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Report on Business Estée Lauder wins bid to remove CEO from Toronto’s Deciem after ‘erratic behaviour’

People react as they look outside a closed Deciem store in Toronto after its founder Brandon Truaxe ordered employees to shut down stores at all locations, Oct. 9, 2018.

Nathan Denette/The Canadian Press

An Ontario court granted a request from Estée Lauder Cos. Inc. to remove Deciem Beauty Group Inc. founder Brandon Truaxe from the Toronto-based skincare company on an interim basis.

Deciem owns a handful of beauty brands and became a cult hit after it launched The Ordinary line in 2016. Deciem eschews traditional marketing, allowing it to avoid charging the markups that its competitors do. The company employs approximately 400 people in Canada.

But Mr. Truaxe’s actions have thrown Deciem into chaos. In the past year, he cut ties with a business partner (in an Instagram post) and unilaterally fired co-chief executive Nicola Kilner, only to bring her back a few months later. Many of his Instagram posts from Deciem’s corporate account have been “outrageous, disturbing, defamatory and/or offensive," according to Estée Lauder’s court filing.

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“He has essentially lit the business on fire,” Mark Gelowitz, a lawyer with Osler, Hoskin & Harcourt LLP who represented Estée Lauder, said in court. Earlier this week, Mr. Truaxe ordered employees to shut down all of Deciem’s operations, including production facilities and its 29 stores. Mr. Truaxe also threatened in a company-wide e-mail to fire employees who didn’t follow his directions. “All hell broke loose,” Mr. Gelowitz said.

The order granted on Friday removes Mr. Truaxe from his posts as CEO and a board member for Deciem, which he founded in 2013. Mr. Truaxe is also forbidden from using Deciem’s social-media channels and taking any action to disable or otherwise modify any company systems and infrastructure.

Ms. Kilner will serve as the sole interim leader. Lawyers said in court that she is prepared to open stores, including 10 in Canada, on Saturday. The Deciem board will now consist of Andrew Ross, a senior executive at Estée Lauder, which owns one-third of the company, and Pasquale Cusano, a Vancouver-based entrepreneur and Deciem investor.

“Today’s court decision reinforces the Estée Lauder Companies’ strong commitment to Deciem and its employees,” a spokesperson for Estée Lauder said. “We are confident that Deciem will continue to provide its consumers with the incredible products that they know and love. As a minority investor, we strongly support Nicola Kilner, the Deciem leadership team and its employees as they continue to run their business.”

Mr. Truaxe did not appear in court, nor did he have legal representation. He did not immediately respond to requests for comment.

Tensions had been building for some time, but a video posted to Instagram on Monday triggered alarm. In the video, Mr. Truaxe said Deciem would be shut down and he reiterated his directive in an e-mail to the entire company. He also said that “almost everyone at Deciem has been involved in major criminal activity, which includes financial crimes.”

Mr. Gelowitz said in court that Mr. Truaxe’s erratic behaviour and inappropriate social-media postings are destroying Deciem’s business and harming Estée Lauder’s reputation. He said Mr. Truaxe’s behaviour may be due to a “combination of mental illness and drug use." While Mr. Truaxe’s “spiralling decline evokes sympathy and sadness,” the effect on Deciem’s business is intolerable, Mr. Gelowitz said.

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The company’s employees have been left in a state of uncertainty, along with countless customers, Mr. Gelowitz said in court. Deciem’s suppliers, retail partners and landlords have also been harmed, and may consider the company in breach of its obligations, he added. “Literally nothing like this has ever happened in the world before,” Mr. Gelowitz said.

“The order sought today for interim relief is necessary and warranted to save the company from self-destruction," Ontario Superior Court Justice Michael Penny said in his decision on Friday.

Mr. Cusano also took legal action against Mr. Truaxe in June, alleging Mr. Truaxe improperly tried to remove him from the board and used corporate documents with a forged signature. Mr. Cusano’s court filing said Mr. Truaxe began to “exhibit erratic behaviour" after a trip to Mongolia in December, 2017, “where he apparently almost died as a result of exposure to extreme weather.”

Derek Bell, a lawyer with DLA Piper who represents Mr. Cusano, said in court on Friday that a Deciem board meeting was held after Mr. Cusano went to court and “peace broke out.” Both Mr. Cusano and Mr. Ross, Estée Lauder’s representative on the board, attempted to help Mr. Truaxe with his personal problems, but the relationship fell apart again, Mr. Bell said. “The business is being destroyed as each moment passes.”

A Deciem employee, who was granted anonymity because they are not authorized to speak on behalf of the company, said the employees felt a tremendous amount of relief after Friday’s decision, but also felt some sadness for Mr. Truaxe.

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