consulting gig or be disnissed, according to a source familiar with the situation.
This story first appeared in the June 23, 2014 issue of WWD. Subscribe Today.
He chose the latter.
Now, Charney is planning to swing back — possibly with legal action that could come today in Los Angeles.
“They pushed him out the door with their right hand and dragged [or attempted to drag] him back in with the left hand,” the source said. “Dov Charney is not going quietly into the night. There’s going to be a lot more happening on Monday.”
Charney declined to comment when reached by WWD.
His departure led to something of a tabloid spectacle over the weekend, complete with nude photos of Charney and a full retelling of the company’s woes. That amounts to a no-doubt expected headache for the board, which is now led by cochairmen Allan Mayer, a public relations executive and expert in crisis communications, and David Danziger, an accountant. Given the coverage of Charney’s impending dismissal, Mayer is going to need all his crisis management skills since the coverage has been a brand’s worst nightmare.
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American Apparel is known as much for its racy advertising as its brightly colored basics. The salacious marketing approach — featuring young, female employees in provocative poses — reflects the personality of Charney, who is vocal about his easy-loving lifestyle and has been sued repeatedly for sexual harassment by employees.
After the 10-hour closed-door meeting in New York on Wednesday, the board said it replaced Charney as chairman and planned to terminate him as president and ceo for cause in 30 days, citing “an ongoing investigation into alleged misconduct.”
Last week, a person close to the company described the ouster as “a culmination of many events” and said Charney had dispatched certain litigation without the board’s knowledge, providing the “straw that broke the camel’s back.”
Charney’s already started to argue his case, with a letter his attorney sent to the board.
“It is exactly what we’d expect to get from Dov’s lawyer in a situation like this,” Mayer told WWD. “We continue to believe we did the right thing, for the right reasons, in the right way. We are very confident we are on very strong legal ground.”
The source familiar with Charney’s take said, “It’s all old news, the acts which they’re complaining about, the salacious stuff, is stuff they knew about when they reupped him as ceo.”
The board is also said to have accused Charney of other misdeeds, such as booking airline flights for his parents using company money. But the source noted that the former ceo’s mother worked with the company, flew coach and stayed at Charney’s house.
And there are reports that the former ceo had a hand in releasing naked photographs of a former employee who was suing him.
Charney’s departure leaves the company in a precarious position.
American Apparel said the management change might have triggered a default under its credit agreements and that it could go bankrupt without a waiver from its lender.
It is also has to navigate these waters while looking for a new ceo. Executive vice president and chief financial officer John Luttrell was given the reins as interim ceo.
Last week, the source close the company said: “The goal is to get a new management team in and run this business. The goal isn’t to sell the company, but obviously in these types of situations you have to examine all of your options.”
That examination might well open the door for acquirers that have shown interest in American Apparel in the past, but have been reluctant to work with the very colorful Charney.
Would-be buyers are believed to be taking a second look at the company with financial players seen as mostly likely candidates for a takeover.
A buyout from a private equity or financial player could radically change the complexion of American Apparel, which produces its looks at a factory in LA.
“Our core business — designing, manufacturing, and selling American-made branded apparel — is strong and continues to demonstrate great potential for growth, both in the U.S. and abroad,” said Luttrell when he became interim ceo.
He underscored that American Apparel would remain committed to its sweatshop-free, Made in USA manufacturing philosophy.
What’s not known is if a new buyer would stick to that philosophy as it looks to boost profits.