Why BoDs and CEOs Need Workplace Harassment Training Too: American Apparel’s Board and CEO Violated Their Own Code of Ethics

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I was driving home Wednesday evening, listening to the news on the radio, when I heard the story about Dov Charney, the CEO of American Apparel, being fired by the company’s board of directors. According to that story and several others like this one in the LA Times, the decision by the board “grew out of an ongoing investigation into alleged misconduct.” The board voted to replace Charney as chairman and “notified him of its intent to terminate his employment as president and CEO for cause,” according to a statement.

Charney’s Troubled Past

If you don’t know anything about Charney, consider yourself lucky. If there were ever a poster child for someone who needs mandatory workplace harassment training, it’s him. The words “smutty,” “sleazy” and “pervert” appear in nearly all of the news coverage on him – at least those are the adjectives I can publish in this blog. While he started a successful business, it was often over-shadowed by his penchant for causing, and then denying, trouble in the workplace. According to this Time piece, he was accused of keeping a teenage employee as his “sex slave” in 2008; he’s also been sued for sexual harassment by multiple other employees and models, but all of the lawsuits against him have been dismissed or settled out of court. In 2012, Charney was accused in a wrongful termination suit of choking and rubbing dirt in the face of a former store manager in Malibu; he also allegedly used ethnic and homophobic slurs against an employee and asked whether he was sleeping with a certain girl.

Sounds like a corporate environment where racial harassment, sexual harassment and workplace violence is allowed to thrive. You can do a quick search on the latest stories about his ouster as CEO and find videos of him dancing naked in the workplace, repeated references to him referring to women colleagues as “whores” and “sluts” and a quote wherein he states “If you’re offended by sexual innuendo or masturbation or sexual coloring books, then don’t work here.” I’m amazed the board allowed his employment to continue as long as it did.

American Apparel’s Code of Ethics

This is the American Apparel Code of Ethics, which is posted in the Investor Relations section of their website. It’s one of the thinner ones I’ve seen, but it’s a Code nonetheless. In the first sentence, it reads “The Board of Directors of American Apparel, Inc. has adopted this Code of Ethics (the “Code”), which is applicable to all directors, officers and employees” … so everything in the Code is applicable to the board and Charney. Here are a few choice phrases from the Code, which expects all employees to:

  • promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
  • promote compliance with applicable governmental laws, rules and regulations;
  • deter wrongdoing;
  • require prompt internal reporting of breaches of, and accountability for adherence to, this Code;
  • act with integrity. Each person owes a duty to the Company to act with integrity.

Integrity requires, among other things, being honest, fair and candid.

How American Apparel Dropped The Ball

Even if every single one of those lawsuits and complaints was without merit, which I don’t believe – why settle if they were – with the videos of Charney dancing naked in the office and all the rest of it. It’s very clear that the directors and Charney himself did not live up to their Code of Ethics. By continuing to pay settlements and allow this type of behavior, the board was signaling to employees that it was permitted. Every time an employee came forward with allegations, the company denied them, often with a certain amount of outrage. They were not living up to their responsibilities to provide a safe workplace for their employees.

Here’s the kicker – the company is based in California. According to California state law AB 1825, employees in a supervisory role must take 2 hours of sexual harassment training every other year. So… did Charney and the board take their sexual harassment training? Or did they take ANY form of workplace harassment training? I’m sure they give the rest of their employees some form of harassment and discrimination training or AB1825 training, but I’d be very curious to know what Charney and the board took.

So what finally changed to make the board fire Charney? According to several news stories, it seems the board of directors launched an investigation this year after “new information came to light.” Charney’s alleged problems did not appear to be criminal in nature but involved his personal conduct with women and poor judgment.

Compliance Matters to Your Brand

Personal conduct with women and poor judgment… How shocking! If only there was a distinct pattern of behavior that would have clued them in. I suppose the board finally woke up and thought they better put a stop to this kind of behavior. Maybe they thought that since the company was performing poorly, now would be the time to stop paying out settlements. The company had been bleeding money in the years since Charney’s lawsuits started, and lost over $396 million since 2009, according to some news stories. However, once Charney’s dismissal was announced, stock rose 20%. Maybe the stock and t-shirt buying public wasn’t all that turned on by his antics either.

Employees require workplace harassment training so they learn how to treat each other with respect, but so do board members and CEOs. I’m consistently amazed at how many companies either exempt their CEOs and directors or only require them to complete the minimum workplace harassment training. Employees need to be confident in the tone from the top, that it’s authentic and not just lip service. Until directors and leaders take sexual harassment training or harassment and discrimination training just like everyone else, and live up to those same standards, employees will view them as hypocrites rather than leaders, and we’ll be in danger of having another American Apparel on our hands.

 

Topics:  Board of Directors, C-Suite Executives, Chief Compliance Officers, Code of Conduct, Compliance, Ethics, Harassment, Training

Published In: Civil Rights Updates, General Business Updates, Labor & Employment Updates

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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