Guess founder Paul Marciano defeats proxy vote over board seat

Two men smile and one has his arm around the other's shoulders

April 22, 2022 Updated 2:45 PM PT

A proxy campaign to drive Guess co-founders Paul and Maurice Marciano off the company’s board over a sexual assault scandal failed to draw enough votes Friday at the L.A. apparel firm’s annual meeting — but the activist hedge fund behind the effort has vowed to continue its battle.

Legion Partners, an L.A. fund that has acquired a 2.5% stake in Guess, had asked shareholders to withhold support for the reappointments of directors Paul Marciano, who has been accused of sexual harassment and assault, and his brother Maurice, who is accused of turning a blind eye to the allegations. Some of the allegations go back several decades, others surfaced in lawsuits filed this year.

Paul Marciano, 70, and his attorneys have denied any wrongdoing.

Legion’s proxy campaign drew the support of the two major shareholder advisory firms, which said the company’s continued affiliation with the Marciano brothers posed a risk for the brand. That support came even though the campaign had virtually no chance of succeeding since the brothers hold about 41% of outstanding shares.

The fund did not nominate its own slate of directors. It relied on a company policy that requires any director in an uncontested election who receives a greater number of votes “withheld” than votes “for” must submit a resignation letter for consideration by a board committee. Legion did not reach that threshold.

The company announced that based on preliminary vote results, the Marciano brothers and two other board members had been reelected.

“We will continue to engage with our shareholders, and we remain steadfast in our commitment to acting in the best interest of the Company and all Guess shareholders. The Board of Directors takes its fiduciary duties very seriously, believes in due process and will continue to make its decisions based on factual findings,” Guess said in a statement.

Legion issued its own vote tally saying that only 17% of non-insider shareholders voted to support Paul Marciano.

“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 statement said.

Earlier, Ted White, managing director at Legion, told The Times that the hedge fund didn’t plan to walk away from the fight. “We feel strongly that there are some aspects of this situation that are appropriate for us to continue to pursue via potential litigation focused on board fiduciary issues,” he said.

Paul Marciano is one of four brothers who moved to Los Angeles from France and in 1981 founded the company. It grew into a worldwide apparel and accessories retailer, with marketing campaigns led by him that featured celebrity models Anna Nicole Smith, Kate Upton and others. Two other brothers left the company years ago.

Guess operates more than 1,000 stores worldwide and earned $171 million on $2.6 billion in sales in its last fiscal year, though it’s no longer the trendy brand it once was. The hedge fund argues that the allegations have depressed the company’s stock despite a turnaround led by Chief Executive Carlos Alberini.

In the last few years, Legion has waged successful campaigns to change the boards at retailers Bed, Bath & Beyond and Kohl’s. It began investing in Guess in October after meeting with the company and deciding that the turnaround was being held back by the brothers’ continued affiliation with the company, according to a regulatory filing.

Amid the burgeoning #MeToo movement in 2018, Sports Illustrated swimsuit model Kate Upton gave an interview alleging Paul Marciano had groped and kissed her during the shoot for a 2010 ad campaign when she was 18 — and when she rebuffed him, he later called her “disgusting” and a “fat pig.”

He called the allegations “preposterous,” but other women came forward accusing him of inappropriate comments and texts and unwanted advances including kissing and groping, according to a company regulatory filing.

That prompted a board investigation that concluded “on certain occasions, Mr. Marciano exercised poor judgment in his communications with models and photographers and in placing himself in situations in which plausible allegations of improper conduct could, and did, arise,” the filing said.

The company entered into settlement agreements with five women that totaled $500,000. Marciano stepped down as executive chairman in 2018 and was to transition out of his role as chief creative officer. However, the next year Guess did an about-face and announced he would stay on in the creative officer position.

In January 2021, a lawsuit was filed in Los Angeles County Superior Court by an unidentified model that reignited the scandal.

She alleged that Paul Marciano sexually harassed her after she began working for Guess in 2017. Then, after taking a hiatus to give birth, the woman alleged, she met him at a West Hollywood address in February 2020 for what she thought would be a discussion of new photo shoots. However, the space turned out to be an empty apartment where, she alleged, Marciano forced her to perform oral sex.

That allegation was followed by a federal sex trafficking lawsuit brought in October by an aspiring Guess model who says Paul Marciano raped her in 2013 in a Beverly Hills hotel room, where she had met him expecting to discuss working for the company. The unidentified model said she later did test shots for Guess but was never given any work.

