Firing the Founder: A Men’s Wearhouse

Identity Crisis

About Men’s Wearhouse

Retailer of men’s suits and tuxedo rental business

1,140 stores in the U.S. and Canada

Market capitalization of $1.8 billion

15,300 employees

HQ in Houston, Texas with executive offices in Fremont, California

Doug Ewert took up the CEO position in 2011

Jos. A. Bank is largest rival

Men’s Wearhouse History

Founded by George Zimmer in 1973 at the age of 26.

The first store was launched with $7,000 and a hand-painted sign.

George Zimmer stars in his first Men’s Wearhouse TV ad in 1986 and soon becomes famous for his tagline “You are going to like the way you look...I guarantee it.” Zimmer becomes official company spokesperson.

In 1992, with a total of 100 stores, the chain holds its initial public offering for $13 million. Cash from IPO used for rapid expansion and a series of acquisitions.

In 2000, Men’s Wearhouse was named one of Fortune’s “100 Best Companies to Work For.”

Zimmer steps down from CEO position in 2011 (handing the reigns over to Doug Ewert, the acting President and COO). Zimmer remains Executive Chairman of the board of directors.

Zimmer as Spokesperson

Link to TV Spot: http://www.ispot.tv/ad/7I3y/mens-wearhouse-wedding-day

Last aired March 30th, 2013

Around 7:30am (PDT), Men's Wearhouse released a 7-sentence official statement on its website announcing the termination of George Zimmer as Executive Chairman.

The official statement also announced the postponement of the Men's Wearhouse Annual Meeting of Shareholders, set to occur at 11am that same day.

The statement did not give a reason for Zimmer's termination, but announced that the reason for the postponement of the annual meeting was to "re-nominate the existing slate of directors without Mr. Zimmer."

Roughly two hours later, George Zimmer released a short, 3-sentence statement about the reason for his termination. Zimmer stated that "over the past several months I have expressed my concerns to the Board about the direction the company is currently heading [...] the Board has inappropriately chosen to silence my concerns through termination."

Men’s Wearhouse remained silent on the matter of Zimmer’s termination for the next 6 days.

Sequence of Events

June 19th, 2013

Sequence of Events

June 24th, 2013

Sequence of Events

June 25th, 2013

Men's Wearhouse broke the silence by posting an official statement to its website titled "Men's Wearhouse Board of Directors Provides Further Comments on Termination of George Zimmer" and filing a similarly-worded statement to the SEC titled "Letter to Employees.” Several reasons were given to explain Zimmer's termination:

“Mr. Zimmer refused to support the [key management] team unless they acquiesced to his demands.”

“Mr. Zimmer expected veto power over significant corporate decisions.  Among them was executive compensation.”

“Mr. Zimmer objected to the review of strategic alternatives for K&G as proposed by management and supported by the Board.”

“Mr. Zimmer argued for a sale of Men's Wearhouse to an investment group. The Board believes such a transaction would not be in the best interests of our shareholders, and it would be a very risky path.”

“Mr. Zimmer wouldn't accept anything other than full control of the company and the Board was left with no choice but to terminate him as Executive Chairman.”

Sequence of Events

June 26th, 2013 Zimmer published a lengthy public letter titled "Open Letter From George Zimmer to the Men’s Wearhouse Family."

In this letter, Zimmer accused the board of pursuing short term financial strategies (such as selling the K&G division) to alleviate the pressures of Wall Street investors instead of investing profits back into the company.

Zimmer also claims that the board would not consider his own suggestion to study a broader range of strategic alternatives such as considering taking the company private:

"The Board quickly and without the assistance of financial advisors simply rejected the idea, refused to even discuss the topic or permit me to collect [...] any information about its possibilities.“

Zimmer concludes that:

“Over the past two years [...] I believe that the Board and management have been eroding the principles and values that have made The Men’s Wearhouse so successful for all stakeholders [...] I am greatly concerned about the future of the company."

Media Response

While the media used Zimmer's taglines "you are going to like the way you look" and "I guarantee it" as a punch line in almost every article published about Zimmer's termination, speculation about exactly what happened was widespread during the six days of silence following the Men’s Wearhouse official termination statement.

Inquiries about Zimmer's termination came flooding into Men's Wearhouse via phone calls, e-mails, the "Ask George" website feature (before it was disabled), as well as the "Ask Doug" feature (for CEO Doug Ewert). Men's Wearhouse did not return inquiries.

