Why didn't the board get rid of Dov Charney, CEO of the American Apparel fashion chain, long ago when it was first confronted with his lewd proclivities that attracted bad press and harassment lawsuits? The archetypal incident, which no column can fail to mention, was his masturbation in front of a reporter for now-defunct Jane magazine.
Because he was the largest individual stockholder. Because he was the marketing magician who conjured exorbitant prices from basic T-shirts and tennis dresses made in high-cost, Los Angeles factories, using a unique combination of "buy America" jingo and sex-sells puffery.
If the board decided last month that he no longer has the magic, chances are nobody does. His strange indulgences became a liability without offsetting benefit. The company says it will continue to make its clothes state-side, hoping to summon profits from unpromising economics. So far, the stock price is not a testament to confidence.
Which brings us to a CEO ouster that has roiled the Boston media for weeks.
As the press tells it, the Demoulas family-owned Market Basket grocery chain is re-enacting the movie plot from "It's a Wonderful Life." A beloved leader is pushed out by a conniving board. Politicians endorse a consumer boycott. Massachusetts Attorney General Martha Coakley calls employee-orchestrated protests "truly inspiring."
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Market Basket employees and supporters rally on July 25 to back ousted former CEO Arthur T. Demoulas. Associated Press
In the kind of sentence that has driven the narrative, the Boston Globe reports: "The disruptions have caused many customers to shop at competitors because of Market Basket's empty shelves or anger over the decisions of its management."
Uh huh. If the public feels such solidarity with workers, why must workers resort to refusing to restock shelves to enforce a boycott?
The Demoulas chain is known for paying its nonunionized work force well, its workers are highly motivated, and the chain has grown steadily through a combination of low prices and excellent customer service—a high-wire act in a supermarket industry typically brutalized by narrow margins.
News accounts romanticize the company's eschewal of debt as a proof of merit. They suggest the chain is wonderfully profitable, but the company is private; it doesn't publish its results. And it appears that some of the proceeds of its business model have been captured by the CEO and his immediate family through outside real-estate dealings.
The board is divvied between two branches of a warring family, and has been since the recently ousted CEO's father was successfully sued in the 1990s for trying to steal the company from heirs of his brother and late partner. These battles continue today. Newsies delight in the fact that leaders of both factions are named Arthur after a common grandfather, but the real story may be a board finally taking its legal obligations seriously.
Last year, to force a vote on a proposal to distribute $300 million in excess cash to shareholders, dissident board members complained in a lawsuit that the now ex-CEO's tenure was "littered with related-party transactions between [the company] and entities owned by Arthur T. or his family members."
Three of the company's new store projects—in Waltham, Revere and Plymouth—have been suspended while a newly appointed management team investigates the underlying real-estate deals. Fired or quitting in a huff were a bunch of senior executives whose tenure at the company was improbably long—48, 55, even 70 years in one case.
Now it's true that a more conventional, hair-splitting approach to corporate governance might lead to the chain being run more like other supermarkets—for the benefit of shareholders as shareholders. Workers and customers may feel demoted by the new priorities. Happily, a solution has been proposed by Arthur T. Demoulas—the Arthur who was ousted—with his offer last week to buy out his relatives so he can run the company however he wants, sacrificing whatever efficiencies he cares to sacrifice to benefit other interests.
This would seem a just and judicious outcome, and better than anyone going to jail. A realistic price would be one that lets family members aligned with the other Arthur— Arthur S. Demoulas —finally realize their share of the business while rewarding them for ending their acrimonious association with the company.
What's the larger lesson of these corporate melodramas? Businesses invite customers to anthropomorphize them, emotionalize them, become engaged with their products and images—and it works when it works. But where the economic dynamics are unforgivingly competitive if not fundamentally commodity-like, it pays to doubt any charismatic leader's ability to beat the spread over the long term. It also pays to look under the hood, which some of the Boston media might have bothered to do before turning the Demoulas battle into a good guy vs. bad guy corporate morality tale.