Dov Charney's Big Lesson: How to Let Go
It's hard to let go of the company you've built, after all those years of blood, sweat, and tears.
After being ousted by the board last week for a variety of reasons, including lawsuits related to alleged sexual misconduct and misuse of corproate funds, Charney is now apparently trying to claw his way back in control of the company. He's doing that by purchasing shares from hedge fund Standard General, through which he's now upped his ownership stake to 43 percent from 27 percent, according to various reports. But he's also ceded authority for any active control the shares give him to the hedge fund.
Charney told the New York Times on Wednesday:
I handed over my ownership control to Standard General so they could protect the company and all of its stakeholders, particularly the employees. The least important thing was me. I know that will be dealt with fairly later.
It's an interesting distancing technique. But it may not be enough to rescue him or the company.
You build a company to grow, and hopefully outlast you. And Charney, who started American Apparel in 1988 from his Tufts dorm room, has certainly invested sweat equity, perservering as chief executive, and bringing the company public in 2007, despite a parade of sexual harassment lawsuits and charges that he fostered and tolerated a hyper-sexualized company culture.
The issues of control and knowing when to let go are especially salient for startups, particularly any startup that wants investor money. Protracted litigation is bad for your brand, and could wreck your chances for an IPO.
"Investors do not want to invest in Peyton Place," says John Backus, managing partner of venture capital firm New Atlantic Ventures, of New York, referring to the 1950s novel about a small town rocked by the scandals of its inhabitants.
The alleged impropriety of Charney and the lingering litigation are especially critical to American Apparel now, because its stock has fallen more than 50 percent in the past year. One way or another, the company and it's board need to dig out and reassess. And the board may ultimately maneuver around Charney through a poison pill provision that would block his control.
"The business needs to keep growing now, perhaps even more so," says Ross Fubini, partner at venture capital firm Canaan Partners, of San Francisco. "I'd want to keep thinking about whether and how to help [keep] the company focused on the business goals ahead, and whether we had the right team in place to lead us."
Let's hope Charney sees it that way too, so the company he's built can survive him.