Dov Charney’s still working on his ninth life at American Apparel Inc.
A lightning rod of a libertine, Charney founded the racy Los Angeles-based firm, took it public, logged years of losses, batted away sexual harassment lawsuits and, in June, was ousted as chairman and suspended as chief executive officer.
But the scrappy Charney fought back, linked up with the relatively unknown investor Standard General and saw the ouster of most of the board that booted him. He is now operating as a consultant, waiting for a committee from the new board to weigh in on his fate and alleged misconduct.
Much hangs on the board’s decision, which is expected no later than mid-October.
If Charney were to be fired for cause, the board would face, by all accounts, a lengthy, taxing and potentially expensive legal battle as it seeks to turn around the company. If the board were to fire Charney without cause, he would be owed anywhere from $6 million to $20 million, according to sources.
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And if Charney is brought back, the board would have to decide in what capacity and how to set up a team that could both work with him and reverse the trend that led to net losses of $182 million over the past three years.
“If Dov exists in any position of authority, the company would never attract a good ceo,” said one industry observer, who noted that Charney has been lobbying to name an existing employee as a “puppet” ceo.
So far, Charney has outlasted the investigation into his conduct.
“If there was a smoking gun there, he would be gone,” the source said. “There’s nothing like that in this investigation.”
Charney recently spent five hours with the board committee investigating him, and sources said the meeting covered older allegations made by the prior board and produced no new surprises. He was previously said to be accused of mishandling settlements with former employees, having a hand in releasing naked photographs of a former employee who was suing him and misusing corporate funds.
He is said to have come out of the recent meeting feeling positive. In the meantime, Charney seems to be reestablishing something of a foothold at the company, working the brand’s booth at MAGIC’s Pool Trade Show in Las Vegas last month.
Still, he’s not completely back yet. And observers believe a more definitive return depends on whether he can convince the board that he would be good for business.
The business certainly could use something. The company logged net losses of $16.2 million in the second quarter as comparable store sales fell 6 percent.
Sources said the restructuring firm Alvarez & Marsal has been brought in to help shore up the company’s finance department in recent weeks and could take on more responsibilities from interim ceo John Lutrell, who clashed with Charney before succeeding him in the corner office.
A person familiar with the company’s thinking said the retailer was looking for “heavy hitters” to help run operations.
The hope is to get the situation with Charney sorted out and then have Standard General — which, through a deal with Charney, shares control of 43 percent of the company — smooth things over with debt holders, the largest of which is Monarch Alternative Capital.
But, so far, few things at American Apparel have gone as intended.
Charney could also wait for his standstill agreement with the board to lapse after the next annual meeting in June and then try to rebuild his stake, perhaps by buying out Standard General.
Such a move would be costly. Charney borrowed nearly $20 million from Standard General to buy 27.4 million shares of American Apparel when he was trying to maintain control of the bulk of the company’s shares. Standard General and Charney agreed in July not to acquire any more shares of the company, a deal which also limited their voting rights through the next annual meeting.
The standstill agreement, while helping Charney to keep a toehold at the company he founded, could mean he wouldn’t be able to buy out Standard. “Any deal with Dov that would give him some continuing role with the company would probably include some extension of the standstill agreement,” the source close to American Apparel said.
The saga with Charney has a “can’t live with him, can’t live without him” flavor.
He’s ingrained in the company’s culture and hailed as a savvy marketer and brand builder. But he is also seen as a micromanager who is running a company that, at least operationally, has outgrown his skills. And it would be expensive to get rid of him.
For now, though, the future of American Apparel still appears to turn on Charney, how nice he can play the corporate game if he stays on the inside or how much traction he can gain fighting from the outside.