More Fallout From American Apparel: CEO Refused Mandatory Sexual Harassment Training


Let it never be said that ethics and compliance is a dull field. Some of the stories that happen in it are worthy of Hollywood. In my last post about American Apparel firing CEO Dov Charney, I wrote that this happened after the conclusion of a Board investigation that began once “new information came to light.”

I noted how, in my opinion, the Board and Charney clearly violated the company’s Code of Ethics, which requires them to conduct themselves with honesty and integrity, handle actual or apparent conflicts of interest between personal and professional relationships in an ethical way and deter wrongdoing.

I also wondered, given that the company is headquartered in California, and therefore subject to California statute AB 1825 which mandates 2 hours of sexual harassment training every other year for employees in supervisory positions, what, if any, workplace harassment training, the Board and Charney took.

Update: Charney REFUSED Sexual Harassment Training

Well news coverage since my blog was posted has answered that question and shed much more light on the situation. According to this Washington Post article, it was not just the scandalous behavior that led to the Board’s action, but the financial pressure that behavior was exerting on the company. In fact, the company’s employment practices liability insurance retention had grown to $1 million from $350,000, which is “well outside industry standards” and caused “an unacceptable level of risk for the Company.” The company has also asserted that Charney’s reputation has made it more difficult to obtain financing without high double-digit interest rates, and that other companies refused to work with American Apparel as long as Charney was CEO.

So it wasn’t really for moral reasons… it was for financial reasons. Either way, it’s about time. I share the outrage many people are expressing on blogs and news sites online, that the Board waited FAR too long to relieve Charney of his duties. This is not someone who violated a policy or two; he was a compliance nightmare. According to the Washington Post article, part of the Board’s termination letter to Charney read: “Furthermore, on several occasions you have made derogatory and disparaging remarks directed at persons of certain ethnicities or related to their gender, sexual orientation or religious persuasions that are discriminatory and offensive and are not in accordance with Company policies,” the board said. It also alleges that Charney refused to participate in mandatory sexual harassment training and that he didn’t think much of his employees’ participation, either.”

Surprise, surprise. Charney refused to participate in sexual harassment training: a violation of the American Apparel Code of Ethics and the law. He was also pretty clearly the person who needed (needs!) it most.

Further, Charney knew about and did not stop a direct report of his from creating a fake blog to discredit a former employee who was suing him at the time, about which the Board’s termination letter reads: “You were in a position to prevent this conduct from occurring but, since it benefited you personally, you allowed it to continue. Your failure to act was not in the best interest of the Company. It exposed the Company to liability and at least in once instance, directly resulted in an arbitrator finding that the Company acted with malice.”

The Financial Allegations Continue

Moreover, the company claims Charney used the company as his own personal ATM and issued severance, bonus and commission payments as well as salary increases in exchange for protection from legal action from American Apparel staff (which came with signed release agreements that were legally binding.) According to multiple news stories, he also regularly used company property when not on business and used company funds to pay for plane tickets for his parents… oh the list goes on.

So, to sum up… we have a major company CEO who failed to stop a direct report from making a fake blog that featured naked photos of a former employee who was suing him, made derogatory remarks to employees, essentially bribed employees with raises or bonuses in exchange for signing release agreements regarding his conduct toward them, and used company funds to pay for personal expenses. Wow. It’s really just mind-boggling.

I feel very bad for the employees working in a culture where leadership like this was allowed to continue. I almost wrote “allowed to lead” but was Charney was doing was not leading. Wherever American Apparel goes from here (and many predictions are pretty bleak,) I certainly hope all of the Directors learned a few lessons. You don’t write a Code of Ethics and then ignore it. You don’t write policies and then not enforce them. If you have a very visible, very high-profile CEO, it becomes even more important that he “walk the talk.” Leadership should lead; that starts with building a culture that values and respects all employees.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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