“Executive Chairman George Zimmer was fired from the company he started. What prompted the men’s clothes chain to take such drastic action? We have no idea. But as part of the elite media establishment, we felt it our duty to irresponsibly speculate: the board just didn't like the way he looked.” ~ Mad Magazine

Customer Backlash

Customers did not respond favorably to Zimmer's termination.

Tweets about Men’s Wearhouse spiked to 8,747 tweets on June 19th.

The brunt of customer backlash took place on the Men's Wearhouse Facebook page. A seemingly innocuous June 21st company post advertising suede shoes got 604 comments, 100 shares, and 1,483 likes. The June 24th "Add Plaid to Your Summer Wardrobe" post got 217 comments and the June 28th "Casual Friday" post got 88 comments.

Customer comments followed these major themes:

• I will never buy from Men's Wearhouse again / my business will be taken elsewhere.

• Bring George Zimmer back / apologize to him.

• CEO Doug Ewert & the Men's Wearhouse board are greedy / self-serving / arrogant / classless. They fired George Zimmer because he objected to executive salary increases. All that the Men's Wearhouse board cares about is people's wallets.

• George Zimmer was what was right with corporate America. He was one of the few corporate leaders who looked out for customers and employees.

• Zimmer was the heart of Men's Wearhouse / the company will never be the same.

Selected Tweets

Employee Bewilderment

The Men's Wearhouse management team did not disseminate additional information to employees beyond what was given in the June 19th and June 25th official company statements.

Some employees took the defensive against the sudden wave of customer backlash by posting to the Men's Wearhouse Facebook page. The contents of these employees' posts generally defended the company's decision to fire Zimmer or attempted to deflect customer backlash away from Men's Wearhouse frontline employees. One employee commented that employees were reluctant to question the board’s decision to fire Zimmer for fear of losing their own jobs.

“We received an email from the acting president/CEO (Doug Ewert) that told us in generic terms that the company was going in a different direction but did not give any specific information to the employees about the firing. I understand that it is possibly to protect George, but I think a little more description was due to the employees. Included in the email was more generic pro-Men's Wearhouse jargon ensuring our company was still an innovator and an industry leader. I realize that if Zimmer's termination was necessary, action needed to happen. What I don't understand is the masking of the situation.” ~ Anonymous Employee

Investor Unease In a 10-K SEC filing on April 3rd, Men's Wearhouse stated that Zimmer continued to be "very important to the success of the company" and that "the extended loss of the services of Mr. Zimmer or other key personnel could have a material adverse effect on the securities markets' view of our prospects and materially harm our business."

Investors were taken by surprise to learn of Zimmer's termination on Wednesday morning, June 19th.

Between June 18th and June 24th, shares started at $37.47 and declined to close at $35.13, a 6.25% total decline. Shares rallied on June 25th, possibly due to the company statement released on that day.

Men’s Wearhouse Stock Price

A Brand Identity Crisis

"Love him or hate him, George Zimmer WAS the brand. [His guarantee] – delivered through the image of a comfortable and confident George in a chair – was crystal clear." ~ Brent Vartan, chief strategy officer at Deutsch

As the first Zimmer-free morning of Thursday June 20th dawned, Men's Wearhouse employees, investors, and customers alike must have been wondering "well, what is the corporate identity now?" In fact, the first day after Zimmer’s departure was far from Zimmer-free. Zimmer’s image covered the Men’s Wearhouse website, store interiors, and he appeared in all television commercials.

In the immediate days after Zimmer left the company, images of Zimmer were removed from many parts of the company website and Men's Wearhouse store interiors. Images of young, slim suited men were put in Zimmer's place (see next slide). Post-Zimmer Men's Wearhouse advertisements increasingly reflect a more athletic, urbane attitude to dressing that is likely meant to cater to Millennials and Gen Y shoppers.

The first television commercial in 25 years in which Zimmer did not make an appearance was aired on July 8th. The commercial omitted the phrase “you are going to like the way you look” and did not include a reference to any sort of guarantee.

Website Overhaul

Before > > >

< < < After

Continuing Challenges

Superstitious brides and grooms avoided 2013 weddings, a particular blow to the Men's Wearhouse tuxedo business.

The Men's Wearhouse’s fiscal second and third quarter net income was down from in the same period of the year prior (down 28% for Q2 and down 22% for Q3). The company also cut its full-year guidance forecast.

