Companies & Industries

Why did American Apparel tolerate Dov Charney’s escapades for so long?

As the company’s losses topped $100 million last year, Charney’s behaviour—so long a key part of the American Apparel brand—became increasingly untenable

American Apparel Founder Dov Charney in 2009. (Johannes Kroemer/Getty)

American Apparel Founder Dov Charney in 2009. (Johannes Kroemer/Getty)

The news that American Apparel’s board is ousting founder, CEO, and chairman Dov Charney is both totally expected and completely unexpected. The Montreal-born Charney has committed so many transgressions—some only alleged—that would have felled any ordinary CEO of a publicly traded company. Yet Charney endured, enjoying the support of his board. Part of the reason is that he’s hailed as a creative genius, and his uncouth image is part and parcel of the American Apparel brand. So what could he do to finally get himself turfed?

A source close to the company, who requested anonymity because they are not authorized to speak on its behalf, insists that no one event triggered the board’s decision, but rather Charney’s pattern of behaviour. “The board for a long time accepted Dov, provided the company was moving in the right direction and he was delivering the results,” says the individual. “Lately the results have not been there, and coupled with the fact that he hasn’t really tempered his salty behaviour, as he calls it, the board just said, ‘We don’t need this.'”

Complaints about Charney occurred with some regularity. “The board’s view was as long he’s there, this company has a bullseye on its back,” says the individual. There had been discussion of moving him into a creative advisor role at the company and recruiting a new CEO, but Charney was unwilling to accept the idea. Another source close to the company said Charney’s position as CEO was discouraging some firms from investing in American Apparel, and some potential senior recruits from coming aboard.

Charney declined to comment, as did a spokesperson acting on behalf of American Apparel.

In a news release, the company said the board’s decision “grew out of an ongoing investigation into alleged misconduct” without giving details. Charney’s history includes masturbating (with permission) in front of a reporter during an interview, numerous sexual misconduct lawsuits, and calling his CFO a “complete loser.”  The company, meanwhile, lost US$106 million in 2013 compared to a $37 million loss the year before.

John Luttrell, a former Wet Seal and Old Navy executive, is serving as interim CEO. Luttrel was recruited in 2011 as CFO. Last year, Andy DeFrancesco, then an investor in the company through private equity firm Delavaco Capital, told Canadian Business that Luttrell was Charney’s “adult supervision.”

“Dov’s the genius that’s bringing people to the stores, and Luttrell is the one who says, ‘No, Dov, you can’t spend that.’” Other seasoned retail executives have tried to contain Charney’s excesses in the past, but none of them lasted very long. “Dov sometimes forgets that he doesn’t own 100% of American Apparel,” DeFrancesco says. Luttrell is willing to push back, however.

DeFrancesco participated in a $14.9 million emergency financing for American Apparel along with Yogen Fruz co-founder Michael Serruya in 2011. Both have since exited their positions.

Charney’s identity is intertwined with American Apparel and he still owns 26.9% of the company. Whether he’ll leave quietly is unclear. Charney has always been a huge asset and liability to his own firm. The board, at least, has figured out how to label him.