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Courtesy of informatique on flickr

Jobs + Skills07.14.14

American Apparel Might Still Need Dov Charney

Could being a mid-sized company make culture change more difficult?

American Apparel needed 30 days before it could officially fire its chief executive. But while authorities investigated allegations of misconduct against him, Dov Charney was obviously keeping busy. It only took him three weeks to work his way back into the fold.

Charney still can’t exercise any supervision over employees, and is prohibited from accessing the company’s internal email system, but in a $25 million deal struck with Standard General last week the self-proclaimed dirty old man will remain at the company as a financial consultant.

It seems four years’ worth of financial strains on this mid-size retailer have overshadowed the initial PR boost that came with the ousting of its infamous chief executive. The company has lost nearly $270 million in that time, owes $200 million in debt, and will owe bondholders $13.5 million in interest come October, according to the LA Times.

It was with Charney’s departure that the real financial pressure ensued. On July 7th Lion Capital formally demanded repayment of a $10 million loan by citing a clause in the lending agreement permitting the loan to be called in early if Charney left his position as CEO.

But Charney played a central role in the deal with Standard General, too. After he was removed, he reached out to Standard General and convinced them first to increase their stake and second to loan him nearly $20 million to buy shares himself.

Standard General now owns 27.4 million shares, including the former CEO’s, representing a 44% stake in Charney’s old empire. The New York firm disavows any formal endorsement of Charney, publicly stating that its investment represents supreme confidence in the American Apparel brand, as well as an endorsement of its “made in America” business model.

But when a mid-market company, beholden to the financial support of bigger corporate players, builds a brand pegged to the ego of its ousted founder, the plausibility of authentic culture change at the company’s highest levels seems dubious at best.

Reporters in the media have cast American Apparel’s deal with Standard General as a “financial lifeline,” helping the company avert bankruptcy, pay off creditors, and bring in new leadership. There’s no doubt that American Apparel needs the money, but the door to Charney’s involvement in company operations also remains open, at least for another four days. At that point, his investigation will draw to a close, and the company will make a final decision on whether to dismiss him in spite of his corporate connections.

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