American Apparel lost the country's trust after Dov Charney's erratic behavior, so the board hopes hiring John Luttrell will begin a new era.
Founder or not, Dov Charney: you’re fired!
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American Apparel, the US clothing retailer, released a statement to the press on June 18 with the "intent to terminate his employment as President and CEO for cause."
“American Apparel Board Suspends Dov Charney as CEO and Declares Intent to Terminate Him for Cause; Names John Luttrell as Interim CEO" on Business Wire shows the entire press release.
After a 30-Day curing period, the termination will end the employment agreement. In addition, the board will request the former CEO's position as Chairman of the Board once the termination occurs. Immediately, the company appointed Allan Mayer and David Danzing as Co-Chairmen.
Mayer said the company felt there was no choice to replace Charney after an ongoing investigation into alleged misconduct created distrust in the running of the company. “We take no joy in this, but the Board felt it was the right thing to do." He continued by pointing out "the Board is working with a search firm to identify candidates for the job of permanent CEO."
Executive Vice President and Chief Financial Officer John Luttrell has been named interim CEO.
With the company since February 2011, the man will maintain all three positions until more decisive decisions can be made. Luttrell also made it clear that sweatshop-free products and made in USA philosophies will remain at the forefront of the business.
Lily Kuo offers more background on the CEO shake up impact in Quartz's "The new CEO of American Apparel is the anti-Dov Charney."
Charney’s affinity for questionable advertising based on pornography, sexual harassment of employees, and public disrespect of fellow staff members lost trust of the board—unlike Luttrell.
And in this case, being so different will be a blessing.
The new CEO believes in offering more a more positive approach in dealing with employees. He would not follow Charney’s suit and call former CFO Ken Cieply “a complete loser.”
Luttrell’s professional background in financial and legal management also includes a deep understanding of contract negotiation—never a bad topic for a CFO or interim CEO when a company’s failing. Previous experience at Old Navy and Cost Plus may not offer the same paced work as American Apparel, but his Purdue University degree comes in handy—especially with summa cum laude attached.
The man’s work ethic will be needed in reorganizing the profitability of the brand. The company hasn’t earned a profit since 2008 and currently trades below a $1.
Perhaps both board and creditors are hoping the change will help bring customers and reputation back.
The company may face default in credit agreements due to lack of confidence in board decisions, but they will work with creditors to show the impact will be beneficial.
Maggie McGrath from Forbes notes the importance of firing: stock market jump. After the company announced the imminent firing, stock rise 19%, or about 11 cents on the dollar. Not much, but a start. American Apparel can use all the help it can get, too, judging by McGrath's dismissal stock reports in "American Apparel Surging Nearly 20% As Board Moves To Fire Controversial Founder And CEO."
Luttrell may prove to be an important element in rebranding and rebuilding from the ground up.