Skip to main content

The board of the hipster retail chain terminated Dov Charney, the company’s founder, as chairman and CEO last week.LUCAS JACKSON/Reuters

As American Apparel Inc.'s board hunts for a chief executive officer to replace its ousted founder, Montreal-born Dov Charney, the clothing maker's board wants to install a new type of leader at the top – a team builder who is less of a lightning rod for controversy.

An executive search that got under way this week has set out several qualities sought in the new CEO, after Mr. Charney was stripped of his chairmanship and informed of his dismissal as top executive last week.

Heading up the list is someone who can build out the management ranks to steer the business through its present financial turmoil. It may also mean appointing a woman to run the company. Such a move would be noteworthy for a brand that became notorious under Mr. Charney for its highly sexualized advertisements involving women, and numerous allegations of sexual harassment levelled against him by female employees.

"We are looking for diversity," American Apparel co-chairman David Danziger told The Globe and Mail in Toronto, where the restructuring is being led. "We don't want to keep everything the same, but obviously we don't want to lose what made the brand what it is. So we're looking for somebody that gets American Apparel, the brand. Not that gets Dov, but gets American Apparel the brand."

Regardless of gender, the board has made the biggest priority someone who can broaden the executive talent within the company, which it felt has been neglected. Mr. Danziger said Mr. Charney consolidated too much of the business responsibilities around himself, even as he became engulfed in controversies and the company ran into mounting financial woes.

Although Mr. Charney won't comment, he is said to dispute that claim.

"We're looking for somebody that is going to be a team builder. Somebody that can actually build an actual management team behind them, so we don't have so much riding on one person, as we do now," Mr. Danziger said. "Dov had his own style, as everybody does. But his style didn't leave a very strong management team behind. So we're lacking in certain areas now that he had strengths for sure. But there's nobody beneath him to step up and take that."

Mr. Charney and American Apparel's board are in a pitched battle over the future of the company he founded in 1998 and rode to celebrity as it grew to a 10,000 employee empire with 249 stores. American Apparel has been praised for its support of several social causes, and its insistence on manufacturing in North America while most retailers have sent work overseas. But it has also drawn fire for overly racy ads and the high-profile antics of Mr. Charney. Among the reasons cited for his dismissal where the mounting legal costs associated with a string of harassment allegations, along with the company's flagging financial performance of late. The Globe and Mail has asked Mr. Charney for an interview to discuss his dismissal, but he has declined comment.

Mr. Danziger said the board wants to find management to take American Apparel in a new direction, while staying true to the retailer's roots. However, Mr. Charney holds 27 per cent of the company, and is said to be looking for ways to take back control. He is said to have one backer on the nine-seat board, and could align himself with Lion Capital, a warrant holder that has the right to name two board seats that are currently vacant. Including his own seat, that would give Mr. Charney four votes, meaning he would still need the backing of a fifth member to tip the balance in his favour.

Mr. Danziger said the board hopes Mr. Charney comes to the table to negotiate a way forward that doesn't involve a protracted power struggle. For now, the battle is a distraction to the business.

"Most of our calls are not right now about business, they're about fires burning that need to be put out. So it is for sure a distraction," he said. "Things might be better if Dov walked in tomorrow and said: 'Guys I get it, I'm out, I just want to be a stock holder and protect my investment. How can I help? Why don't you draft a support agreement. I'm going to bank on you guys to help build the value of my investment in the company.' Everything would be different. We would have a whole new avenue of roads open to us."

Although the company has seen its financial situation deteriorate of late, which led to the board's decision, Mr. Danziger said American Apparel is not in financial peril, nor is it in danger of breaching covenants with bondholders. The company arranged financing this week from investment company Peter J. Solomon to ensure access to capital going forward, but Mr. Danziger said the markets may have incorrectly interpreted that announcement as distress.

"We are not in a financial crisis. But I think it would be irresponsible in the situation we are in not to explore possibilities of being able to raise money," he said. The board is focused on making sure American Apparel emerges in a stronger position in the months to come. "I don't think anybody wants to be the architect of this company's demise," he added.

Report an error

Editorial code of conduct