Marciano’s attorneys have called the latest allegations “baseless.”

Before the proxy fight began, Legion early this year demanded that the Guess board begin investigations into its oversight of Paul Marciano and into any employees, officers and directors whose conduct might have caused harm to the company. It also sought information about the health of Maurice, 73, who suffered severe injuries in a 2020 bicycle accident from which he is still recovering.

Legion also sent a letter to the board that it released demanding the removal of the Marciano brothers, arguing they presented a material risk to the firm’s turnaround efforts. Guess responded by publicly defending management and its recent financial results. It said it “strongly refuted” the latest claims of sexual wrongdoing against Paul Marciano and was “contesting them vigorously.”

Legion began its proxy campaign March 16 after Guess indicated it planned to renominate the brothers to board seats. That week, a third lawsuit was filed accusing the board of aiding and abetting sexual harassment by allowing Paul Marciano to stay at the company.

The suit detailed allegations by a third unidentified model who said she worked extensively for Guess and had been sexually harassed by Paul Marciano during a July 2020 photo shoot at Lake Como in Italy. The lawsuit does not name him as a defendant.

Prominent Los Angeles attorney Lisa Bloom, whose firm handled the three new lawsuits, held a news conference that week during which all three models and other accusers spoke.

The model who alleged Marciano forced oral sex from her identified herself as Amanda Rodriguez and tearfully read a statement saying the incident has caused “flashbacks, panic attacks, nightmares, debilitating depression and suicidal thoughts.”

Her lawsuit is now in arbitration.

After the news conference, the model who made the federal sex trafficking allegations changed attorneys and dropped her lawsuit. Her new attorney did not return a request for comment.

In a statement, Marciano’s attorney, Gary Jay Kaufman, said the “lawsuit was baseless like others filed by Ms. Bloom and, in those cases too, we are extremely confident that we will prevail in a court of law where facts matter.”

Legion established a website for its campaign called A Better Guess and published an investor presentation tallying other sexual harassment and assault allegations against Paul Marciano. The presentation said the company has paid $920,000 in settlements since 2018 related to allegations against Paul Marciano and contained links to lawsuits dating as far back as 1994.

While Legion has praised the turnaround under Alberini, who was appointed after the 2018 sex scandal, it has traded jabs with the company over the performance of the stock. Shares are down over the last year despite gains by the Standard & Poor’s 500 and were down about 4% at $22.94 at the close of trading Friday, after the vote results were announced. Last month, Guess announced a $175-million accelerated share buyback program.

The company said it had tried to reach a “mutually agreeable path forward” with Legion, including a new environmental, social and governance committee and the share buybacks, but was rejected. It also announced the formation of a board committee of independent directors assisted by outside legal counsel to investigate the post-2018 allegations against Paul Marciano.

Guess stood by its position of renominating the Marciano brothers to the board and said Legion’s campaign is “based on information from the media and from misinformed and uncorroborated sources.”

Institutional Shareholder Services, one of the two shareholder advisory firms, sided with Legion, concluding that although the two brothers made “outsized contributions” to the company’s success over the last 40 years, that was “irrelevant” to the current situation. It added that “removal of the Marcianos appears to be the only course available to begin a clean break in this long and sordid thread in the company’s history.”

Glass Lewis, the other advisory firm, acknowledged the Marcianos’ Guess stake probably doomed Legion’s campaign but said the company would benefit by “moving on” from the Marcianos as directors and the board should review Paul Marciano’s employment given “the extensive list of allegations of sexual misconduct and settlements and his immediate influence on the culture of the business.”

During the firm’s heyday the Marciano brothers made the Forbes 400 list of richest Americans but have not done so in years. Guess’ market cap these days is $1.4 billion, well below where it was at its apex some 15 years ago when the stock was around $50 a share.

Susan Anderson, a retail analyst at B. Riley, agreed the stock price is lagging but said the brand has experienced a resurgence under its chief executive and Paul Marciano’s son Nicolai Marciano, who has had a hand in developing fashions for the company’s younger customers.

She said it was unclear at this point what role the Marciano brothers are playing in the company’s performance.

“Clearly they built a great brand,” she said. “It’s hard to say if they are making a significant impact on the brand right now.”