Governance crisis at Gildan | A shareholder rebellion takes shape

An attempted rebellion is taking shape at Gildan, where a second major shareholder is supporting an offensive aimed at ejecting directors of the Montreal clothing manufacturer and bringing co-founder Glenn Chamandy – fired last month – back to the helm.

After several tumultuous weeks, Turtle Creek, which owns 3.3% of the multinational’s outstanding shares, also believes that the time has come to decide once and for all to know who should lead the company that owns brands like American Apparel and Peds.

“We believe that Gildan shareholders have lost confidence in the board of directors,” explained the Toronto firm on Thursday. Rapid resolution is essential to avoid further loss of value. We cannot recall a situation where shareholder opposition to a board of directors’ decision has been so significant and rapid. »

This “rapid resolution” will likely take the form of a special meeting of shareholders. Based in Los Angeles, Browning West, which owns 5% of Gildan, says it is finalizing the “technical details” to require such a meeting to be held. The American activist fund wants to remove five of the eleven members of Gildan’s board in order to replace them with its own candidates, including Mr. Chamandy. The latter would also once again become president and CEO, a position he had held for two decades.

Turtle Creek plans to support the American activist fund team.

“The Gildan board has demonstrated that it is not prepared to act in the best interests of the company and its shareholders,” Browning West said on December 29 in a letter addressed to Gildan shareholders in which it announced its colors.

Governance crisis

This governance crisis erupted when Mr. Chamandy was dismissed by the board of directors on December 10. Coming the next day, the announcement surprised investors, who were not expecting it. The board justified its decision by citing differences with Mr. Chamandy over the succession plan and by maintaining that the latter wanted to move forward with an acquisition strategy deemed too risky.

In principle, Vince Tyra, who notably led Fruit of the Loom during his career, is to become the new president and CEO as of February 12. Whether this will happen remains to be seen. In recent weeks, nine of Gildan’s largest shareholders, who together own about 35% of the outstanding shares, have publicly criticized the board of directors while calling for the return of Mr. Chamandy – who cannot digest his dismissal and who wishes to return to the position.

“We are faced with a strategy rarely used by shareholders in Canada,” underlines Ivan Tchotourian, full professor at the faculty of law at Laval University specializing in business law, governance and social responsibility. It is a form of rebellion. It is certain that this will disrupt the routine of the board of directors and the company. »

At the time of writing, the clothing manufacturer had not responded to questions from The Press sent by email. It was not possible to know whether other major Gildan shareholders, such as Montreal asset manager Jarislowsky Fraser, intended to line up behind Browning West. Since the announcement of Mr. Chamandy’s dismissal, Gildan’s stock has fallen by approximately 15% on the Toronto Stock Exchange.

Upcoming turbulence

As of Thursday, Browning West had not yet formally requested Gildan to hold a special meeting of shareholders. It could take several weeks, even months, before an appointment is held, according to experts consulted by The Press. This type of confrontation will certainly leave its mark, believes the director of the Institute on the Governance of Public and Private Organizations (IGOPP), François Dauphin.

“We open the door to an offensive on both sides,” underlines the expert. We are in a period of significant crisis. It surprises me that we want to force the holding of an extraordinary meeting when the annual meeting of Gildan shareholders is generally held [au début du mois de] may. Usually, we would opt for a proxy battle instead. »

Obviously, dissatisfied shareholders want to move as quickly as possible. In its release Thursday, Turtle Creek urged Gildan’s board not to “engage in delay tactics with respect to the date of the special meeting.”

MM. Tchotourian and Dauphin are nevertheless surprised by the vigor with which the co-founder of Gildan tries to overturn the decision of the board of directors, which was unanimous, underline the two experts.

“I can understand shareholders being surprised, but the succession plan and the long-term strategy are two elements at the heart of a board of directors’ priorities,” summarizes Mr. Tchotourian. If the board was not satisfied on these aspects, it seems to have fulfilled its responsibilities, which consist of looking after the interests of the company. »

Brothers Glenn and Greg Chamandy founded Gildan in 1984. The clothing maker gave up its multiple voting shares in the early 2000s when Glenn succeeded his brother Greg as CEO.

“ [Glenn] Chamandy still seems to act like a controlling shareholder, says Mr. Dauphin. This frequently happens with a founding shareholder who has been in place for a long time. »

Mr. Tchotourian says for his part that it is always difficult for “managers and founders” to hear that they “may no longer be the right person” to run the company.

On the Bay Street trading floor Thursday, Gildan shares fell 38 cents, or 0.9%, to close at $42.91.

With the collaboration of Richard Dufour, The Press