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By choice or by chance, Los Angeles-based Browning West has become the main mouthpiece for the shareholder revolt at Canadian clothing maker Gildan Activewear Inc.

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Usman Nabi (right), co-founder and CIO, and Peter Lee, co-founder and partner of the investment firm Browning West, at their office in Los Angeles on March 25.Philip Cheung/The Globe and Mail

Usman Nabi says he never wanted this fight.

And yet here it is. Eating up his days. Seeping into his nights. Forcing him to figure out how the board of Canadian clothing maker Gildan Activewear Inc. GIL-T “botched succession” so spectacularly in dismissing co-founder and chief executive officer Glenn Chamandy last year – and what he should do about it.

Together with business partner Peter Lee at their investment firm, Browning West, Mr. Nabi is now plotting a proxy contest in retaliation. Their goals: get Mr. Chamandy his job back, surround him with a new team of directors who will nurture the rock-star CEO they say he is and reboot an earnings machine they think could deliver a stock price that’s “multiples” of what it is today.

A new board of eight directors led by well-known executive Michael Kneeland of United Rentals has already been picked, and they’ve been working behind the scenes with Mr. Chamandy on a path forward for Gildan. A formal operating plan is coming, Mr. Nabi says. Then, shareholders will decide which vision they like best and which team they want in place to steer the company’s future.

“We were never seeking to be activists in Gildan,” Mr. Nabi said in an interview this past week, adding that the circumstances demanded it. “Gildan was well-managed, with a great CEO who had a lot of alignment” with investors.

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The dismissal of Mr. Chamandy, co-founder and then CEO of Gildan Activewear, last year, and the response to it, have become one of the most dramatic power struggles at a Canadian company in years.Paul Chiasson/The Canadian Press

The dismissal of Mr. Chamandy and the response to it have become one of the most dramatic power struggles at a Canadian company in years, with almost-daily developments that have left many observers baffled. On a Monday morning in December, Gildan’s board announced they had let Mr. Chamandy go after 20 years as CEO and replaced him with Vince Tyra, a former college baseball pitcher and Fruit of the Loom executive.

An intense feud has raged ever since. Dissident shareholders have publicly lambasted Gildan. The board has fired back with its own strong words, saying it lost confidence in Mr. Chamandy’s leadership over time as he ran out of ideas and became increasingly distracted with his personal pursuits. The board says Mr. Chamandy wiped his electronic devices before he left, adding a layer of suspicion to the conflict.

By choice or by chance, Los Angeles-based Browning West has become the main mouthpiece for the shareholder revolt. And the aggressiveness with which the firm and its founders have taken up arms to protect their investment comes directly from circumstance and experience. Gildan is one of only a handful of investments they hold, so they have more at stake in this fight than some other shareholders. They’ve also done this kind of management change before, pushing for leaders they see as most capable of maximizing the value of the firm’s investments.

What’s happening at Gildan? A primer for the months-long CEO corporate battle

Gildan’s board has warned that Browning West could usher in a period of “chaos” for the company if it wins, arguing that shareholders will be better served by a new, engaged CEO. Gildan also questions how Browning West was able to decide within just three days of Mr. Chamandy’s dismissal that it wanted him back, wanted chairman Don Berg to step down and wanted Mr. Lee to be given a board seat. It also wonders how it was able to rally support so quickly from other shareholders when investors typically take several days to digest a board’s explanations. Gildan says Browning West flubbed the process to request a special meeting – proof that it isn’t fit to run the company – and says the firm appears to have a cozy relationship with Mr. Chamandy that the CEO did not have with other investors.

Browning West and Gildan have also traded punches over a report by management research company Paragon Intel alleging Mr. Tyra had an inappropriate relationship two decades ago with a female executive who now works at Gildan. Mr. Tyra has since insisted that it was a brief relationship between two consenting, unattached adults.

