August 15, 2018

American Apparel’s Female CEO Was Set Up To Fail, And Now The Company Is Failing


American Apparel made it semi-official on Monday: its cash position and business prospects have deteriorated to the point that it may not be able to stay open for another year.

The news comes after years of struggles. The retailer hasn’t turned a profit since 2009, it experienced a net loss of more than $100 million between 2013 and 2014 alone, and it has seen sales decline so swiftly over the last several year that its coffers are now all but dry.

The financial troubles have also coincided with a high-profile battle with former CEO Dov Charney, who was fired last summer over an investigation into alleged sexual assault after seven different employees had already accused him of sexual harassment over the years. Charney has bitterly fought his ousting, leading to a protracted legal battle.

This was all the backdrop for the appointment of the company’s first female CEO and its first female board member. Colleen Brown joined the board in July of last year, while Paula Schneider took over the leadership role in December.

Schneider was explicitly brought in to clean up the mess. In the press release announcing her new role, Co-Chairman of the Board David Danzinger said, ”This company needs a permanent CEO who can bring stability and strong leadership in this time of transition, and we believe Ms. Schneider fits the bill perfectly.” Allan Mayer, the other co-chairman of the board, agreed: ”We are confident that Paula Schneider has the skills and background to lead the company to long-term success.”

It may be little coincidental, however, that the person they brought in for this task is the first woman to get a shot at the job. A wide body of research has uncovered a phenomenon academics call the glass cliff: marginalized groups like women and people of color are far more likely to get a leadership role in times of trouble than in times of positive performance. No matter the period of performance researchers in one study examined, return on equity was significantly negative before a woman and/or a person of color became CEO of a Fortune 500 company between 1996 and 2010. Studies of British companies in the FTSE 100 have found that they’re more likely to promote women to their boards after a period of bad performance or a loss signaling underperformance. The same thing shows up in a lab setting.

This means that many of the people who get a new shot at the top job are already set up to fail, and even if they don’t fail face more difficult odds of success. It’s part of why female CEOs are more likely to get pushed out of their jobs than male ones. That perpetrates women’s low representation at the executive level, where they hold just 4.6 percent of CEO jobs at S&P 500 companies and 25 percent of executive and senior roles.

Some are able to beat the odds. Andrea Jung became CEO of Avon while the company was in crisis but managed a recovery. Irene Rosentk became CEO of Mondelez (formally Kraft) specifically to engineer a turnaround and she succeeded, holding on to her role.

But others fall off the cliff. Think of Ellen Pao at Reddit, or Patricia Russo’s ousting as CEO of Alcatel-Lucent, or Katie Couric and Diane Sawyer getting anchor positions when evening news programs were already on a steady decline.

It’s not clear yet what Schneider’s legacy will be. Will the company’s unraveling be an indictment of her tenure? Or will she avoid shouldering the blame for decades of mismanagement? Only time will tell.


join our newsletter