Legion Partners Issues Letter to Guess?, Inc. Board of Directors

LOS ANGELES, Feb. 8, 2022 /PRNewswire/ -- Legion Partners Asset Management, LLC, together with its affiliates (collectively, "we" or "Legion Partners"), is a significant shareholder of Guess?, Inc. ("Guess", or the "Company") (NYSE: GES). Today Legion Partners issued a public letter to the Company's Board of Directors (the "Board") calling for the removal of Guess co-founders and directors Paul and Maurice Marciano.

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. Now, new sexual assault and harassment allegations have surfaced against Paul Marciano. Legion Partners believes that it is the responsibility of the rest of the Board to finally take action and immediately remove Paul Marciano from his executive role and both brothers from the Board – or at the very least commit that they will not be renominated at the upcoming 2022 annual meeting of shareholders.

The full text of the letter follows:

February 7, 2022

Board of Directors
Mr. Carlos Alberini
Mr. Anthony Chidoni
Ms. Laurie Ann Goldman
Ms. Cynthia Livingston
Mr. Paul Marciano
Mr. Maurice Marciano
Ms. Deborah Weinswig
Mr. Alex Yemenidjian
Guess?, Inc.
1444 South Alameda Street
Los Angeles, CA 90021

Dear Members of the Board:

Legion Partners Asset Management, LLC, together with its affiliates (collectively, "we" or "Legion Partners") are significant shareholders of Guess?, Inc. ("Guess", or the "Company"). We have extensive experience in the retail and fashion industry, having previously invested in and driven boardroom change at Bed Bath & Beyond, Kohl's, Genesco and Perry Ellis. Within our portfolio, we promote the building and strengthening of company cultures where ESG isn't just a trendy acronym, but rather is embraced and deeply knit into the fabric of the organization. We believe this is essential to achieving sustainable long–term financial returns.

As investors, we are deeply concerned by the lack of good judgment the Board of Directors ("the Board") of Guess has displayed in continuing to allow co-founder Paul Marciano to serve as a Board member and as Chief Creative Officer of the Company. As human beings, we are appalled.

For more than a decade, allegations of sexual assault and harassment against Paul Marciano have mounted. He has been publicly accused of sexual misconduct by at least 11 women, going back to 2009, with the alleged incidents beginning as early as the 1980s.¹ According to the allegations, he appears to be a serial predator who has used his positions of power and authority at Guess to harass, sexually assault and otherwise take advantage of young female models. He has been accused by four women over the past year alone.² There is no way to know how many other allegations may been settled privately by Paul Marciano or the Company.

In Legion Partners' view, Guess is an iconic brand and the Company under the leadership of current CEO Carlos Alberini has made a number of positive strategic moves in recent years, including optimizing its store portfolio, improving supply chain and logistics, and implementing significant cost savings and profit improvement plans. Mr. Alberini appears to be a talented CEO who has demonstrated substantial progress executing an operational turnaround at the Company. However, we do not believe that Guess will ever be able to reach its full potential with the persistent overhang of legal, reputational and moral risk that accompanies the Marciano brothers remaining on the Board or continuing to serve in any role inside the Company.

The Board Continues to Fail to Act

A little more than a month ago, the insurance carrier that underwrites the Company and Paul Marciano, sued to absolve itself of any responsibility for covering claims related to Paul Marciano's alleged "pattern" of "wrongful acts.^3,4,5" This rare action was precipitated by a lawsuit filed last January by a former model accusing Paul Marciano of rape and Guess of enabling his behavior for years.⁶

We had hoped these recent developments would be enough for the Board to finally act. Unfortunately, no action was announced, and so on January 11, 2022, we sent a letter to the Board seeking decisive steps, including making a formal demand that they immediately initiate an investigation into whether any officers of the Company or directors had breached their fiduciary duties in connection with the ongoing misconduct by Paul Marciano.

The Board responded with a tepid commitment to "review the formation of a committee" and to get back to us in the "coming weeks." Anyone who knows the history of the Company would find this weak response disappointing but not surprising. That is because Guess has been down this road before.