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Browning West founders say they are solely focused on protecting and growing their investment in Gildan at the moment, and had no intention of intervening in Gildan until the board stripped one of the main reasons it invested in the company.Philip Cheung/The Globe and Mail

Browning West denies it flubbed anything and rejects any suggestions that there was collusion with Mr. Chamandy and other shareholders. Said Mr. Nabi: “We woke up on Dec. 11 stunned like everyone else and reacted to that moment.” To him, the anger shareholders voiced was simply due to their opposition to the decision itself and the fact they were not given a heads up.

Mr. Nabi says neither he nor Mr. Lee ever met one-on-one with Mr. Chamandy before their shareholder campaign and never even had his cellphone number until December. They did, however, meet with the former CEO numerous times in the company of other executives or investor relations staff. As for the Paragon report, Browning West has said it had no role in it. Nevertheless, shareholders have “every right to scrutinize the selection of a seemingly unfit CEO,” it has said.

The battle lines are drawn and time is ticking down on the May 28 annual general meeting that will decide Gildan’s future. Already the Browning West slate has the support of several big investors, including Jarislowsky Fraser and Turtle Creek Asset Management. In all, it says, an estimated 35 per cent of investors have said they want Gildan to reverse its decision.

Whether Browning West rallies more to its side or loses ground will depend a lot on how Mr. Nabi and Mr. Lee sell their vision for Gildan in the days and weeks ahead – and whether investors prefer that over other options, which could include the company being sold. Gildan has confirmed it is now weighing offers – a move panned by some shareholders as an attempt by the current directors to avoid the embarrassment of losing their board seats.

Any firm bid would need to be “extraordinary” to trump the earnings power Browning West could unleash with a reconfigured Gildan leadership and new operating plan, Mr. Nabi said. The Browning West founders say the share price could reach US$100 or more over the next five years under this scenario.

Other shareholders, however, might conclude that would be a miraculous surge. Gildan shares have never topped US$45 on the New York Stock Exchange and have never been higher than $55 on the TSX. Mr. Chamandy has had plenty of success in the past, but that magic has faded somewhat in recent years, his detractors say. And if anything, the macroeconomic environment has worsened. The average 12-month target price for Gildan shares among equity research analysts who cover the stock is US$40.79.

“At the heart of this whole controversy is our definition of what a great leader is and the board’s definition,” Mr. Nabi said, explaining that Mr. Chamandy managed to take market share from competitors during the pandemic and grow earnings over a choppy period for business.

Founder-entrepreneur CEOs such as Mr. Chamandy need to be supported in a different way by the board than professional CEOs, Mr. Nabi said. He compared the treatment Mr. Chamandy received to Apple firing Steve Jobs.

“Boards sometimes in those types of situations can do absurd things,” he said. “We’re convinced that Glenn is an A and Vince is something less than a C-quality leader and not appropriate for this company.”

That assessment comes, in part, from Browning West’s investing philosophy.

Unlike investment management firms that can own 30 or even 100 stocks or more, the small California outfit currently has just six eggs in one basket, each of them picked carefully and watched over obsessively. The firm overseas about US$1.5-billion in assets, backed by university endowments, foundations and other investors.

Mr. Nabi and Mr. Lee have also plowed a big chunk of their net worth into the firm, in marked contrast to Gildan’s directors, who have little to no “skin in the game.” The Browning West founders say they are solely focused on protecting and growing their investment in Gildan at the moment, adding that they take none of the attacks against them personally.

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Browning West has intervened and taken board roles at four public companies in the United States and the U.K., including Domino’s.Justin Sullivan

Browning West often tracks companies for years before it invests in them, Mr. Nabi says, visiting factories, meeting with management at various levels and talking regularly to competitors and stakeholders to better understand the business and its market dynamics. It aims to hold its investments for five to 10 years, he says. It has held Gildan for four and now owns a roughly 5-per-cent stake.

The investment firm is an “occasional activist,” Mr. Nabi said. And when it gets active, it takes aim at a company’s leadership with the mindset of a long-term owner. The partners have intervened and taken board roles at four public companies in the United States and the U.K.: Six Flags, Tempur Sealy, Domino’s and Countryside/Vistry Group.

