Apparel manufacturer and retailer Guess Inc. has concluded a proxy battle that ended in the reelection of Guess Co-Founders Paul and Maurice Marciano to the company’s board following pushback from an investor at Legion Partners Asset Management.
The vote was held on April 22 at the company’s annual shareholder meeting.

Legion, which has cited allegations of sexual misconduct directed toward Paul Marciano for the reasoning behind its pushback, is still urging independent members of the board to take steps to end the Marciano brothers’ tenure at L.A.-based Guess. Legion noted in a statement that 83% of non-insider shareholders who voted were not in favor of Paul Marciano continuing to serve on the company’s board.

“Put another way, this means that only approximately 17% of independent shareholders who voted supported Paul Marciano,” Legion said in a statement. The company added that “Paul Marciano may have eked out a win at today’s annual meeting, but he cannot hide from the persistent reputational and valuation risks we believe his continued presence poses to Guess.”

The Marciano brothers own about 42% of Guess shares, while Legion owns a 2.5% stake, according to filings with the Securities and Exchange Commission.
Guess was founded in 1981 by four Marciano brothers. Guess did not respond to a request for comment for this article.

Legion first called for the removal of the brothers in a public letter to Guess’ board in February. The Los Angeles-based investment management firm wrote that mounting sexual misconduct allegations against Paul Marciano, as well as concerns that Maurice Marciano allegedly was using his power to cover for his brother’s actions, were grounds for replacing the two brothers on the board.

Publicly reported examples of Paul Marciano’s alleged misconduct include a 2018 Kate Upton interview with Time when the model said she was assaulted and harassed by Marciano during her first modeling campaign at the age of 18.

Photographer Yu Tsai corroborated details of the allegations, which Paul Marciano called “absolutely false.” He was quoted further by Time, saying, “I fully support the #metoo movement. At the same time, I will not allow others to defame me and tarnish my reputation. I have pledged to Guess and its board of directors my full support and cooperation with a fair and impartial investigation.”

Over the past year or so, four separate women have accused Paul Marciano of misconduct, according to court documents filed with the California Superior Court in Los Angeles and the U.S. District Court in the Central District of California.

Canceled departure

Legion also held that the board has failed to act in response to Paul Marciano’s alleged misconduct. It cited an internal investigation in February 2018 that saw the board conclude that Marciano showed “poor judgment” when working with models.

“As a result, the company said he would leave Guess by January of 2019,” Legion said in a statement. “Instead, a short time later the company reversed course and announced the board had requested he continue his employment as chief creative officer – resulting in public and investor outcry. During much of this time, Maurice Marciano served as chairman of the board.”

Concerns about the Marciano brothers’ board involvement escalated in March, when Legion filed a preliminary proxy statement that detailed its planned solicitation of votes that would be used to push against the reelection of the brothers.

Guess Inc. wrote in a statement that Legion created a distraction to successful senior executives and that removing the Marciano brothers would be detrimental to the company.
“The company believes the foundation of Legion’s withhold campaign is based on information from the media and from misinformed and uncorroborated sources,” the company wrote. “Guess has addressed these issues on multiple occasions and will continue to discuss them as appropriate with Guess shareholders going forward.”

Tensions continued in April in the lead up to the annual meeting that would decide the fate of the Marciano brothers — an event that Legion said was accelerated by two months. Legion took issue with an investor presentation given by Guess that Legion said largely ignored allegations against Paul Marciano. Legion wrote that shareholders were presented with “a marketing pitch” and materials that ignored the reality of the situation the company found itself in.

“Tellingly, the company, and by extension the board, (did) not even once deny the allegations of sexual harassment and assault against Paul Marciano or Maurice Marciano’s apparent enabling of Paul’s alleged conduct,” Legion wrote.
In January, Legion delivered a letter to demand board action regarding the allegations.

Advisory recommendations

Proxy advisory firms Institutional Shareholder Services and Glass Lewis entered the discourse days before the annual meeting, both recommending that shareholders withhold their votes on the reelection of the Marcianos.

Among its reasonings for its recommendation, Glass Lewis stated that Paul Marciano’s continued involvement poses a long-term reputational risk and a greater litigation risk to Guess. “The measures enacted to prevent future sexual misconduct, or allegations thereof, by Paul Marciano, were seemingly ineffective; allegations of post-2018 sexual misconduct emerged in early 2021 in the form of several lawsuits,” ISS added.

Guess said in response that it was disappointed to learn that ISS was recommending shareholders withhold votes.
“We strongly believe that ISS has reached the wrong conclusions,” Guess wrote. “The company has been clear regarding its track record of actions. We take allegations of sexual impropriety or unethical conduct extremely seriously and have acted accordingly to perform a thorough investigation of allegations against Paul Marciano in 2018. An independent committee of the Guess board is currently conducting an investigation related to Legion Partners’ demand letter.”

At the annual meeting on April 22, preliminary votes resulted in the reelection of director nominees Paul Marciano, Maurice Marciano, Anthony Chidoni and Cynthia Livingston to the company’s board.
Still, Guess must contend with multiple lawsuits from former Guess models despite its win against Legion.

As of April 26, the publicly traded company’s stock has risen $2.47, or 12%, across the span of the last six months. An analyst for B. Riley, a financial services and research firm in Los Angeles, wrote that he believes “demand for fashion apparel is likely to remain strong throughout 2022 which should benefit GES.”