Following an internal investigation initiated in February 2018, the Board concluded Paul Marciano had shown "poor judgement" when working with models. As a result, the Company said he would leave Guess by January of 2019.⁷ 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.⁸ During much of this time, Maurice Marciano served as Chairman of the Board.⁹

These are just some of the publicly reported examples of Paul Marciano's repulsive alleged misconduct: 

• In a 2021 lawsuit, a former Guess model alleges that he "enticed her to an empty apartment in February 2020 on the promise of career opportunities,⁶" and then "forced her to perform oral sex on him.⁶" After the assault, per the complaint, Mr. Marciano promised her more Guess modeling gigs and gave her a $1,000 Guess gift card.¹⁰ 
  
  
• In a harrowing, nearly 2,000-word interview with Time Magazine in 2018, supermodel Kate Upton detailed how on her first day of shooting for Guess, Mr. Marciano "forcibly grabbed" her breasts, thighs, arms, neck and back of her head to start forcibly kissing her and "smelling" her. These allegations were corroborated by photographer Yu Tsai. Ms. Upton went on to detail not only additional instances of Mr. Marciano's assault and harassment, but how she was fired from subsequent shoots when she resisted his advances – with her weight gain given as the excuse. At her final shoot, she says she was told to leave because Mr. Marciano had declared, "Get that fat pig off my set.¹¹"
  
  
• Five women complained about sexual harassment by Paul Marciano in early 2018, including one who filed a police report. Each of these women alleged that Paul Marciano groped her breasts, forced her to perform a sex act, or both.¹² According to news reports, Guess reached financial settlements with all five women for $500,000 but took little action against Paul Marciano.⁶ The Company has also disclosed that it paid an additional $300,000 to resolve similar claims brought by another former model in March 2021.¹³
  
  
• Lindsey Ring, a former Guess model, filed a lawsuit in 2009 in Los Angeles Superior Court in which she alleged that Paul Marciano repeatedly kissed her, made sexual comments to her, touched her inappropriately and without her consent, groped her breasts and buttocks and whispered that he wanted to "take her right there.¹⁴" After she reported this to Guess' human resources department, she alleges that she was told "this is not the first time this has happened with Mr. Marciano.⁹" She further claims that the human resources department merely directed her to avoid being alone with Paul Marciano.¹⁵

We believe that what has occurred at Guess at the Board level demonstrates a stunning breakdown of corporate governance and a violation of fiduciary duties. The continued presence of Paul Marciano on the Board and involvement with the Company should have been deemed unacceptable when the allegations first surfaced in 2009.¹³ The fact that the Board somehow still justifies it today – when investors, customers, regulators and other stakeholders have repeatedly made clear there should be zero tolerance for executives who abuse their power to sexually exploit employees – is astonishing.

It is Time for Guess to Move Past the Marcianos

It is also imperative that Paul Marciano's brother Maurice's time on the Board come to an end as well. We are sympathetic to the fact that Maurice Marciano was seriously injured in an accident in August of 2020. However, based on the Company's own disclosure, it appears Maurice Marciano has been unable to participate in a number of Board meetings since his accident, which on its own would be a strong reason for him to be replaced on the Board by a new highly-qualified independent director. Additionally, and further troubling, is that there have been reports of Maurice dismissing Paul's sexually predatory behavior for years, including as a former Chairman of the Board.¹⁶ We are understandably and deeply concerned that Maurice has been wielding his influence to cover for his brother's inappropriate actions.

The Marciano brothers' influence has not only cast a shadow over the Company's reputation, but the legitimacy of various financial transactions. Their economic interests have been catered to by a Board that continues to approve significant related party transactions between Guess and Marciano entities. In an effort to fully cleanse Guess of the Marciano influence, the Board must move to eliminate future related party transactions as soon as possible.

