The CEO succession plan and transition at Gildan Activewear Inc. now raises more questions than answers as mudslinging suggests there was a behind-the-scenes power play at work.
In an open letter to shareholders on Wednesday, Gildan’s board chair Donald C. Berg details a formal three-year CEO succession plan agreed to between the board and former CEO Glenn Chamandy in December 2021. The letter charges that Chamandy failed to live up to his part of the agreement, noting that “while Mr. Chamandy agreed to follow the original succession timeline, he later worked to entrench himself as CEO.”
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Berg also notes an October 2023 proposal put forth by Chamandy that Gildan should “actively pursue, within weeks, high-risk and highly dilutive multi-billion-dollar acquisitions that would shift Gildan away from its core area of manufacturing experience.” Berg also said Chamandy had requested to stay on as CEO for “several more years to implement” his plan, and that if the board declined, he would leave the company and sell his shares.
Berg even charged that Chamandy had no intention of abiding by the agreed succession plan. He pointed to a quote from an interview in The Globe and Mail on Dec. 16, 2023 where Chamandy was quoted as saying “I had no intention of leaving. You know, my view is that I would leave when I think the time is right for the company.” The interview was published five days after Chamandy was given the boot at Gildan.
Chamandy could not be reached for comment.
In a request for comment via email, he referred to his Dec. 18 statement, two days before Berg’s open letter. That statement said in part: “Contrary to media reports, I gave no ultimatum to Gildan’s board with respect to any strategy or potential acquisitions….This is a sideshow to distract from the reaction the shareholders have had with respect to the board’s handling of succession planning, in which I was not involved. I did not and could not orchestrate or control the events; the board conducted the process.”
On Dec. 11, Gildan issued a release stating that the company named Vince Tyra president and CEO, effective Feb. 12. Tyra is a former Fruit of the Loom executive. Meanwhile, Craig Leavitt, a board member since 2018 and former CEO of Kate Spade & Co., will serve as interim president and CEO until Tyra joins the firm.
The chairman said in his letter that the decision to hire a new CEO was based on a joint responsibility between the board and Chamandy to ensure that the company is well positioned for the future. He added that over the last two years, the board’s trust and confidence in Chamandy had eroded gradually “as we worked to hold him accountable for delivering the next chapter of the company’s long-term growth strategy as well as the development of his people.”
Following the succession plan agreement, Berg wrote that the company hired an executive search firm in January 2022, which considered both internal and external candidates for the top job. He said the board selected Tyra for the CEO post on Dec. 10.
The surprise ouster of Chamandy resulted in two investment firm shareholders—Browning West and Turtle Creek Asset Management Inc.—seeking Chamandy’s reinstatement as CEO, as well as the ouster of Berg as board chair. The two have since been joined by six other shareholders—Anson Funds Management LP, Oakcliff Capital, Jarislowsky Fraser Ltd., Cooke & Bieler LP, Pzena Investment Management Inc. and Janus Henderson—who combined own more than 33 percent of Gildan’s outstanding shares and who are also seeking Chamandy’s reinstatement.
While Berg’s letter on Wednesday might have provided details previously not known to Gildan’s shareholders, there’s also a new wrinkle in the power play dynamics.
On Sunday, Gildan disclosed that it had inked a “support agreement” with Coliseum Capital Management, which would see its co-founder and managing partner Chris Shackelton join Gildan’s board. The agreement also includes Coliseum’s promise to support Gildan’s full slate of board nominees at each of its 2024 and 2025 Annual Meeting of Shareholders. In addition, Gildan said Coliseum plans to acquire additional shares of the company’s stock.
While its not unusual for boards to seek directors who can help further strategic goals, the addition of Coliseum has drawn the ire of at least one investor. Anson’s statement on Monday, which sought reinstatement of Chamandy, said it was “further troubled” by the board’s striking of a “backroom deal” to give a shareholder a board seat “in exchange for their support before engaging with other investors to discuss the company’s approach to succession planning.”
Perhaps more damning was Anson’s statement that company shareholders had to read about the Gildan board’s views on Chamandy, “which we have since learned are false accusations.” Anson also said that the board commentary regarding M&A seems designed to distract from what should have been its key focus on succession planning.
On Wednesday, Browning West co-founders Usman S. Nabi and Peter M. Lee sent a letter to Gildan’s board indicating that it is prepared to reconstitute the board through a special meeting if Gildan continues to ignore the feedback from its shareholders. The letter, which noted how the “poorly-aligned board has spent the past 10 days initiating a blatant entrenchment maneuver” with a lone shareholder, said that with “each passing day, the board’s apparent arrogance and indifference validate that substantial change is urgently needed in Gildan’s boardroom.”
Nabi and Lee also noted substantial share sales in excess of $11.7 million by senior executives, which they said indicated a “lack of confidence” in the board and fear that Tyra’s appointment “may lead to the further destruction of shareholder value.” They also noted the increased risk of management turnover. The two reiterated their call for the reinstatement of Chamandy, ouster of Berg and the appointment of Lee as a shareholder representative to the board.
Joining Berg in his open letter were Maryse Bertrand, chair of the corporate governance and social responsibility committee; Luc Jobin, chair of the audit and finance committee, and Shirley E. Cunningham, chair of the compensation and human resources committee.
Chamandy and his brother Greg founded the company in 1984. The American Apparel owner—it acquired the brand in 2017 for $88 million—struggled through a tough macro backdrop and lackluster international sales that hurt first-quarter results. By the third quarter ended Oct. 1, some categories showed signs of improvement. For example, hosiery and underwear sales rose 16 percent in the quarter, and activewear’s performance remained steady in the same period. Net income fell 16.7 percent to $127.4 million on a net sales gain of 2.3 percent to $869.9 million.