At Gildan, a board’s defeat offers lessons in shareholder management

Glenn Chamandy, co-founder of Gildan Activewear Inc. GIL-T, left his job as chief executive officer last year in a cloud of mystery after relations with his board soured. Now he returns triumphant – and under more pressure than ever before to deliver returns for the investors who won his job back.

The raucous five-month battle that engulfed the T-shirt maker came to a sudden conclusion late Thursday, when Gildan’s entire board of directors and CEO Vince Tyra quit, admitting defeat at the hands of activist investor Browning West. The Los Angeles-based firm, which owns about 5 per cent of Gildan’s shares, has now taken control of the company and will reinstate Mr. Chamandy as CEO, with United Rentals Inc. CEO Michael Kneeland becoming chairman.

Mr. Tyra’s bio has already been scrubbed from the Gildan website.

The feud was a rare case of activists pushing for the status quo. And though it’s often hazardous to predict whether the fallout from such cases will have a lasting impact on the Canadian corporate landscape, observers say it does provide a cautionary tale for other boards overseeing strong-willed executives who directors think might be past their best-before date.

Gildan’s legacy board, the directors who dismissed Mr. Chamandy last December, weren’t fast or blunt enough in explaining publicly why they showed him the door, according to one insider who spoke openly on condition they not be named.

Other experts say those directors underestimated the strength of Mr. Chamandy’s backing from Browning West and other institutional investors – and their resolve.

“It does show that sometimes the personality, the charisma, and the history of a long-time CEO and founder with investors is not something you can break easily,” said François Dauphin, president of the Institute of Governance for Public and Private Organizations. “Once you start pushing against that, it’s really hard to get yourself out.”

Former Gildan chairman Don Berg and the other directors who dismissed Mr. Chamandy initially said that they didn’t see eye to eye with the CEO on the timing of a leadership handover and they worked until the very last moment to try to hammer out a compromise with him. It wasn’t until after Mr. Chamandy was gone that they took a harsher tone, saying he’d become increasingly detached from his job and unable to articulate a credible long-term growth strategy for the company.

Even if the board’s process to address CEO succession was appropriate – engaging advisers and considering Mr. Chamandy’s proposals, for example – the announcement of his termination still took investors by surprise. And if there’s one warning for other companies from this saga, it’s to communicate with shareholders more closely when working through leadership issues, said Catherine McCall, executive director of the Canadian Coalition for Good Governance.

“I don’t think the lesson is that shareholders should micromanage the board because I think the situation, the circumstances, don’t encourage that takeaway,” Ms. McCall said. “[But] they should have maybe been talking to shareholders more. … If anything, this is going to prompt or encourage more shareholder engagement.”

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