American Apparel's maverick founder Dov Charney fired

Departure

American Apparel has fired its maverick founder Dov Charney as chairman and declared its intention to oust him as chief executive of the fashion company after repeated allegations of misconduct against him.

The company, known for risque advertising and making all its clothes in the US, said its board had voted to replace Charney as chairman and suspend him as chief executive.

The board expects to fire him once a 30-day grace period in his contract expires, American Apparel said in a statement last night.

Charney built American Apparel to be one of the world's most admired fashion brands but the company's fortunes have declined as his racy lifestyle has caused more and more problems.

Allan Mayer, who has been on the board since 2007 and takes over as co-chairman, said: "We take no joy in this, but the board felt it was the right thing to do. Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead."

Charney has made no secret of his louche tastes. His exhibitionism has included having oral sex with an employee in front of a journalist and wearing only his underwear with two women in an ad captioned "in bed with the boss".

But he has been repeatedly cited in sexual harassment lawsuits by former employees. Charney has publicly dismissed such claims against him as "sexual shame tactics".

A high-profile example came in 2011 when Irene Morales accused Charney of "extreme psychological abuse and torment" from when she started working as a shop assistant aged 17 in 2007. At the time, American Apparel said Morales had broken the terms of her leaving agreement.

Charney, who is 45, is Canadian but felt a draw to the dynamism of the US from childhood. He founded American Apparel's predecessor companies in 1989 and has been in charge since 2007 when the company listed on the stock market.

American Apparel was a sensation in the 2000s as Charney built the brand based on hipster chic and an image based on the sexual mores of the 1970s. The Guardian named American Apparel label of the year in 2008 and the following year Charney was a finalist for Time magazine's 100 most influential people of the world.

Charney also won plaudits for his "Made in America" policy, which shunned the sweatshops of Asia to support US manufacturing. The company said it would stick with the policy after Charney leaves.

As the harassment claims against Charney mounted his brand's appeal began to fade. Changing fashion trends and severe recession of the late 2000s made young shoppers less keen to pay £30 for one of Charney's plain T-shirts.

Sales plunged and debts mounted.

In February the company hired restructuring advisers after its debt hit $240m (£141m), taking it close to breaking loan agreements with its banks. First-quarter results announced last month showed sales falling and a pre-tax loss of $5m.

The company's share price has plunged from around $14 in 2008 to close last night at just 64 cents, down by two-thirds in the past year.

John Luttrell, the chief financial officer, will act as chief executive while American Apparel looks for a permanent replacement for Charney. The company said the management changes may have triggered a default under loan agreements with its banks.

Powered by Guardian.co.ukThis article was written by Sean Farrell, for theguardian.com on Thursday 19th June 2014 09.53 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

JefferiesAnd the Best Place to Work in the global financial markets 2016 is...

Register for Financial Markets News Alerts