Trish Regan: Dov Charney just the latest CEO gone wild
It's a familiar story.
A creative entrepreneur starts a company. Through the force of sheer will, hard work and an ability to inspire and lead, the entrepreneur builds an empire. As the business grows, so does the CEO's ego. Eventually, as the company matures, that ego proves to be his undoing.
At American Apparel, the writing was on the wall a decade ago. In 2004, Dov Charney, who founded the iconic sweatshop-free, made-in-the-USA T-shirt company, gave a now notorious interview to a reporter for Jane magazine. The story said Charney committed a couple of sex acts in front of the journalist, with her consent. While Charney may have misunderstood his relationship with the reporter, the article was damning. And according to the story, he'd allegedly been known for this sort of behavior going back to the earliest days of the company.
If true, how did Charney manage to keep his job so long?
(After all, he was only recently ousted for alleged misconduct, including retaliating against a former employee who had sued him for sexual harassment.)
Charney's alleged behavior was less of an issue for American Apparel's board and investors when the company was doing well. If a stock price is rising, do the antics of an eccentric CEO really matter? These days, American Apparel stock is hovering around $1 a share. So despite no fresh allegations of sexual misconduct by Charney for years, and although the company is losing less money than in previous quarters, there may have finally been a reason for investors to act. Call it a combination of frustration and impatience.
American Apparel should serve as a warning for any investor pouring money into a stock that's held and controlled primarily by its founder. Charney owned roughly 50% of the company until March of last year — making him a formidable challenger against his board. When American Apparel raised additional funds in March, thereby reducing his stake to less than 30%, it may have made it easier for the board to move against him. (A board reconfiguration is expected before the end of the week, with the first female director to be appointed.)
It's also quite possible that investors feared what might happen to American Apparel without Charney at the helm. Some considered Charney's reputation for being overtly sexual a contributor to the company's initial success and thus, an important part of future growth. As board member Allen Mayer told Bloomberg Businessweek, "If you took out the sex, it would be kind of boring. If you took out the idealist component (sweatshop-free) … it would just be sleazy. But you put them together, and you have something that's interesting. It's edgy, but it's also strangely wholesome at the same time."
Until, of course, it's not.
Dov Charney may be the latest, and most egregious example of a CEO gone wild but Corporate America has certainly seen its fill of leaders whose personalities mature more slowly than their companies.
The very personality traits that enable entrepreneurs to thrive early — self-confidence, charisma and a willingness to be controversial — often proved to be their undoing.
On the bright side, for every example of an entrepreneur who struggles to make the transition to public CEO, there are examples of those who manage the move quite well. Mark Zuckerberg, for example, surrounded himself with an experienced management team at Facebook, while Larry Page and Sergey Brin recruited Eric Schmidt to run Google.
The moral of the story? Investors, directors and the entrepreneurs themselves would be wise to recognize potential leadership fiascos — and act before it's too late. That said, Charney recently managed to buy back some of his stake in the company he founded and has another shot at reclaiming his job. This story may just be getting started.
Trish Regan is the anchor of Street Smart with Trish Regan daily at 3 p.m, ET on Bloomberg Television. Follow her on Twitter @Trish_Regan.