"Money For Nothing," by John Gillespie and David Zweig, subtitle: "How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions," inspired this piece.
I've long considered the slow death of the company that Liz and I founded, a story that should be told, but how to tell it without rancor, without bias, is perhaps not quite possible. There once was a company whose culture and integrity and success were unparalleled. That company no longer exists. But the availability of the relevant numbers and the recorded quotes of the players afford the ability to tell a crisp, authentic story.
Those, rewarded for failure, using the standards of "Money for Nothing," are two of the company's Chief Executive Officers and certain members of the Board of Directors. The CEOs, chairpersons and directors of this company were and are well compensated people. Well over $200,000 per year plus for the chairman, and more than $125,000 for directors. Additionally, stock options are a part of the package. Performance seems irrelevant.
Liz and I missed the party. We resigned from the Board in 1990. The story is in my book. Jerome Chazen, who had a retail background, became Chairman of the Board. Harvey Falk, a man with financial skills became Vice Chairman, as did Jay Margolis, the product man. The plan was for the three of them to share in making policy and in reinforcing the familial culture of the company. Chazen had been considered a member of the founding team, coming aboard fourteen months after the inception of the company.
The glorious years from 1981 through 1989 have been described elsewhere. They were years of record-breaking sales and profits. The Board of Directors were a confident, narrow group: Liz as Chairman and CEO, me as Secretary, Chazen, Falk as our CFO, Len Boxer, a founder of the company, Jim Gordon, a shareholder with a textile background, and Sherwin Kamin, partner in the law firm that took us public. He and Chazen had grown up together. The skyrocketing price of the stock reflected the good times.
We introduced a dress division in 1983, a menswear division in 1984, the use of computer-based data, additional warehousing space, enlarged our off-shore offices and beefed up middle management. We licensed accessories, fragrances and sought other products to license. 1984 was the year of the opening of our menswear division and the Dana Buchman bridge apparel line. We acquired our Kayser-Roth accessory licensee. We started a new stand-alone retail chain, "First Issue," with the hope of competing with The Gap. We were stretching ourselves thin; each taking on additional responsibilities, carving out territory in some cases, feeling trapped, as Liz did, in other cases. All the while we were contriving new ways of selling more goods to the same retail outlets.
The same seven board members rode the good times.
In 1986 we became a Fortune 500 company and Liz became the third woman CEO of a Fortune 500 company. The following year Fortune Magazine recognized the company as number one on return on investment from 1977 to 1987. The stock had increased almost 300 fold from the date of its issuance.
The Board remained in the hands of the same seven members through 1987. Margolis was added to the board in 1988. The plan was to have Chazen, Falk and Margolis share in policy and strategy going forward.
The first sign of creaking joints were audible. The company opened its first off-price retail stores to absorb excess inventory.
Chazen became chairman of the board in 1989, and Lou Lowenstein, lawyer and partner of Kamin joined the board. Now the board had grown to nine members: Chazen, Falk, Margolis, Boxer, Liz and myself, Jim, now in his eighth year on the board, Kamin and Lowenstein.
The new team got off to a successful beginning. With the exception of our resignation the board remained largely in place through 1990 and 1991. But time and events continued to erode the surface glitter of the company. Galloping sales growth slowed to a trot and earnings fell to a crawl. In 1992, the company showed its first loss.
The strategic planning of a company, as Gillespie and Zweig point out, often reflects the bias of the chairman. Chazen's bias was moderate clothes. Thus in 1992 the company acquired Russ Togs, The Villager and Crazy Horse, all moderate sportswear companies. In mid-year Kay Koplovitz, Founder, President and CEO of USA Networks, a cable television network was given a board seat. Lee Abraham, former CEO of the Associated Merchandising Corporation came aboard at the beginning of 1993. Ann Fudge, Executive Vice President of General Foods was added in mid '93.
The board had much to repair. The backup of Liz merchandise in the stores had become apparent.
"Liz Claiborne Seems to Be Losing Its Invincible Armor," wrote Teri Agins of The Wall Street Journal in July. "Claiborne Net Falls 41% in 3rd Period - Poor Year is Seen." "Mr. Chazen said the company's discovery that it would be caught with too much unsold merchandised came as a surprise to him."
Another sour event was the resignation of Jay Margolis. "The company was not going in a direction I agreed with," he stated. Chazen announced that Margolis would not be replaced and that his duties would be absorbed.
There were now ten board members, five of whom had presided during the company's fall from grace.
Paul Charron, a Vanity Fair executive became Chairman and CEO in 1994. He reshaped the company. As a "brand" man he believed in imaging; thus initiated a strong advertising campaign, an about-face for the company. He cut costs while simultaneously beginning to acquire apparel companies. With one exception - the new chairman - the board remained the same.
The downdraft in sales continued: from $2.204 billion in 1993 to $2.163 billion in 1994 and net profit down from $127 million to $83 million. Sales continued to decrease in 1995 but earnings rebounded to $127 million. The board added new players; the qualifications stressed: experience in finance, management and investment banking. The Charron era was one of steady growth in sales and earnings: a slight hitch here and there, but sales at the time his tenure ended in December 2006, Liz Claiborne, Inc. was a company with $5 billion dollars in sales and $255 million dollars in earnings. The peak was the previous year when earnings were $317 million. Share price was close to $50.
The board had gone through a number of changes. Chazen had retired. Bernard Aronson, chairman of two investment firms was added. Fudge and Gordon retired in 2002. Arthur Martinez, retired CEO of Sears Roebuck, was seated the same year.
The most noteworthy acquisition by far was that of Juicy Couture, an epic tale of glory and disappointment. The list of the others is too long to enumerate. Charron was later accused of leaving the company "bloated." Each acquisition and the contractual terms of that acquisition had been necessarily approved by the board.
The composition of the Board of Directors after Charron's departure is one of comings and goings, but a tenacious group seems to have settled in. The board as now seated:
Bernard Aronson, Raul Fernandez, Chairman of ObjectVideo Inc appointed in 2002, Kenneth Gilman, elected to the board in 2008, retired CEO of Asbury Automotive Group, Nancy Karch, a senior partner in McKinsey and Company, Koplovitz, elevated to Chairman of the Board, Ken Kopelman, an attorney who had been closely involved in the IPO, Martinez, Doreen Toben, newly appointed, who had served as Vice President of Verizon, and Bill McComb, CEO of the company.
Many prestigious men and women had voluntarily come and gone during the past three years. The extended tenure of some of those who still make policy with Bill McComb is explained by Gillespie and Zweig. They tell us that it is virtually impossible to forcibly remove a board member. And, as the authors explain, board members protect one another.
The numbers tell the story. In 2007 the company reported sales of $4.577 billion and a loss of $373 million. In 2008 sales decreased to $4 billion and the company lost $952 million. Share price, plunged to as low as $1.80 and has recovered to about $5.50 as I write, attributed to the agreement to turn the label over to J.C. Penney for the next 10 years.
Bill McComb has been interviewed on a number of occasions since becoming the CEO of the company. Joann Lublin of The Wall Street Journal, speaking with McComb on November 3rd last year had this to report: "Under his command Liz Claiborne Inc. has posted seven consecutive quarterly losses ... shares have sagged 87% during his watch, underperforming 'almost everybody in the apparel industry' says Brian S. Suzzi, an analyst for Wall Street Strategies Inc."
Yet Claiborne's board renewed his contract this summer for three more years.
"Changing the CEO when you're going through difficult times adds geometrically to the risk factors," said Kay Koplovitz, Liz Claiborne's Chairman.