Browning West had no intention of intervening in Gildan until the board ripped away one of the main reasons it invested in the company, according to the founders.

“The activism that we’ve done in our careers where we’ve frankly made a lot of money is through management change,” Mr. Nabi said. At companies where boards have made succession and leadership mistakes, “we’ve come in and we’ve cleaned up those situations very powerfully.”

Take U.S. mattress maker Tempur Sealy, currently Browning West’s biggest holding. Before he co-founded Browning West in 2019, Mr. Nabi worked at New York investment firm H Partners. While there, he succeeded in pushing out Tempur’s chief executive around 2014 and gaining a board seat. He eventually led the board committee search for a new CEO.

In a story at the time, The Wall Street Journal called the episode “a hedge fund’s temper tantrum.” Mr. Nabi called it a necessary move that saved investors more pain from a bad manager. And while Gildan notes that Tempur Sealy’s share price actually fell during Mr. Nabi’s tenure on the board, it took off in the years that followed, and Browning West captured that upside with its continuing investment.

Mr. Nabi says the mattress company’s earnings before interest, taxes, depreciation and amortization has more than doubled from 2015 to today, to US$1-billion. “We actually know how to create a lot of value in these businesses through the leadership lever,” he said.

He first became interested in Gildan about a decade ago. As he and Mr. Lee tell it, he flew to Montreal and met with Mr. Chamandy and other Gildan leaders, his interest piqued by a plain-Jane T-shirt manufacturer in sleepy Canada that was generating a 20-per-cent operating margin, a 20-per-cent return on assets and “phenomenal long-term share price performance.”

Mr. Nabi continued to watch Gildan, talking to management and visiting the company’s plants in Honduras and North Carolina. Then, in 2019, Browning West made its first investment in the Canadian consumer goods company. The firm wasn’t overly impressed with the board but felt that Mr. Chamandy’s strength outweighed the negatives.

“We think he’s a rare talent,” said Mr. Lee, who is on Browning West’s director slate for Gildan. “He’s delivered an exceptional record over a long period of time. And he’s done it in a very powerful way that built a competitive advantage” as a low-cost manufacturer. “A good board should be working very hard to preserve a CEO like that.”

Mr. Berg, Gildan’s chairman, sees it differently. He says Mr. Chamandy agreed to an orderly succession timeline in 2021 that he later reneged on, and that when you look at the CEO’s record over the past decade, it shows a leader pursuing several different growth avenues that haven’t panned out.

“We need fresh ideas,” Mr. Berg said in an interview. “Glenn’s been there for 40 years. He’s been the CEO for 20. The last 10 he’s tried a lot of things. He’s essentially told us he really can’t grow the company much more. And so I think we made absolutely the right decision at the right time.”

Mr. Berg says that while there is a core group of shareholders who stand behind Browning West, others initially in their camp are stepping back now and re-evaluating their position. He maintains there is still a path to winning for the Gildan board and warns that victory for the U.S. investment firm would be “disastrous” for the company, in part because Mr. Chamandy has “shown himself not wanting to work too hard.”

“One of the shareholders said, ‘Well, the problem is that you all couldn’t manage Glenn. We’ll manage him better and make sure he works full time,’” Mr. Berg said. “Good luck with that. I’d love to sell tickets.”

Such comments suggest the relationship between Mr. Chamandy and the board became toxic at a certain point. Egos clashed and were potentially bruised. But they misrepresent Mr. Chamandy’s current state of mind with a new board of directors, Mr. Nabi says.

“Glenn is highly motivated by the potential of the business over at least the next five years,” Mr. Nabi said. “He’s very energized to be surrounded and supported by those folks. … Candidly, he hasn’t had that type of support in many, many years. And it’ll really help him unlock a new chapter for Gildan.”

Mr. Chamandy did not respond to a request for comment.

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