Business

American Apparel ousts CEO; source says Dov Charney 'will fight like hell'

Stock MarketAmerican ApparelNYSE Euronext, Inc.
'We take no joy in this, but the board felt it was the right thing to do' -Allan Mayer on Dov Charney's ouster

Dov Charney, the controversial CEO of American Apparel, was ousted Wednesday by the company's board of directors, who said the action “grew out of an ongoing investigation into alleged misconduct.”

The board voted to replace Charney as chairman and “notified him of its intent to terminate his employment as President and CEO for cause,” according to a statement.

“This is not easy, but we felt the need to do what we did for the sake of the company,” Allan Mayer, the company’s newly-appointed co-chairman, told The Times. “Our decision to do what we did was not the result of any problems with the company’s operations.”

The termination is a dramatic turn for Charney, who has been dogged by lawsuits and allegations of misconduct for years, but has always served as the public face of the Los Angeles retailer. When reached by phone by a Times reporter, Charney hung up.

Mayer said the board launched an investigation earlier this year after “new information came to light.”

Charney’s behavior problems did not appear to be criminal in nature, but involved his personal conduct with women and poor judgement, said a source familiar with the matter.

Mayer said he expects some critics to question why the board didn’t act sooner. But Mayer said, “a board can’t make decisions on the basis of rumors and stories in newspapers.”

The board voted unanimously to terminate Charney on Wednesday after its annual meeting, the source said.

“He was totally taken by surprise, which is part of the problem,” the source said. “He’s going to fight like hell to get this company back, but he won’t succeed."

Charney’s firing comes at a precarious time for American Apparel, which has been fighting to lift sales after years of lackluster performance and debt. The company said the move may trigger a default under its credit agreements, and it will talk with lenders about its obligations.

In 2013, American Apparel reported a net loss of $106.3 million, compared to a loss of $37.3 million in 2012. Facing a cash shortfall, the retailer in March announced plans to sell $30.5 million of stock to meet debt payments.

“We take no joy in this, but the board felt it was the right thing to do,” Mayer said in the 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.” 

Charney, 45, was born in Montreal and attended Tufts University where he ran American Apparel out of his dorm room. He moved the business to Los Angeles in 1997.

American Apparel began as a wholesale brand and expanded in 2003 into the retail market.

In his battles with those who accused him sexual harassment, he previously had been publicly backed by the company.

In 2011, American Apparel lashed out when four female former employees filed a sexual harassment suit. At the time, the company told The Times that the four women were friends who were colluding to "shake down" Charney and the company for money and that it had "voluminous evidence" to prove that the allegations were false.

In 2012, Charney was accused in a wrongful termination suit of choking and rubbing dirt in the face of a former store manager in Malibu. Charney also was accused of calling the employee "a wannabe Jew" and a "fag" and asked if he was sleeping with a certain girl. The company denied the allegations.

He has also become a well-known advocate for the Made in the U.S.A. movement and for immigration reform. American Apparel’s clothing is manufactured out of a factory in downtown Los Angeles, and he has emphasized that the company is "sweatshop-free."

Still, in recent years, the company has had to remove a third of its workforce after employees were found without required documentation. And its ads, some shot by Charney, have raised eyebrows or racy themes in public locations.

This year American Apparel has fought to retain its listing on the New York Stock Exchange while buried in negotiations over financing -- efforts that the retailer said would force it to file its annual report late.

According to the release regarding Charney's ouster, American Apparel has about 10,000 employees and retail stores in 20 countries.

Board members said Wednesday that they planned to work with a search firm to identify a permanent chief executive.

Times staff writer Megan Garvey contributed to this report

Follow @byshanli for coverage of the California economy.

Copyright © 2014, Los Angeles Times

UPDATES

9:57 a.m.: This story updates with an interview with Mayer and details from other sources.

8:59 p.m.: This story was updated with information about the actions possibly triggering credit default.

8:25 p.m.: This story was updated with the detail that the vote came while an investigation into alleged misconduct was still underway.

8:08 p.m.: This story was updated with details about Charney's position on labor issues.

7:58 p.m.: This post was updated with details about past sexual harassment allegations, as well as details about recent financial struggles.

7:50 p.m.: This post updated with background about Charney's history with American Apparel

7:43 p.m.: This post was updated with additional information about the board's action and a quote from Mayer.

This story was originally published at 7:38 p.m.

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