In the past, the distance between fashion designing and commercial management were as far apart as the sky and the earth. Luxury-goods companies resisted putting both creative and commercial control in one pair of hands. However, Steve Jobs’ success as both a designer and head of Apple (AAPL) somewhat set an example that a good designer could also do well in the position of CEO.
When it comes to fashion designing, however, things have become complicated. Dov Charney, the embattled founder of American Apparel, Inc. (APP) , is fighting to remain in charge after the directors stripped him of his chairman’s title in the middle of June, and moved to fire him as chief executive.
Dov Charney: A Curious History
Charney founded American Apparel as a wholesale T-shirt business in 1998, choosing to produce the garments in America and speak out in favor of immigration reform and better wages. The clothing did succeed at first. American Apparel rapidly expanded in the early 2000s by appealing to “hipsters.” Charney took the company public in 2005 at $8.00 per share and Wall Street eventually bid it up to approximately $17.00 per share.
However, in recent years the company has suffered a lot chiefly because of Charney, who is known for eccentric behaviors. Charney’s overt sexuality—he frankly discussed his own sex life, sometimes wandered around his factory in his underpants and staged provocative photo shoots in the basement of his mansion—precipitated lawsuits by former employees. Charney still owns a 27 percent stake in American Apparel, and has kept fighting to returning the Board. Affected by the battles, at the end of June 24 the company’s stock traded for $0.53, a decline of 21.35 percent after the open.
Charney’s troubled tenure raises the question: can a good fashion designer have the qualities that are required of a good CEO?
Founders Often Equal the Business Itself
While traditional CEOs can make a distinction between their personal and professional lives, it’s very hard for people who grow the business themselves to do so. In many cases, they are the business.
In fashion designing, an industry focused on creativity, founders tend to neglect the fact that they represent the brands. Designers, often assume that their personal lives are irrelevant as long as the designing is great.
That’s partially true. In the early periods of building a new, say, clothing brand, the designing itself matters. However, when the company goes public, designers often forget the change of identity necessary from designer to CEO. More commercial factors are involved in being a CEO, such as management and financial sourcing. All of their behaviors relate to brand’s value. And for stockholders, that's what really matters.
Four Key Attributes of a Great CEO
As the company’s flag-bearer, a CEO attracts all attentions both outside and inside. Being at the top of the pyramid, the CEO should be able to clearly communicate the vision of the company in order to inspire staff, investors and customers.
The second element is macro management. It’s necessary for CEOs to understand the company’s daily activities, and how all segments fit together to move the company forward. But CEOs do not want to get dragged into trivial matters, such as lunch meals. Instead, a highly trained management team can enfranchise CEOs, and let them focus on the primary duties of increasing revenues, and protecting shareholders’ benefits.
The third attribute is the ability to leverage industry trends. Staying on top of industry trends through reading, attending conferences and joining trade associations is essential for CEOs to ensure that the direction and vision for the company is on course. In addition, those learning activities enable CEOs to steer clear of potential threats and capitalize on future opportunities.
The last thing for successful CEOs to keep in mind is that customers’ experience. They look beyond their raw technology and focus on finding ways to help customers solve problems, and to offer improving customers experience. Like Steve Jobs, great CEOs describe products, instead of just listing product capabilities, in terms of how they address customers’ needs and challenges.
Fashion Designers Do Not Necessarily Make Good CEOs
Generally, a great fashion designer may have the totally opposite qualities. Some designers lack good communication skills and teamworking spirit. Though very creative, some designers are unlikely to be aware of their own potentially damaging behavior.
Dennis Wilson, the founder of Lululemon (LULU) , imperiled his company’s brand in 2013 by making snide remarks about overweight customers. Wilson stepped down as chairman a few months ago after Lululemon’s share price decreased in half over the past year.
Lululemon, a yoga apparel maker, has faced similar problems as American Apparel. In 2013, Lululemon had to recall some of its yoga pants for being too sheer, which hurt the company’s reputation and cost millions of dollars. Wilson exacerbated the situation by then seemingly placing the blame on overweight customers, saying “some women’s bodies just don’t actually work” for the pants. Lululemon traded for $82.00 per share in June 2013 before the controversy, but recently dropped on poor earnings to $41.11 per share.
In Charney’s case, his control of 27 percent of the company may make it difficult for the board to oust him. Designers may contribute much in the very first place, but the situation changes when the image of the brand becomes tarnished and it starts to cost shareholders money. American Apparel’s board members desperately want to rid themselves of the founder as the company has been losing money consistently for the past four years. The company is more than $270 million in the red, and same-store sales are dropping precipitously as well, approximately 7 percent in the most recent quarter.
Apparently, a career switch is not an easy thing at all. Talented designers are not usually talented CEOs, and if they’re not up to par, then a company’s board needs to take any necessary actions to protect the shareholders.
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