The situation changes when the image of the brand becomes tarnished and it starts to cost shareholders money. American Apparel's board members felt they could finally rid themselves of the founder, people close to the company said, because the company's performance turned for the worse. The company had lost money repeatedly for the last four years, totaling about $270 million in red ink, and same-store sales were dropping precipitously as well, about 7 percent in the most recent quarter.
Observers cheered Mr. Charney's dismissal almost immediately.
"We believe investors will generally view this news positively, given perceived prior mismanagement and the potential for reduced future headline risk," Roth Capital Partners wrote in an analyst report to its clients.
Most investors, of course, seemed to always know about Mr. Charney's bad behavior. Eric Beder, an analyst at Brean Capital, wrote in a note to investors, matter-of-factly: "We expect the sordid details to become apparent in the near term."
Apparently, the final straw for the board was news that Mr. Charney had knowingly failed to stop the online publication of naked pictures of a former employee who had accused him of sexually harassing her.
Mr. Charney is, as you might imagine, trying to fight his dismissal, suing the company in hopes of getting his job back.
"We question the legitimacy and thoroughness of any investigation that did not involve any discussion whatsoever with Mr. Charney," his lawyer wrote, contending that the accusations "involve activities that occurred long ago (if at all) and about which the board and the company have had knowledge for years."
Which is exactly why he should have been gone long ago, face of the brand or not.
—By CNBC anchor and New York Times reporter Andrew Ross Sorkin