Gildan Activewear shareholder calls board’s handling of CEO succession ‘poor’

Browning West issued a letter to Gildan Activewear’s board of directors outlining steps to “restore stakeholder confidence.” “Through the course of our research, we found that Gildan’s long-time CEO and Co-Founder, Glenn Chamandy, is a strong leader who has played an instrumental role in the Company’s impressive success,” the letter reads. “Mr. Chamandy has built Gildan into a dominant business with a strong culture and a wide competitive moat, derived primarily from low-cost manufacturing and vertically integrated operations. Under Mr. Chamandy’s leadership, Gildan’s stock has generated a 99x total return for shareholders and the Company’s earnings per share have grown by nearly 16% annually over 25 years. We believe there are few leaders with Mr. Chamandy’s track record of value creation. Despite a challenging macroeconomic environment over the past four years, Mr. Chamandy delivered strong operational performance and large market share gains resulting in 54% growth in earnings per share. These share gains position the Company well for further earnings growth in a more normalized economic environment. We believe that under Mr. Chamandy’s leadership, Gildan’s share price was poised to be worth $60 to $80 USD over the next two years, which represents an approximately 80% to 140% increase from the current price, which assumes that Mr. Chamandy delivers $4 of earnings per share and the stock re-rates to its historical valuation range. Based on our knowledge of Mr. Chamandy’s strong historical record and the healthy trajectory of the business, we were alarmed that the Board abruptly terminated Mr. Chamandy as CEO – without cause or a viable explanation – on December 11th. The Board’s poor handling of succession and questionable judgement when it comes to its most important responsibility and decision have put Gildan’s business and shareholders at great risk. As described in subsequent sections of this letter, the Board’s CEO search criteria and process were flawed from the outset, resulting in the appointment of a new CEO with limited manufacturing experience and a record of value destruction. We are also concerned that the Board’s poorly overseen leadership transition may trigger attrition among Gildan’s other senior executives, which increases the risk of execution missteps given that Gildan’s business requires intense operational oversight. Finally, while there is never a good time to replace an engaged and value-creating CEO with one who has a history of value destruction, it is even more of a head-scratching decision to do so in a challenging economic environment, which has adversely impacted the industry in recent quarters. The purpose of this letter is to detail our strong objection to the Board’s recent decisions and to propose tangible actions to restore stakeholder confidence and put Gildan on stronger footing. It is imperative that the Board acts in the best interests of the Company and its stakeholders and moves immediately to implement our recommended actions before permanent damage is done.”