Guess' Paul Marciano problem is shining a spotlight on boards - The Entrepreneurial Way with A.I.


Thursday, April 14, 2022

Guess' Paul Marciano problem is shining a spotlight on boards


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Ahead of its April 22 shareholders meeting, Guess Inc.'s board of directors is urging its shareholders to re-elect Paul Marciano to their ranks. That may not seem out of the ordinary, given that Marciano is the brand's co-founder, chief creative officer and sometime chief executive — except for the ongoing lawsuits, pushback from an activist investor and pullback from its insurance company, all over sexual misconduct allegations against him.

"[W]e believe the growing list of sexual assault and harassment allegations against Paul Marciano, and the apparent enabling by his brother Maurice Marciano, represent an existential risk for the Company's brand, reputation and ability to create value for shareholders," Legion Partners Managing Directors Chris Kiper and Ted White wrote in an April 11 open letter to shareholders, calling on them to withhold their votes for the Marcianos. "We have also detailed why we believe the way Guess' Board has handled these allegations is at best wildly negligent and at worst a breach of the independent Board members' fiduciary duty."

In response, Guess the next day slammed the firm's stipulations as "regurgitation of previously reported and previously addressed grievances," defended its handling of allegations against Marciano in the last several years and said it has formed another board committee to investigate the latest claims.

Legion's stinging rhetoric is fairly typical of an activist investor who's fed up with a company's governance. But the Guess board is also facing a more unusual situation, away from its boardroom and proxy statement: A number of Marciano's accusers have now taken several of its members to court.

Arick Fudali, a partner and managing attorney at The Bloom Firm, the law firm representing Paul Marciano's latest accusers, says that the board put his clients in harm's way when it reinstated Marciano in 2019. The previous year, an internal investigation into "inappropriate comments and texts, and unwanted advances including kissing and groping" found that "on certain occasions Mr. Marciano exercised poor judgment in his communications with models and photographers and in placing himself in situations in which plausible allegations of improper conduct could, and did, arise."

Following that, Marciano, already in the process of giving up his post as CEO, also resigned as executive board chair, but within months, with the board's blessing, took on the position of chief creative officer. This year, two Guess models came forward, one with serious sexual assault accusations that she said took place two years ago, and have named several Guess board directors in a lawsuit filed in March.

"To bring him back and put him back in a position where he had direct contact with models was, in my opinion, aiding and abetting sexual harassment," Fudali said by phone. "A board or entity is only vulnerable if they vote to bring back known sexual harassers. If the board had just stuck with their decision, and not brought Paul Marciano back into his role in 2019, we very likely would not be here. And more importantly, my two clients would not have had their situations in 2020. That's the important thing."

Guess did not respond to multiple requests for comment for this article. Two board members declined to comment; one referred Retail Dive to a spokesperson for the board, who didn't respond to a request for comment.

Board game changer?

In the U.S., boards of directors have played an integral part in corporate governance for two centuries. But, with their roles vaguely defined and lightly regulated for most of that time, they have largely escaped much notice.

The men and (increasingly more) women who sit on boards, broadly speaking, are mostly seen as beholden to shareholders. That seems to be routinely interpreted as, above all, protecting a company's share price. But in an era shaped by the #MeToo and #BlackLivesMatter movements, and amid heightened concerns around climate change, that has started to shift.

Guess Board of Directors as of April 14, 2022
Name Occupation Director since
Alex Yemenidjian *** CEO, Oshidori International Development 2005
Carlos Alberini Guess, Inc. CEO 2019
Paul Marciano* Guess founder, chief creative officer 1990
Maurice Marciano* *** Guess founder, former Guess executive 1981
Anthony Chidoni* *** Financial firm executive 2002
Laurie Ann Goldman** *** CEO, LA Ventures 2018
Cynthia Livingston* Former CEO, Sequel AG, Guess global watch licensee 2019
Deborah Weinswig *** Founder & CEO, Coresight Research 2018

* Up for re-election on 4/22. ** Departing the board as of 4/22. *** Sued as a member of the board, by two of Paul Marciano's accusers, for "aiding and abetting sexual harassment in violation of the Fair Employment & Housing Act."

