American Apparel: A Case Study In CEO Transition

As CEO Dov Charney exits stage right, Wall Street is once again bullish on American Apparel. This despite losing $750 million in shareholder value over the last seven years, a 2014 fraught with scandal, and myriad questions as to the company?s competitive prospects in an increasingly fickle market. Then there?s the loss of its visionary founder, his many issues notwithstanding.

What do investors see here? Why did the share price climb 8.7 percent yesterday alone?

While there are rumors of a possible takeover in the works, confidence in the board just might lead the list of reasons. CEO transitions are never easy ? and this was no ordinary case study. The incumbent was the founder who built the company from the ground up. There was little chance he would go quietly. While Charney?s behavior and the company?s steep decline certainly provided justification for the move, they also complicated the matter. Not only does the current CEO to come to work in his underwear; there is no guarantee that a successor better able to put clothes in teens? closets.

Amid sagging share prices, high-profile lawsuits, salacious media coverage, and a restructuring that brought five new members to the table, the board handled the situation masterfully ? beginning with its outright control of the transition narrative from start to finish.


Having initially leaked news (and the details) of Charney?s suspension back in June, directors set the terms by which any potential dispute would be decided. Those salacious stories of Charney?s behavior? They worked entirely in the board?s favor. He was no longer eccentric; he was unprofessional (and worse). By the end of the first media cycle, widespread problems with culture, operations, and, ultimately, financial performance were laid right at Charney?s feet ? even if only by extension of his outlandish (and allegedly illegal) conduct. The only criticisms of the board were questions as to why it hadn?t acted faster.

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