Activist Investor Presses Guess for Action Over Sexual-Misconduct Allegations

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Paul Marciano. Emma McIntyre/Getty Images for GUESS, Inc.

Guess is in the sights of activist investors asking for the removal of the fashion retailer’s co-founders from the company’s board, saying sexual-misconduct allegations against one of the men are a distraction for the business.

Legion Partners Asset Management, with a roughly 2.5% stake in Guess (ticker: GES), is pushing to oust Paul Marciano from his role as chief creative officer, and from the board, and for his brother, Maurice Marciano, to leave the board , according to a letter released by the investors on Tuesday. The investors argue that allegations against Paul Marciano will complicate the retailer’s turnaround efforts.

“For more than a decade, a pattern of appalling sexual assault and harassment allegations have been made against Paul Marciano, while his brother Maurice Marciano appeared to turn a blind eye as a former Chairman of the Board,” the letter said.

Paul Marciano has been publicly accused of sexual misconduct by at least 11 women, including supermodel Kate Upton, Legion Partners said. The alleged incidents started as early as the 1980s, it said.

Guess didn’t immediately respond to a request for comment Tuesday. He said In a statement to The Wall Street Journal that “we have strongly refuted these allegations fully in the past and are contesting them vigorously.” Neither man immediately responded to emailed requests for comment.

Legion in the letter praised CEO Carlos Alberini for “executing an operational turnaround at Guess.” This includes optimizing the store’s portfolio, improving the supply chain and logistics, and achieving significant cost savings along with implementing plans to boost profits.

Legion argues that Guess, whose portfolio offers apparel, denim, handbags, and footwear products, will never be able to reach its full potential given the legal, reputational and moral risk associated with the Marciano brothers.

“In its letter, Legion Partners commends the Company on its positive strategic moves and improvement in a number of important areas,” Guess? said in a statement. “We remain committed to acting in the best interests of all shareholders, and our Board and management will continue to engage with Legion Partners and evaluate all opportunities to create value for all shareholders.”

In regards to the Marciano brothers, the statement read that as “previously disclosed in 2018, the Guess? Board established a Special Committee to investigate, with the assistance of independent outside legal counsel, allegations of improper conduct by Mr. Marciano. The Special Committee, composed of independent directors, conducted a comprehensive investigation, the findings of which were made public in June 2018.”

Jefferies analyst Corey Tarlow said in a research note he believes the company’s initiatives are enhancing the top-line and margin profile of the business. “We believe these initiatives [which include strategic price increases and eliminating process redundancies] could help GES achieve its operating margin target of 12% by F’24, which it recently raised from its previous 10% estimate,” said Tarlow, who has a Buy rating on the stock and a price target of $46.00.

On the letter by Legion, Tarlow said “We believe this could increase investor discussion around the stock and potentially present a catalyst for shares.”

The shares were up 5.4% to $22.88 Tuesday. They are up roughly 12.5% ​​since Alberini’s appointment in January 2019.

The Los Angles-based asset manager asked Guess to at least commit to not renominate the brothers at the 2022 annual meeting of shareholders.

Most activist battles are usually won through deals with the target company rather than a board vote, according to data compiled by Lazard.

Corrections & Amplifications:

Legion owns a roughly 2.5% stake in Guess. An earlier version of this article incorrectly said it was a 15% stake.

Write to Karishma Vanjani at [email protected]

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