Guess? Inc.’s co-founders should step down from the board to eliminate a distraction to the apparel maker’s turnaround effort, an activist investor argued, citing previously reported sexual misconduct allegations against one of them.
Legion Partners Asset Management, which has a stake of about 2.5%, is pushing for the removal of Paul Marciano and his brother Maurice Marciano, according to a letter released Tuesday. Paul Marciano resigned as chairman in 2018 amid a probe into the allegations but remained as chief creative officer and a board member.
“We do not believe that Guess will ever be able to reach its full potential with the persistent overhang of legal, reputational and moral risk that accompanies the Marciano brothers remaining on the Board or continuing to serve in any role,” Legion Partners said in the letter, dated Feb. 7.
The Marciano brothers collectively own almost 38% of the company, which would complicate any proxy challenge to oust them. Guess shares have slid about 12% over the past year, compared with a 15% increase in the Standard & Poor’s 500 index.
Guess didn’t respond to a request for comment Monday when news of the impending letter was reported. In a statement to the Wall Street Journal, which reported the activist’s position, the company said Legion was bringing up publicly information that had already been addressed. The brothers told the newspaper through the company that they had already fully refuted the allegations against them.
Legion argues that CEO Carlos Alberini has made progress by cutting costs and improving the supply chain. But, Legion says, the retailer retains legal and reputational risk as long as the Marciano brothers are on the board. Maurice Marciano didn’t do enough to stop his brother’s behavior, according to the firm.
Legion said it wrote to the board on Jan. 11 “seeking decisive steps” and an investigation into whether any officers breached their fiduciary duties regarding Paul Marciano. “The board responded with a tepid comment,” Legion said in its publicly released letter.
Guess’s investigation into Paul Marciano’s behavior concluded in 2018 that while many of the allegations against him couldn’t be corroborated, he had put himself in situations where such allegations might occur, the company said in a June filing. Among the allegations were claims of “inappropriate comments and texts, and unwanted advances including kissing and groping.”
Marciano and Guess also reached non-confidential settlement agreements with five individuals totaling $500,000 to avoid “the cost of litigation and without admitting liability or fault,” the company said at the time.