In a rare insider's view of a board room battle, Men's Wearhouse is defending the firing of founder and executive chairman George Zimmer, saying there were disagreements over compensation and that he "had difficulty accepting the fact that Men's Wearhouse is a public company."
On Tuesday, the company released a statement that detailed how Zimmer reversed his "long-standing position against taking the company private" and wanted to sell out to an investment group. But the company believed that move "would not be in the best interests of our shareholders, and it would be a very risky path on many levels."
"It would require the company to take on a huge amount of debt to pay for such a transaction," the company said in its statement. "The Board strongly believes that such a transaction would be highly risky for our employees and would threaten our company culture that is so important to all of us."
Men's Wearhouse investors reacted positively to the statement, as the stock price [NYSE: MW] spiked more than 5 percent to $37 on Tuesday morning.
"Neither the Board nor management desired a total breakdown of the relationship between Mr. Zimmer and the company," the company said. "In our discussions with Mr. Zimmer, we made considerable efforts to find a solution that would have allowed him to continue to have a significant involvement with Men's Wearhouse. Unfortunately, Mr. Zimmer wouldn't accept anything other than full control of the company and the Board was left with no choice but to terminate him as executive chairman."
Richard Jaffe, analyst with Stifel Nicolaus, said he was surprised by the "dirty laundry" aired in public by the board of directors of Men's Wearhouse, but applauded the firm's transparency.
"The company went into tremendous detail about the nature of the dissent, which is a little bit awkward," he said. The areas of disagreement included a strategic review or possible sale of its K&G stores, executive compensation and wanting more power in decisions.
Zimmer named a new CEO, Doug Ewert, two years ago while designer Joseph Abboud was named as chief creator director in Dec. 2012.
"After selecting our CEO, Doug Ewert, and several of the key management team members that have effectively been running the company for many years with great success, Mr. Zimmer eventually refused to support the team unless they acquiesced to his demands," the company said in its statement. "Mr. Zimmer expected veto power over significant corporate decisions. Among them was executive compensation despite the fact that we – as required of a public company – have an independent committee of the Board that sets policy in this area."
Zimmer's most recent pay figure is $1,985,916, according to executive compensation data firm Equilar. According to the firm's most recent proxy, he has 1,771,625 shares, about 3 percent of the company, that are worth about $66 million.
President and CEO Doug Ewert earned $2.1 million last year, down from $5.4 million in 2011. Executive vice president Charles Bressler earned $2 million, up from $1.8 million in 2011, according to Equilar.
The company continued to say, "Mr. Zimmer presented the Board with the choice of either a) continuing to support our CEO and the management team on the successful path they had been taking, or b) effectively re-instating Mr. Zimmer as the sole decision maker. The Board strongly believed that the best course of action was to re-affirm its support for Doug Ewert, the senior management team, our shareholders and our employees."
Last Wednesday, the company released a terse statement announcing it was "terminating" Zimmer, after which he offered his own statement saying the board had "inappropriately chosen to silence my concerns."
On Monday, Zimmer sent a letter to the board explaining that he was resigning as a director of the company and that the board's decision "cannot dampen my enthusiasm for all that has been accomplished since 1973," the year he established the firm.
"As the founder and still a major shareholder, I still care deeply about the company and its future," Zimmer wrote on Monday.
The company, based in Fremont, Calif., is one of the country's largest specialty men's retailers with 1,143 stores across the country. The company operates Moores and K&G Stores in addition to its namesake stores.
The company explained, "Our actions were not taken to hurt George Zimmer. Rather we were focused on what we believed to be in the best interests of Men's Wearhouse, as well as shareholders and employees. While Mr. Zimmer owns 3 ½ percent of the stock, it is our obligation to represent the interests of all shareholders."
Whether or not Zimmer will still attempt to take the company private is yet to be seen. On Monday night, the San Jose Mercury News reported that unnamed sources indicate Zimmer is considering a "comeback", which may include trying to buy out the company.
But if those reports are true, Zimmer is likely to face strong opposition from not only the company's board but investors.
"We have confidence in management team," Jaffe said, explaining that the company has had improved financial results since Zimmer placed CEO Doug Ewert as leader of the company two years ago. "I can't fault George for putting this team in place. They are a good bunch of guys. He has been grooming Doug for 10 years."
Jaffe adds that the operating model for Men's Wearhouse is strong at a time when demand for tailored men's clothing is growing and the company owns about 40 percent of the men's tuxedo rental market.
Jaffe said taking the company private would be a bad decision for the company, piling on debt on Men's Wearhouse and changing how the company functions.
Television viewers who had grown accustomed to Zimmer's commercials reacted with shock after news of his termination.
"It's sad it had to come to this," Jaffe said. "George has been the voice, face and spirit of the company."
Still, customers and fans of his commercials could potentially still see his face, since the company owns the footage. But Jaffe said the company has constantly questioned the effectiveness of Zimmer in the TV ads, and his role has evolved in the ads, from standing in front of the camera, to doing voiceovers and ending with the famous tagline: "You're going to like the way you look. I guarantee it."
"George is 64-years old with a grey beard," Jaffe said. "Is he the right person to sell to a 24-year old kid? I don't know and I don't think the board knows the answer to that, but it's their choice not George's choice."