More companies are shaking up the makeup and agenda of their boards in an effort to address shortcomings in their company culture, according to Mark Lipton, a professor emeritus at The New School, an adviser to corporate boards and author of "Mean Men: The Perversion of America's Self-Made Man." 

"What strikes me the most about how much has changed is how so many organizations are trying — not necessarily successfully, but really trying — to change their culture," he said by phone. "Whether it's toxic men in the middle or executive leadership at the top."

But Guess, a brand with a question mark in its logo and a founder with multiple accusations against him, seems to be oblivious to the need for change, Lipton also said.

"You know, the world pivoted after Harvey Weinstein," he said. "Guess never read the memo on that, I think."

All aboard 

As Legion notes in its communications with shareholders and a website it has dedicated to the issue, Guess may be risking its brand reputation by sticking with Paul Marciano.

In March, around the time the most recent allegations became public, social media chatter about the brand turned negative, according to research from consumer insights company Brandwatch. But in general, unlike with many fashion brands that are synonymous with their founders or designers, most people aren't associating Paul Marciano with Guess, Brandwatch found. (That may be good news to another brother, Georges Marciano, who on Thursday sought to set the record straight about the brand's origins, saying in a press release that he, and not Paul, originated Guess.)

"The Guess brand will be mentioned alongside its co-founder as these allegations are being made, but it won't do any lasting harm to the brand itself," Brandwatch concluded in its emailed report. "The brand doesn't share the same name as its co-founder, which is also common in fashion and luxury, and it's benefiting them in this instance. Guess enjoys something of an iconic status online, and that means people still discuss its products and ads positively, even in the wake of these accusations."

That runs counter to the board's argument, that there is no "Guess" without Paul Marciano, according to Legion's White. 

"The company has told us that Paul Marciano is Guess and Guess is Paul Marciano, and he's so important," White said by phone. "You can't remove him. So what [Brandwatch found] would be completely contrasting that."

However, Legion's own research indicates what the firm calls a "Marciano discount," or hit to its valuation, that has grown from 30% to 45% in recent years as allegations against him have piled up. Much of the blame can be placed on the board of directors, experts say.

"I believe strongly the board is responsible," said Lipton, who believes that suing directors over issues like sexual harassment is likely to become more commonplace. "In the past, you know, some boards might shrug it off and say, 'Well, no big deal. We've got directors and officers insurance, they'll cover it.' But I've got a feeling that whoever is insuring Guess for their D&O policies is starting to back away."

While Guess carries insurance so that it can indemnify its board members "to the fullest extent permitted by law," according to its proxy statement, insurance companies do get jumpy. In December, for example, the Beazley Insurance Company sued Guess and Paul Marciano in the U.S. District Court in the Central District of California, arguing that it's not obligated to cover Marciano's latest legal troubles because they involve "the same Wrongful Act or Interrelated Wrongful Acts" from years ago, before Beazley was insuring Guess.

Board members should be concerned about reputational harm not just to the companies they're governing, but also to themselves, according to Anat Alon-Beck, a professor at Case Western Reserve University School of Law whose research focuses on corporate law and governance. In order to respond appropriately, any board members at Guess should be sure they have all the details of any internal investigations, including any that may have been conducted before they joined, she said.

And including Guess' pending investigation into Marciano's most recent behavior, something that Legion says should have been ample reason to postpone its annual meeting and shelve its recommendation to keep him on as a director.

"Whenever you sit on a board, you always have this risk for reputational harm, especially if there's a lawsuit and the board of directors looks like they're covering up for management," she said by phone. "There are things that companies should do, and that is, first, take responsibility, two, make sure things don't happen. And three, boards have responsibility. Especially if a dog already bit before, then you know they have propensities. Seriously, today, with the #MeToo movement, there's no excuse for that."


Daphne Howland, Khareem Sudlow