(Adds comments from representatives of Charney and Wilson in
paragraphs 10, 18 and 19)
By Nadia Damouni
NEW YORK Aug 15 From American Apparel Inc
to Lululemon Athletica Inc, Men's Wearhouse Inc
and Best Buy Co Inc, a series of boardroom
battles across North America underscore how difficult it can be
for companies to part ways with their founders.
In each of these cases, the boards decided it was time for
the founders to step down from their roles either as chief
executive or chairman, but faced stiff resistance from the
founders, some of whom used their substantial equity stakes to
Corporate governance experts expect more such corporate
dramas as shareholders are increasingly holding boards
accountable for succession planning, investment returns and
overall fiduciary duties. As a result, boards are asserting
their authority more frequently, which can put them on collision
courses with CEOs, including founders.
"Today's boards are increasingly feeling pressure to
anticipate the CEO leadership needed to drive future success.
This is especially true when the CEO is the founder of the
company," said Jane Stevenson, head of the global CEO succession
practice at Korn Ferry International.
"In these situations the board can feel significant conflict
between appropriate homage to the past and the leadership needed
to drive success in the future."
As many as 42 Fortune 500 companies have founders in CEO
positions, according to data compiled by recruitment firm
Heidrick & Struggles for Reuters. These founder-CEOs have an
average tenure of 22.5 years, compared with around six years for
"Founders are often the ones that have the 'special sauce'
that makes a company's offering and culture work, so they might
be given additional latitude ... as their vision drove value
creation in the first place," said Heidrick & Struggles' Vice
Chairman John Wood.
American Apparel, under Charney's leadership, was known for
its racy advertising and "Made in the USA" sweatshop-free model.
However, the company has posted losses in almost every quarter
in the last four years and came under fire in 2010 for lax
In June, the board fired Charney for allegedly misusing
corporate funds and helping to spread nude photos of a former
employee on the Internet, a source previously told Reuters. The
photos were allegedly posted on a blog by another American
Apparel employee who was impersonating the former employee.
A spokesman for Charney, Keith Estabrook, said, "He was
terminated for allegedly failing to prevent the use of
impersonating materials, and he did not actively participate."
Charney has denied the allegations and is fighting to regain
control of the company. He increased his stake in the apparel
retailer to 44 percent, from about 27 percent, but signed over
his voting rights and shares to the hedge fund Standard General
as collateral for a loan.
Charney intends to have a say over key decisions, such as
the makeup of the board or M&A deals, whether or not he returns
as CEO, a source close to the matter said this week.
American Apparel is waiting for the results of an internal
investigation before deciding what to do about its founder. A
spokesman for American Apparel declined to comment.
In the case of Lululemon, the Canadian yoga apparel chain
was once one of the hottest stocks in retail but it suffered a
damaging recall last year involving see-through yoga pants. Late
last year, Chip Wilson, the company's founder, stepped down as
non-executive chairman to pave the way for new CEO Laurent
Potdevin to run the company.
Wilson, however, remained on the board so that directors
could tap his knowledge about the company and its customers. The
board assured Potdevin that he would be able to run Lululemon
without undue influence from Wilson, according to a source
familiar with the situation who spoke on condition of anonymity.
But tensions began to build as some directors felt Wilson
wanted to be excessively involved in management decisions; at
the same time, Wilson, who has a 27 percent stake in Lululemon,
became increasingly frustrated that he was not being fully
heard, the source said.
The problems spilled out into the open in June, when Wilson
lashed out at the board, saying its new chairman and another
director were too focused on short-term growth.
A spokesman for Wilson said he had stepped down from
management in January 2012 to give then CEO Christine Day the
room she wanted to run the company. Lululemon's board then asked
Wilson to return from Australia to address a product quality
issue, said the spokesman, Jim Courtovich.
"Chip Wilson has always been focused on doing what is in the
best interests of Lululemon and its shareholders," Courtovich
said. "Since then, he has been providing important input that
has changed the direction of the company."
A representative for Lululemon declined to comment.
The two sides settled last week, when Wilson agreed not to
wage a proxy contest and to sell half his stake to private
equity firm Advent International.
Still, shares of Lululemon have fallen more than 40 percent
since Potdevin's appointment in December, underscoring the toll
such corporate clashes can take on share valuations.
Similar battles between the boards and founders of Men's
Wearhouse, Best Buy and Groupon Inc have rattled their
investors until the disagreements were finally settled.
"Numerous times I've seen first-hand how the founder dynamic
can be particularly challenging for fellow board members to
successfully grapple with. Internal disputes that become public
are one of the most dysfunctional events companies face," said
Brad Allen, the founder of Branav Shareholder Advisory Services,
which counsels boards and shareholders on governance issues.
FOUNDERS AS AN ASSET
To be sure, not all founder departures are acrimonious.
Directors and recruiters say many founders have a deep well of
knowledge about their companies and customers, and they can be
invaluable to their successors.
Former Nielsen Holdings N.V. CEO David Calhoun said
he used to seek advice from Arthur Nielsen Jr on how to resist
pressure from media clients for favorable research. Nielsen Jr
is credited with transforming the company, which his father
founded in 1923, into a name synonymous with television ratings.
"Art Jr's advice went to the heart of our business: the
potential conflict between serving client's needs (the companies
we measure) and our commitment to objective measurement," said
Calhoun, who is now executive chairman at Nielsen.
Bill Ford had fully supported Alan Mulally when he took over
as CEO of Ford Motor Co in September 2006, said Marshall
Goldsmith, an executive coach who has worked with Mulally.
Early in his tenure, when some top executives challenged
Mulally's initiative to conduct a weekly review of business
priorities, he had the backing of Ford, who helped Mulally
implement the plan. The weekly review turned out to be central
to the No.2 U.S. automaker's successful turnaround, according to
Goldsmith said his advice to founders is to pick a date to
hand off the company and start working on a succession plan.
"Leave with dignity, don't get thrown out," Goldsmith said.
(Reporting by Nadia Damouni; Additional reporting by Euan
Rocha; Editing by Paritosh Bansal and Tiffany Wu)