Coach, Kate Spade, and Stuart Weitzman’s parent company Tapestry revealed on Tuesday that its chairman and chief executive Jide Zeitlin would resign for “personal reasons.” The announcement seemed suspiciously abrupt given that the 56-year old former Goldman Sachs executive had been in the dual role for less than a year (after first joining the company’s board in 2006), and had only just signed on to a three-year contract extension this spring. At the same time, one might be forgiven for thinking that the parting-of-ways was without potential behind-the-scenes controversy based on Tapestry’s release, in which Susan Kropf, its new board chair, praised Zeitlin for the “meaningful contributions [he made] to Tapestry over the past 14 years” and the “purpose” he “led with during these unprecedented times.”
New York-based Tapestry’s release on Tuesday, which came in the form of an 8-K filing, served to satisfy its legal obligations as a publicly-traded company. A Form 8-K filing refers to the “current report” that companies must file with the Securities and Exchange Commission “(SEC”) in order to announce major, “material” events that shareholders should know about; one of the most common of such events is the departure of a company’s CEO.
“Mr. Zeitlin’s departure was not due to any disagreement with the Company on any matter relating to the Company’s operations, financial statements or accounting,” Tapestry asserted in its SEC filing, noting that the resignation is “effective immediately.” What Tapestry did not state in its SEC filing or its public-facing statement was that it had very recently enlisted law firm Fried, Frank, Harris, Shriver & Jacobson LLP to carry out a probe into Zeitlin over allegations of “personal misconduct,” according to various media reports.
As the Wall Street Journal exclusively revealed later on Tuesday, the upheaval is the result of allegations that in the mid-2000s, during his employment as an investment banker at Goldman Sachs and while he was a member of Coach’s board (before it rebranded to Tapestry), Zeitlin had posed as a photographer and used a fake name in order to “lure” a woman named Gretchen Raymond into a photo shoot and then a relationship. In a LinkedIn post also published on Tuesday, Zeitlin addressed the allegations of an “inappropriate relationship,” confirming that he had “drew too close to the above woman.” He asserted that the relationship ended 13 years ago and “had nothing to do with [his] role at Tapestry.”
Nonetheless, Zeitlin – who says that “in the past month, a woman I photographed and had a relationship with more than ten years ago reached out to various media organizations to express her concerns about what had occurred” – revealed that he “felt compelled to resign” from both of his roles at Tapestry as to avoid creating “a distraction” for the company, especially during the already-difficult COVID climate.
On Wednesday, in an article published by ProPublica, William Cohan provided additional insight into the “bizarre fall” of Zeitlin and the impetus behind his departure from Tapestry. In addition to detailing the executive’s Wall Street past; his nomination by President Obama for a position as an ambassador to the United Nations, a role that never came to be; and his alleged “hidden life,” Cohan points to a 2009 article written by Josh Rogin, which first accused him of “us[ing] deception to lure a woman into an unwanted romantic relationship.” Despite “all of Zeitlin’s accomplishments, there were troubling episodes in his past,” Cohan writes, questioning “how closely, if at all, Tapestry’s board of directors vetted its CEO before appointing him last year.”
While Zeitlin’s allegedly consensual photography projects and extra-marital affair with Raymond are not illegal, Cohan claims that the allegations against Zeitlin appear to fly in the face of “common language in [his] employment contract” with Tapestry in which he “stipulated that he had never been the subject of any allegation of “harassment, discrimination, retaliation, or sexual or other misconduct.’” In connection with that same contractual provision, Zeitlin “agreed that ‘any act or omission’ on his part that could have a ‘material adverse effect’ on Tapestry and ‘its reputation’ would be considered ‘cause’ for his termination.”
Presumably, the abrupt resignation of Zeitlin, as the CEO and chairman of the company’s board, in the face of allegations that “look bad,” particularly in the wake of the #MeToo movement, could have a “material adverse effect.” Ultimately, Cohan reports that “Zeitlin was allowed to resign, rather than be fired, and received no severance payment.”
