Why It Takes So Long
American Apparel, the Los Angeles-based manufacturer of basic clothing items for men and women, on Thursday ousted its founder and CEO, Dov Charney, who built the company around himself. The company's board took this action, something the LA Times calls a potentially "ruinous" event for American Apparel, after years of evidence piled up regarding Charney's idiosyncratic--some would say abusive--management style, and his controversial public behavior, including multiple sexual harassment lawsuits. After reading this story in today's USA Today, one can only wonder what took the board so long to do what seemed clearly necessary.A closer examination of the case study reveals that the board had plenty of reason to act much, much sooner. American Apparel's share price has fallen from a high of US$27 to about 68 cents at the time of Charney's removal. Later reports had the share price rising 7% after the firing story broke, but 7% of 68 cents is not much. I suspect that the reduction of the company's stock to penny stock status is why the board finally acted--Charney's reckless and boundaryless behavior that put the company at risk had obviously been ok with them in the past.We have often wondered why the governing boards of our clients in the independent and international school sectors either act so quickly, often on the basis of flimsy or anecdotal evidence, or wait so long even in the face of compelling data before removing a head of school. Rarely do boards seem to get it just right.American Apparel's board apparently thought Charney is so synonymous with the company (it is not even "his" company anymore, as his 27% of the stock is still a minority percentage) that he could not be removed without "ruinous" repercussions. If that is true, then the directors are themselves culpable for failing to insist that the company become sustainable and capable of transcending the founder. Their fiduciary obligation would seem to call for no less.Board of for-profits and not-for-profits alike need to get smarter about when to fire the CEO. And about when not to.