Prepare for fight over Charney’s removal at American Apparel

Charney believes the termination is without merit and intends to contest it vigorously, and some shareholders appear to support him

American Apparel may see a fight among shareholders over the removal of Dov Charney as chairman and his planned removal as the company’s CEO.

An unknown number of stockholders approached Charney after his removal by the board and “expressed support for his continued leadership,” according to a recent company filing with the Securities and Exchange Commission (SEC). The day after he was removed, Charney “began to discuss with the Supporters potential changes to the composition of the Board and management,” the filing added.

“Mr. Charney believes that such termination is without merit and intends to contest it vigorously,” the filing said.

Charney apparently wants the issue to go into arbitration in an effort to remain on as the company’s president and CEO, according to The Wall Street Journal. Patricia Glaser, a lawyer representing Charney, filed a petition for arbitration in Los Angeles on Monday with the American Arbitration Association, The Journal reported.

Charney still owns 27.2 percent of American Apparel, according to the SEC filing.

 

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So far, the directors appear not to want to meet with Charney, with the board being represented by Jones Day.

It was on June 18, 2014, that the board told Charney of its intent to terminate his employment as the company’s president and CEO for “misconduct,” according to a report from InsideCounsel.

“We take no joy in this, but the Board felt it was the right thing to do,” current board member Allan Mayer said in a company statement. “Dov Charney created American Apparel, but the Company has grown much larger than any one individual and we are confident that its greatest days are still ahead.”

Last week, an unnamed source told the Chicago Tribune that Charney will “fight like hell to get this company back, but he won’t succeed."

In the past, four former women employees filed a sexual harassment suit in 2011; and Charney allegedly choked and rubbed dirt in the face of a former store manager in Malibu, Calif., in 2012. The company denied the allegations.

The Journal has also reported Charney was sometimes seen, “wandering around his factory in his underpants.”

News reports said recent allegations regarding Charney may have been the final straw for the board, and then it decided to remove him. The removal also shows the importance of CEO succession planning.

Meanwhile, The Journal also reported American Apparel hired an outside firm, Peter J. Solomon Co., to make sure it has access to capital.

"We believe the hiring of a financial and strategic adviser at this important juncture is in the best interest of our stockholders and will help maximize long-term shareholder value," interim CEO John Luttrell said in a recent statement.

Contributing Author

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Ed Silverstein

Ed Silverstein is a veteran writer and editor for magazines, websites and newspapers. A graduate of Harvard's Kennedy School of Government, he has won several...

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