For example, Guess has been leasing warehouse and administrative facilities, including its headquarters in Los Angeles, from partnerships affiliated with Marcianos since at least 1996, totaling $105 million and $55 million lease payments to "Marciano Entities" since 1996 and in the last decade, respectively.¹⁷

Guess has also periodically chartered aircraft owned by the entities affiliated with the Marciano family since 2004. As disclosed in the Company's annual report on Form 10-K for fiscal year 2021, the total fees paid under these arrangements for the past three years were approximately $2.8 million, $0.4 million and $1.0 million, respectively.¹⁸ The total aircraft management fees paid to Marciano Entities since 2004 and in the past decade are $17 million and $11 million, respectively.

This Board already conducted an investigation, and despite troubling findings, re-installed Paul Marciano in a senior executive position at the Company, empowering him to continue his alleged predatory behavior. The result has been multiple new allegations, at least one new settlement and potentially more liability that may not be covered by insurance. It is clear that the Board must now finally act. It should not take us writing this letter, or the voices of other shareholders, for the Board to remove the Marciano brothers from their positions. We hope that this time, the directors do what is right for all the Company's stakeholders. If it does not, we will continue to make our voice on the matter heard and to exercise all options available to us. 

Sincerely,
Chris Kiper                                                       Ted White
Managing Director                                           Managing Director

About Legion Partners

Legion Partners is a value-oriented investment manager based in Los Angeles, with a satellite office in Sacramento, CA. Legion Partners seeks to invest in high-quality businesses that are temporarily trading at a discount, utilizing deep fundamental research and long-term shareholder engagement. Legion Partners manages a concentrated portfolio of North American small-cap equities on behalf of some of the world's largest institutional and HNW investors.

Media Contact:
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¹ The Daily Beast, 'I Was Sexually Assaulted' in 1983 by Fashion Mogul Paul Marciano.
² The Daily Beast, 'My Dreams Were Crushed': Marciano Rape Accuser Speaks Out.
³ The Daily Beast, Guess Mogul's Insurer Distances From Him Amid Sexual Misconduct Claims.
⁴ Beazley Insurance Company, Inc. v. Guess?, Inc., et al., 2:21-cv-09962.
⁵ Law.com, Insurer Sues Guess and Co-Founder Paul Marciano Following Sexual Misconduct Claims.
⁶ The Daily Beast, This Alleged Serial Harasser Got a Second Chance. Now He's Accused of Rape.
⁷ Wall Street Journal, Guess Co-Founder Paul Marciano to Leave Company Next Year Following Misconduct Allegations.
⁸ Bloomberg, Guess Plunges as It Names CEO, Keeps Paul Marciano as Creative Head.
⁹ From June 2018 to August 2020.  Maurice Marciano also served as Chairman of the Board from 1999 to January 2012.
¹⁰ Jane Doe v. Paul Marciano, GUESS?, Inc., et al., 21STCV02126 (Cal.Sup.).
¹¹ TIME Magazine, 'I'm Not Going to Let Him Intimidate Me Anymore.' Kate Upton Speaks Out on Alleged Harassment by Guess Co-Founder Paul Marciano.
¹² LA Progressive, Sexual Harassment Allegations at Guess. available at: https://laprogressive.com/sexual-harassment-allegations-at-guess/; Jane Doe v. Paul Marciano, Complaint at ¶¶ 11-13.
¹³ Q2 FY 2021 10-Q, at F-25.
¹⁴ The Daily Beast, After Kate Upton's Allegations, New Sex Claims Against Guess' Paul Marciano Surface.
¹⁵ ABC News, Guess Inc. responds to sexual harassment allegations against co-founder Paul Marciano.
¹⁶ Liz Warren, "Guess' Paul Marciano Again Under Fire For Past Alleged Sexual Assault," Rivet (Apr. 7, 2021).
¹⁷ FY 2021 10-K, at F-44-45 (defining "Marciano Entities" "entities owned by, affiliated with, or for the respective benefit of Paul Marciano, who is an executive and member of the Board of the Company, and Maurice Marciano, who is also a member of the Board, and certain of their children.").
¹⁸ FY 2021 10-K, at F-45.

SOURCE Legion Partners Asset Management