What to Do & What to Disclose
Aside from proving noteworthy due to his former position on a short list of Black CEOs of Fortune 500 companies (now only four remain), Zeitlin’s departure raises some interesting questions about what exactly publicly-traded companies must do – and ultimately, how much they need to disclose – when faced with alleged incidents of bad (or potentially, even just unseemly) behavior by those in their uppermost ranks, particularly when such alleged incidents lead to departures from the company.
According to Stanford Business School academics David Larcker and Brian Tayan, “Most boards of directors know what to do when their CEO” – or potentially, another key employee – “is accused of illegal activity: they conduct an independent investigation, and if the allegations are verified, they take corrective action.” In most cases, the individual is either terminated (and not uncommonly with severance in order to enable the company to avoid facing post-termination litigation from that individual) or permitted to resign, oftentimes, “for personal reasons.”
In terms of disclosure, the answer is relatively simple on its face. When it comes to the firing or other departure of a company’s CEO (whose leaving would certainly be a “material” matter for a company) or potentially, any other key figure, within four business days of the departure, a company must file a Form 8-K in which it specifies who is leaving the company, the terms of the departure, and whether the departure is the result of a disagreement about company “operations, policies or procedures” if the individual is a director.
The matter becomes murky given that while the SEC requires a company to provide a “brief description of circumstances if a director is removed ‘for cause’ or has a disagreement with the company,” according to the the Washington Post, the government agency “does not detail how specific that description must be,” thereby, leaving plenty of room for companies to shape the narrative as to avoid spooking shareholders and analysts or to say very little at all.
Generally, just as in the case of internal investigations, which tend to see companies disclose little – if any – information, what is expected in situations of CEO and other high-level departures is that a company will “just say [the individual] left,” Charles Elson, director of a corporate governance center at the University of Delaware, told the Post, since “plenty is left up to the company’s discretion.”
In the Wake of #MeToo
One thing that is clear across the board is that in the wake of the #MeToo movement and other social-centric causes, “corporate law concepts such as ‘shareholder value’ and ‘materiality’” are being viewed in a manner that is increasingly different than before given that they “necessarily reflect changing perceptions among corporate stakeholders and society at large,” according to Oliver Hart, a professor of corporate finance and economics at Harvard University, and Chicago Booth School of Business corporate governance and financial development professor Luigi Zingales.
This comes hand-in-hand with the fact that “executive behavior is under a microscope,” and has been for several years, Bloomberg’s Kim Bhasin and Jordyn Holman assert in connection with Zeitlin departure. With this in mind, “transgressions that may once have been considered minor are no longer swept aside.” The publication points to Steve Easterbrook’s ouster from his role as CEO of McDonald’s Corp. in November 2019 in light of revelations that he had a consensual relationship with a colleague. That same year, sportswear company REI’s President and CEO Jerry Stritzke resigned in connection with what the company called a “consensual relationship [with] the leader of another organization in the outdoor industry.”
The same can be said of Intel’s June 2018 announcement that its CEO Brian Krzanich had resigned after an investigation revealed that he had a relationship with an employee in the past. The relationship was consensual, but nonetheless, violated the company’s anti-fraternization policy. Still yet, it may have been the underlying cause of former Barnes & Noble CEO Demos Parneros termination in July 2018. The company only revealed that Parneros was being fired without severance, and that while he had “violated a company policy,” he had not engaged in “any potential fraud.”
Taken together, the case of Tapestry and Zeitlin seems to be the latest example on a growing list of public-facing companies that are operating in accordance with new rules, ones that specifically cater to shareholders and consumers in the post-#MeToo market. If a CEO is permitted to “engage in policy violations” – or maybe even more broadly, behavior that simply reflects poorly on a company without being illegal, the company stands to send a detrimental “message to employees and to other stakeholders,” says Lynne Anne Anderson, a partner at Faegre Drinke, who specializes in labor and employment. “The level of conduct that is being required from executives in this #MeToo era is to set the tone and to lead by example.” It seems that even fashion-centric CEOs are not safe.