It has, to put it lightly, been a tumultuous decade for American Apparel.
After a late-2007 stock market high of $15.22 per share, the LA-based clothing manufacturer too often seemed to be in the headlines for all the wrong reasons: complaints of misogyny in its advertising campaigns, allegations of sexual harassment against founder and CEO Dov Charney, and a growing pile of debt.
The stock price too, had plummeted. In late 2013, the company’s shares were going for just over a dollar.
In 2014, Charney and his team were ousted by the company’s Board. Then, putting together a new management team, the Board tapped Loeb & Loeb partner Chelsea Grayson as General Counsel and Chief Administrative Officer, a role which put her in charge of the legal department and human resources.
As a young lawyer, Grayson had clerked for Judge Samuel Bufford on the U.S. Bankruptcy Court, and had experience with distressed mergers and acquisitions, but the decision to join American Apparel might’ve been seen as curious by her peers. Before joining Loeb & Loeb, Grayson had spent almost 13 years doing M&A work at Jones Day.
Why leave a prestigious law firm and take a gamble on a troubled company? In short, Grayson said, her new job is a “passion project.”
“I’ve been following the brand, I’ve been a customer of the brand, and I’ve got a teenage daughter — so I know the brand really well,” Grayson explained. “The company also meant a lot to me personally because I feel like it’s a culturally significant company.”
American Apparel filed for bankruptcy last October, and shortly thereafter faced a takeover bid by the exiled Charney, backed by a trio of wealthy outside investors.
American Apparel’s owners were able to fend off Charney’s bid, and the company’s restructuring plan was approved by a federal court last month. As part of the deal, the clothing manufacturer’s secured creditors — many of whom were hedge funds specializing in turn-around projects — agreed to a debt-for-equity conversion, swapping their debt for shares in the company. Additionally, the company’s stock is no longer publicly traded.
The company isn’t out of the woods, but the titanic struggle for control of American Apparel suggests that, for all its troubles, the brand still has a lot of mileage in it.
Grayson, at least, is betting on it. A graduate of UCLA and Loyola Law School in Los Angeles, Grayson recently spoke with Big Law Business by phone about her decision to join American Apparel, as well as the challenges of practicing law as a single mother.
Below is an edited transcript of the first installment of the interview.
Photo Courtesy of American Apparel
Big Law Business: You had an enviable career doing M&A work at elite law firms. Why take a job at a relatively small company with a troubled history and a dubious future?
Grayson: For one thing I enjoy a good turnaround — but only if I can see that the turnaround has a shot. In this case, I could see it. I’ve been following the brand, I’ve been a customer of the brand, and I’ve got a teenage daughter — so I know the brand really well. I could tell that the brand was strong enough on it’s own that it could experience a successful turnaround.
The company also meant a lot to me personally because I feel like it’s a culturally significant company. Actually, our bankruptcy judge said as much when we had our first day hearing. It’s the largest North American apparel manufacturer. There are hardly any U.S. textile manufacturers around anymore.
In some ways, it was a passion project for me. You’ve got to love what you do if you’re going to be a lawyer, right? You’ve got to be passionate about it and this was something that really motivated me during a middling part of my career.
Big Law Business: Did you feel like you were taking a risk?
Grayson: Frankly, I didn’t have any concerns because I knew [Board Chairperson Colleen Brown] would be such a strong leader. Then I met the rest of the board members, and they were all so devoted to turning the company around and setting it on the right path that I felt like I was going to be surrounded by high-level company.
I knew the plans that they had for putting in all new management. I trusted their judgment there. It just made nothing but sense to me. I wasn’t anxious about it. I knew there was going to be a lot of pressure going into it, a lot of work, but I wasn’t anxious about it. It felt right.
It was a passion project for me. You’ve got to love what you do if you’re going to be a lawyer, right?
Big Law Business: What does your legal department look like?
Grayson: It’s all new people except for one. I’ve got an elder statesman, so to speak, who sits in Canada. I rely on him a lot for institutional history. Everybody else from the [old] legal department is gone. Right now we have a very small department. We’re certainly growing. We’ll certainly grow over the next couple of years and certainly get more international presence, but for right now I have two people that have been with me since day one, when I got here, who are new to the company.
