Spend On A Dress Or A Dresser? — A story of near-sighted and far-sighted

A decidedly unfashionable computer mouse prototype.

A decidedly unfashionable computer mouse prototype.

One man’s ego and antics are finally catching up with him and causing his own company to struggle and decline in a “complicated” industry. Another man’s strong will and principles are keeping his company afloat in a declining yet highly competitive industry.

It took more than a decade for the board of directors to take note of Dov Charney’s (founder and former CEO of American Apparel) misbehavior and mismanagement. In contrast, John Bassett III has spent more than a decade fighting for his company, Vaughan-Bassett Furniture, his workers, and his principles, and rallying a whole industry to take on the country of China. Alas, the jury is still out on the fate of Vaughan-Bassett’s furniture company. Vaughan-Bassett is a separate entity from the original Bassett furniture company, which has closed many factories and laid off thousands of employees, and is now only a shadow of itself in its glorious early days. The original company is publicly owned and has to answer to shareholders, while Vaughan-Bassett employs 700+ people and is privately held.

The US furniture-making industry has been declining since the beginning of globalization. We still need furniture, but few are willing to pay higher prices for American-made products; the price difference between imported and domestic furniture may be hundreds of dollars and more per item.   The price difference between imported and domestic items in the fashion industry is much less than in the furniture industry. Thus it is much tougher for owners or CEOs in the furniture industry to compete against imports than it is for the fashion industry. Both American Apparel and Vaughan-Bassett have been using strictly American produced materials, and both seem to care for their employees. Yet…

Mr. John Bassett III fought and won an unprecedented anti-dumping action against China for underpricing furniture. To file this complaint, he had to organize more than 51% of the US industry players — who were all being squeezed to narrow or nonexistent profit margins by competition from cheap imports — to speak with one voice and to share legal fees. In order to prove that China was stealing Vaughan-Bassett furniture designs and practicing dumping with state sponsorship, Mr. Bassett III and his son themselves did some undercover work in China. (He first sent his son on the mission to discover those factories responsible for the dumping, and his son wasn’t to return till he accomplished the mission. Then, Mr. Bassett himself went to China and had a “chilling” meeting with the culprit.) When the US furniture industry finally won the case, Vaughan-Bassett was awarded $46 million of which Mr. Bassett used the majority to provide workers with modern tools and resurrect an empty factory. The original Bassett company received $17.5 million dollars and used most of it to “buttress the retail expansion.”

For some background stories, you can find them here, here, and here. For interested readers, Beth Macy’s “Factory Man” was just released.

Switching to a different industry, and thanking Mr. Charney for generating controversial ads, juicy stories, and prime examples of “how not to run a big and growing company.” I have to admit that I only recently learned about the name “Dov Charney” from the New York Times article by Joe Norcera on Mr. Charney and his company. However, American Apparel’s board of directors has no such excuse; they have been intimately familiar with Mr. Charney’s bad-boy conduct. There have been several sexual harassment lawsuits against Mr. Charney, some of which were bogus but with two ending in out-of-court settlements. Charney has been known to personally choose his own employees for ads, and some were quite sexually charged. The images might offend some people, but more importantly, in such an atmosphere, how can we “expect the office to be run like a convent,” as Norcera aptly points out. Equally important is Mr. Charney’s horrible record of management. Like many entrepreneurs, Mr. Charney might have been talented in the startup phase; however, he has demonstrated neither knowledge nor talent, and definitely no humility, in managing a maturing company. Since American Apparel went public in 2007, Charney has gone through several “talented” executives. (Personally, I can’t believe all these executives were truly talented, but in the absence of long tenure, it’s easier to attribute talent to them.) As Norcera documents, “[Charney] told The Wall Street Journal that the man he hired [as the chief financial officer] was a ‘complete loser.’ Which of course caused the man to quit.”

Computer mouse prototype 2, still no sense of fashion.

Computer mouse prototype 2, still no sense of fashion.

Further, Mr. Charney committed the classic error of many entrepreneurs, expanding too fast. A 2009 immigration audit lead to the company’s laying off half of its factory work force, and resulted in “delayed shipment, and an expensive hiring and training program.” The company’s stock has been steadily declining since then. However, it still took the board till June of this year before finally forcing out Mr. Charney. Of course, the fight isn’t over.

The lesson I draw – and I am sure there are other lessons – is that, be they entrepreneurs or CEOs, manager-leaders need a healthy network of colleagues, associates, and friends to get things done, to grow, or to do anything. By “healthy” network I mean not just the size of the network but also the quality, especially in the diversity of thinking. The board of directors of American Apparel is not unlike most other boards, comprising mostly people who side with the CEO, people of like-mindedness. While Mr. Bassett sounds like a curmudgeon, or a benevolent despot, he has been more than willing to ask for help when he needs to, as in the anti-dumping case. Both Charney and Bassett III love the enterprises they built, but they took different paths to grow their businesses. It’ll be interesting to see which enterprise has more sustaining power.

Till next time,

Staying Sane and Charging Ahead.

Direct Contact: taso100@gmail.com

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