Dov Charney of American Apparel suffers an abrupt fall from grace

06/20/2014 4:00 PM

06/20/2014 4:00 PM

Dov Charney was no one’s idea of a button-down executive.

For years, Charney, the founder of American Apparel, stood like a tabloid monument to fashion industry excess, a barely restrained id in a fitted black shirt. The stories about his personal life are legion: the accusations of sexual harassment, suggestive emails, nude photos — the list goes on.

But on Wednesday, the company that Charney founded in 1998 decided enough was enough. Worried that Charney had become a liability, the board ousted him from his roles as chairman and chief executive in a coup that leaves American Apparel facing an uncertain future.

“The company has grown a lot bigger than just one person, and the liabilities Dov brought to the situation began to far outweigh his strengths,” said Allan Mayer, the board’s new co-chairman.

A lawyer representing Charney did not return telephone calls.

People with knowledge of the situation said an internal investigation had turned up new details about Charney’s salacious behavior — only this time, they said, American Apparel could no longer afford the potential cost.

Without giving details, Mayer confirmed that new facts had emerged this year.

“The only right and sensible thing to do at that point was to ask Dov to leave,” he said.

American Apparel’s creditors also have been growing anxious after years of losses at the company. Even a suggestion of new controversy might frighten stockholders, who have watched their investment plummet in recent years.

Even if Charney’s conduct was the primary reason for his dismissal, the company’s numbers are unsettling. American Apparel’s share price has plunged more than 80 percent over the last five years. Financial institutions have demanded credit-card-style interest rates of up to 20 percent on its loans. Other financial companies flatly refused to have anything to do with American Apparel as long as Charney, 45, was at its helm.

The company appointed John Luttrell, who has been with the company since 2011, as interim chief executive. David Danziger was appointed co-chairman of the board with Mayer. Under the terms of his contract, Charney will be suspended immediately and formally terminated after 30 days. The directors also voted to remove him as chairman.

Charney still owns 27 percent of the company’s stock.

According to a regulatory filing, the decision to fire Charney comes not just with financial potential but also with financial risk because the move may initiate a default on some of the company’s credit facilities. If its lenders refuse to give American Apparel a waiver on the triggers, the filing warned, the effect “would have a material adverse effect on our liquidity, financial condition and results of operations and could cause us to become bankrupt or insolvent.”

Charney, who was born in Montreal, moved to Los Angeles in 1997 to start a wholesale business that became American Apparel. Six years later, American Apparel became a retail business and immediately took off.

Early on, Charney received accolades for making clothing in the United States, even as more and more apparel production moved oversees, and for being vocal about workers’ rights. On Thursday, company executives said that neither the mission of the company nor its suggestive marketing and advertising strategy, which has been frequently compared with soft-core pornography, would change.

“We are committed to staying true to being made in America, to being sweatshop-free, to being a high-quality basic and fashion product,” Luttrell said. “The targeted customer demographic will not change either.”

But Charney’s penchant for inappropriate behavior has dogged him and the company for years.

In May 2005, three former employees filed two separate sexual harassment lawsuits in Los Angeles County Superior Court accusing Charney of creating an unsafe environment where women were subject to sexual misconduct and innuendo.

Nearly a year later, in February 2006, another former employee filed a complaint with the Los Angeles office of the Equal Employment Opportunity Commission, saying she was sexually harassed by an unidentified co-worker and was fired as a result of a hostile working environment.

The commission determined in August 2010 that the company discriminated against Sylvia Hsu and against “women, as a class, on the basis of their female gender, by subjecting them to sexual harassment,” the company’s annual report said.

In early 2011, five more former female employees filed sexual harassment lawsuits against Charney, including accusations that he had asked some of them to engage in sex acts against their will.

Despite his vocal support for workers’ rights, he was forced to let go of 1,800 workers, more than 30 percent of his factory staff, in 2009 as part of an immigration sweep when a federal investigation turned up irregularities in the identity documents the workers presented when they were hired.

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