06 October 2015

Tragic Transitions (UPDATED)

In an update to a post from October, American Apparel apparently will now emerge from Bankruptcy after the court rejected a last minute hail mary attempt by founder Dov Charney to propose a takeover plan.  Charney was fired in 2014 amidst turmoil over his behavior

Charney had attempted to team up with Capital Group and Silver Creek Capital to present an alternative bid to the court.  The judge ruled in favor of a restructuring and Mr. Charney now appears to be out for good.

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Yesterday American Apparel filed for US Bankruptcy protection.  Besides their challenges with revenue and debt, the ugly transition from their founder - Dov Charney - clearly played an important role in the company's demise. Founded in 1989 by Charney, the company struggled with its inability to effectively sever its relationship, leading to months of turmoil and a cloudy future.  

If you don't think that founder transitions are fragile and important, American Apparel will be an important lesson for you. Was it right for the company and its board to seek a replacement for Charney?  Seemingly based upon the financial condition and alleged behavior of the founder, the answer is YES. Did the board handle this transition poorly exacerbating the problem? Based upon the allegations and the pending lawsuit, that answer is also definitive, YES. Could the company have been righted and put back on the right path, with a new CEO and a clear new direction? Although I am clearly not an insider in this company, I also bet the answer would be, YES!

Perhaps bankruptcy is the appropriate path for the company.  It will give them some breathing room, make the lawsuit filed by Charney a much more remote liability, and enable the board to decide on how to move this company forward.