MONTREAL — The ongoing dispute between Gildan Activewear Inc. and several of its shareholders over who should lead the company shows the potential perils of succession planning,according to a corporate governance expert — especially when there's a founder involved.
“The most important thing that a board does is appoint the CEO, and then do the succession planning,” said Sarah Kaplan, a distinguished professor at the University of Toronto's Rotman School of Management.
“Somewhere along the line, this process got completely derailed. And we don't know yet exactly why."
Gildan set a date of May 28 for a special shareholder meeting following a request from shareholder and U.S. investor Browning West, which wants to replace a majority of the company's board of directors and bring back ousted founder Glenn Chamandy as chief executive.
The company has been embroiled in a fight over who should lead the company since it announced late last year that Chamandy would be replaced as chief executive by Vince Tyra.
"It's very dramatic. It's everything that a board and a company would normally want to avoid," Kaplan said.
Several Gildan shareholders, including the company's largest, Jarislowsky Fraser, have sought to have Chamandy reinstated.
Browning West is asking Gildan shareholders to vote to remove eight Gildan directors, including chair Donald Berg, and replace them with its own nominees who would reinstate Chamandy. The firm has accused Gildan of trying to avoid holding the special meeting.
Calling an emergency shareholder meeting isn’t a quick process, said Kaplan.
“There are rules and procedures that have to be followed,” she said.
But it's likely a meeting could have been organized earlier than four months away, she added.
Gildan also said on Monday it will challenge the validity of the Browning West special meeting request in a Quebec court.
The Montreal-based clothing manufacturer alleges the fund broke U.S. antitrust rules when it increased its stake in the company to the point where it could request a shareholder meeting, something Browning West denies.
In a statement Monday, Browning West said the board is "refusing to set a timely date" for the meeting and wasting resources on its legal challenge.
"Through its actions, including refusing to set a timely date for the Meeting, the Board is once again demonstrating a complete disregard for sound corporate governance and a total lack of respect for the will of shareholders," said Usman S. Nabi and Peter M. Lee of Browning West in the release.
Shareholder Turtle Creek Asset Management also released a statement criticizing the meeting's timing, and accusing Gildan's board of incurring unnecessary costs by opposing the meeting in court.
Gildan said it has heard from numerous shareholders, both those who have indicated preliminary support for Browning West and those who have not, in recent weeks.
"The board and shareholders are aligned in the view that a speedy resolution of this unnecessary proxy contest is in the best interests of the company and its shareholder owners," the company said in statement.
"The company also agrees with shareholders who hold the view that a meeting is not required to resolve this matter."
It’s possible Gildan is hoping that between now and the May meeting, other developments will negate any need for a meeting, said Kaplan — such as the Quebec court backing the company's challenge of the validity of the meeting request.
“If they're successful in challenging the investor’s right to call the meeting, then they could cancel the meeting.”
The board may also be hoping that some behind-the-scenes negotiations could do the trick, she said.
“I could imagine that the current board is trying to give themselves room to see if they can do some negotiations that might lead to a more amicable solution.”
The Gildan board has said Chamandy had no credible long-term strategy for the company and had lost the board's trust and confidence in his ability to grow an increasingly complex organization.
In response, Chamandy has said he presented a comprehensive long-range plan in October that showed meaningful organic growth prospects for Gildan over the next five years.
Under Canadian law, the board's duty is to the best interests of the corporation, said Kaplan.
Sometimes what the shareholders want doesn’t align with what the board thinks is best for the company, she said — which is why Browning West and other shareholders are seeking this meeting.
“Shareholders can vote for a board, but they don't hire and fire the CEO, they just vote for board members,” said Kaplan. “So if they want to change the CEO, they have to change the board.”
This dispute is one that will likely one day be taught in corporate governance, CEO appointment and succession planning classes, said Kaplan.
It’s also an illustration of the complications that can arise in CEO succession planning when the executive in question is also a founder, she said.
“When you have a family business, emotions are definitely going to run higher.”
This report by The Canadian Press was first published Jan. 29, 2024.
Companies in this story: (TSX:GIL)
Rosa Saba, The Canadian Press
