Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

Corporate takedowns: American Apparel

This is the first post in a series of four posts about corporate takedowns.  Today’s post is about American Apparel.  Next Tuesday’s post is about Theranos.  The third post on April 17 is about Facebook, focused on the recent Cambridge Analytica data sharing revelations.  The fourth and final post, on April 24, will discuss Gawker.

American Apparel was once one of the largest apparel companies in North America.  Founded in 1989, at its peak in the early 2010s the company had over 250 locations.  It was widely-known for its provocative, attention-grabbing advertisements and trendy yet utilitarian clothing.

However, after several years of not operating profitably and dogged by controversy courted by its founder, Dov Charney, and his attendant legal troubles, American Apparel filed for bankruptcy in 2015 and in 2017 was sold to the Canadian apparel company Gildan Activewear.  While the company’s manufacturing operations and headquarters were once based in Los Angeles, American Apparel is now an online-only retailer and makes most of its clothing, which is still touted as ethically-produced, in international locations.

For an overview of some of the business culture issues that precipitated the decline of American Apparel or have been identified as root causes to the company’s problems since its demise, check out these links:

  • One of the selling points of American Apparel as a brand to its young, hip consumer base was that the clothing was ethically-produced, made in America with fairly-paid labor.  However, public questions about the company’s actual labor practices led to some chinks in its armor.  It could be also that American Apparel suffered from the perils of many other founder-led companies, wherein former CEO Dov Charney had great energy and enthusiasm for marketing and sales but did not spend the requisite effort and time on setting up an adequate and effective controls framework to ensure for the sustainability of his company (for more on the compliance challenges facing these types of companies, check out this post):  Goodbye, American Apparel
  • Following the scrutiny into the company’s labor practices, matters only got worse when many sexual harassment law suits and settlements against the founder and former CEO Dov Charney became public. Charney’s controversial, brash personality dominated American Apparel’s public image, and so when his legal battles exposed his personal misconduct, the company’s long history of sexually-provocative advertisements took on a sinister note.  Here’s a look at some of that marketing, the making of which was involved in harassment claims by employees and some of which were banned in some countries:  The 10 Most Controversial American Apparel Ads
  • This post-mortem on American Apparel’s fall demonstrates that Charney’s notoriously inappropriate behavior, especially in the workplace, coupled with the company’s inability to adapt a sustainable business model and disengaged employees, were fatal to American Apparel’s survival once it became embattled:  American Apparel Post-Mortem: A Lesson In Visionary Leadership
  • American Apparel’s former board of directors used Charney’s legal problems to oust him from his position.  Though Charney mounted a battle to take back control, he was ultimately unsuccessful at this and his last-ditch attempts were thwarted when the company declared bankruptcy.  Charney wanted to see himself as unconventional, envelope-pushing, and daring, but the stories of his unethical behavior show that the business culture at American Apparel was not values-led or sustainable: Dov Charney’s Sleazy Struggle for Control at American Apparel
  • Charney, a polarizing figure with a tawdry past full of plenty of admitted misbehavior and much more alleged harassment and misconduct, has started a new company, Los Angeles Apparel, made in the image of his former company American Apparel.  Charney’s gone back to basics with a start-up as his comeback.  However, Charney notoriously has an obsessive attitude towards his business and blends his personal life with his business persona, which can be a toxic approach:  Dov Charney Couldn’t Keep American Apparel, So He Restarted It

Check back next Tuesday, April 10, for the next post in this series, which will discuss

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