I’ve got my Head of Litigation, who’s a Labor and Employment specialist first and foremost but was also a trial lawyer. That’s obviously very important in a company with nearly 10,000 employees, particularly when the bulk of those folks are manufacturing employees, and they all sit here in Los Angeles and in California. Those are issues that you really want to get on top of.
Then I’ve got my other Senior In-House Counsel, who runs my in-house corporate practice. Essentially, he does everything that’s not litigation or not labor and employment related and so that’s a big job for him too. They are really my angels. I don’t know how else to describe them. I can’t be in the trenches all the time because I’m in the C-suite. There are only three of us in the C-suite, so I’m in every board meeting, and working very closely with my CEO and my CFO on high-level strategy and global initiatives.
[My in-house lawyers] do it all for me. They are tireless and they have families of their own but they are fully devoted and they are here all the time. Every issue that any one legal department handles — we’ve done it all in the past year. They’ve just hung in there. They’re survivors.
Big Law Business: Now that bankruptcy is wrapped up, what are the biggest challenges you’re facing?
Grayson: Like every General Counsel in the world right now, I need to continue to put my arms fully around cyber security, and around data privacy and all the compliance that goes along with those issues. Because we have such a big global presence, and because a lot of that is in the EU where a lot of this stuff is really intensely scrutinized, that’s always going to be a very big focus for my legal department.
Another big focus for us will always be being best in class — not just legally compliant but best in class when it comes to Labor and Employment and Human Resource issues in general.
Like every General Counsel in the world right now, I need to continue to put my arms fully around cybersecurity.
Big Law Business: Human resource issues were big reasons for Dov being let go. Is that a reason why taking care of employees is so important?
Grayson: For one thing, it’s just the right thing to do as a human being. Number two, our employees are the most important thing we’ve got here. They make it happen. Again, we are a manufacturing entity before anything. Yes, we’re a retailer and we’re a wholesaler, but we make it all and we make it all here in the U.S., so they’re extremely important to us and they deserve to be treated with respect and dignity. We bring that to them everyday.
Big Law Business: What was the mood like at American Apparel after Dov was gone?
Grayson: I’m not going to comment on whether people are happy or sad he’s not around, but I will say this: people are always happy to have a job, and we’re back to the ordinary course of business around here. Once we went through the process I think everyone understood that it was the right move for the company to go through the bankruptcy. We’re back to manufacturing and designing and selling clothes. The mood around here is good.
Our employees are the most important thing we’ve got here. They make it happen.
Big Law Business: What would you say to a Big Law attorney who was thinking, not just about going in-house, but about getting on board with a turn-around project?
Grayson: You have to believe in the company. You’ve got to know the company really well, and you have to believe in the management team that you’re either stepping into or that you’re confident is going to be retained.
I had all of that. It’s been incredibly rewarding for me. Once I got here, I saw what it was like to represent one client, to get to know every single thing about that client. I feel like the decisions that I make here are so much more astute because I can take into consideration all the factors that I never even knew existed when I was outside counsel. It’s been really fulfilling.
We’re back to manufacturing and designing and selling clothes. The mood around here is good.
For me, I feel like I’m at the top of my game, in terms of being a lawyer way, beyond what I ever was at. I didn’t even know what I didn’t know. I’d say if you believe in a company and you believe in a team, it’s worth it. It’s just worth it.
Big Law Business: What would you say to someone bearish on American Apparel? Why is the future bright?
Grayson: For one thing, a bunch of really smart hedge fund managers believed that we had a bright future. Otherwise, they wouldn’t have swapped their debt for equity and linked arms with us and come out the other side as the owners. These are high level guys — Goldman Sachs, Monarch, Coliseum, Pentwater. They know a thing or two about looking at a company and figuring out what it looks like projecting forward.
I’d also say we have an entirely new management team with incredible seasoning, just a wealth of experience — they’re all the best at what they do. They all took a risk coming here, and they’re working their tails off to make it happen. They believe in this place.
Then you look at what we’re going to do — the incredible efficiencies that we’re building into our manufacturing process, the quality of the products that we’re going to generate, and the fact that we’ll always be made in the USA.