The American Apparel Inc (NYSEMKT:APP) board of directors announced that its founder, president and CEO Dov Charney, has been fired for cause following an investigation into alleged misconduct. Charney has faced sexual harassment and other accusations for years, and investors responded to his firing by rallying to the stock, up 4.69% to $0.67 this morning.
Even though the board said that the decision had nothing to do with operations, American Apparel has been struggling for the last year, falling from over $2 per share to less than $0.50 as losses increased from $37.4 million in 2012 to $106.3 million in 2013, report Shan Li and Andrea Chang for The Los Angeles Times. While the board’s decision may have been restricted to the misconduct investigation, the market’s response is more likely a sign that investors want someone else to take a shot.
American Apparel’s Charney has faced misconduct allegations for years
American Apparel has a reputation for racy advertising, so when four female former employees sued him for sexual harassment it struck most people as easy to believe. A host of other accusations have followed, but the company has always defended Charney in the past and the suits have been settled. This recent investigation turned up new information that was apparently not criminal, but bad enough that the board was no longer willing to keep him on. We’ll probably hear the full story sooner than later, leaked if not officially, but we’ll have to wait until then to see if his actions could be the grounds for future lawsuits against the company.
Charney has 30 days left on the job, but stepping down now would help the company move on
Charney will still be around for the next month because of a mandatory 30-day waiting period in his contract, but it doesn’t sound like there is any chance of him winning his way back into the board’s good graces. Since he still has a large financial stake in the company that he founded, it’s arguably in his interests to cut his losses and go so that American Apparel can start the transition process with a minimum of drama. American Apparel still has strong brand recognition, so even after this terrible year it’s easy to imagine that a different management team could turn the company around.