On October 9th, Men's Wearhouse received an unsolicited $2.3 billion ($48 per share) takeover bid from smaller rival Jos. A. Bank. In an official statement published the same day, Men's Wearhouse rejected the offer, stating that "the Jos. A. Bank proposal significantly undervalues Men's Wearhouse…”

The decision to immediately reject the Jos. A. Bank offer was criticized by shareholders. Hedge fund Eminence Capital LLC (Men's Wearhouse's largest shareholder group with 9.8% of the stock) called the rejection of the offer by the Men's Wearhouse board "reckless and misinformed.”

On November 26th, in a move known as the “Pac Man defense,” Men's Wearhouse made an unsolicited bid to acquire Jos. A. Bank for $1.5 billion ($55 per share).

Page Principles

While Men's Wearhouse did tell "the truth" by immediately informing the public about Zimmer's departure, it did not appear that "the whole truth" about what had happened was disclosed. Both Zimmer and Men's Wearhouse released conflicting statements which left the public confused about what really happened on June 19th. Take the following two statements for example:

Men's Wearhouse: "George presented the Board with the choice of either a) continuing to support our CEO and the management team on the successful path they had been taking, or b) effectively re-instating George as the sole decision maker.”

Zimmer: "To justify their actions, [the Board] tried to portray me as an obstinate former CEO, determined to regain absolute control by pushing a going-private transaction for my own personal benefit and ego. Nothing could be further from the truth.”

Telling the truth establishes company credibility for costumers. When the Men's Wearhouse story of events was brought into question by Zimmer, the company's credibility was too. The thought process here is "if the company isn't truthful about this event, what else are they not being truthful about?"

Tell The Truth

Page Principles

Prove it with action

Public perception of Men's Wearhouse was determined mainly by the company's action taken to oust the company's founder in what appeared to be a fit of anger and disagreement. Customers seemed to feel that further action was required from the board such as apologizing to George Zimmer, bringing him back to the company, or paying tribute to his 38 years of service. No further action was taken by Men's Wearhouse. As actions speak louder than words, the inaction of Men's Wearhouse resulted in public perception of the senior management team as greedy, self-serving, arrogant, classless, and heartless (all terms used by customers on social media).

Listen to the customerOver the past 25 years, customers had connected with George Zimmer on a personal level as representing what one customer phrased as "what is right with Wall Street." In the aftermath of June 19th, the needs of customers were immediate and apparent: customers needed to know why Zimmer was unceremoniously fired from the company he founded. It took six days of public outcry for Men's Wearhouse to listen to these customer needs, which were addressed in the June 25th official statement "Men's Wearhouse Board of Directors Provides Further Comments on Termination of George Zimmer." It should be noted, however, that Men's Wearhouse did not take action to address the thousands of customer posts made to the Men's Wearhouse Facebook page and on Twitter. If Men's Wearhouse had done more to listen to its customers, public perception of the management team may not have been as negative.

Page Principles

Manage for tomorrowIf Men's Wearhouse had anticipated public reaction to Zimmer's termination, they may have rethought their decision to hastily part ways with Zimmer. Because of the success of Zimmer's 25 year advertising campaign, the company had to be aware of customers' connection with Zimmer and the difficulties that would be created by hastily severing such a connection. The chief duty of "managing for tomorrow" lies in the generation of goodwill. Men's Wearhouse lost goodwill when it fired Zimmer, which begs the question of how Men's Wearhouse would have handled the situation differently had they been "managing for tomorrow." Was there a way for Men's Wearhouse to either settle their differences with Zimmer or to have Zimmer leave the company in a less negative manner?

Conduct PR as if the whole company depends on it

With the loss of George Zimmer as the Men's Wearhouse brand, how Men's Wearhouse handled its public relations would determine the identity of the brand for years to come. Instead of the company fighting "tooth and nail" to generate a positive image for Men's Wearhouse in the wake of the June 19th dispute, the company's management team appears to have "thrown Zimmer to the wolves and buried their heads in the sand" as David Johnson, CEO of branding firm Strategic Vision put it. Conducting public relations as if the whole company depends on it requires clear strategy, timely communication, and the use of a wide range of communication channels to deliver the intended message.

Page Principles

Realize a company's true character is its people

Men's Wearhouse did not treat each employee as if he or she were involved in public relations. On the contrary, Men's Wearhouse employees were left uninformed and unequipped to handle the customer backlash that ensued as a result of Zimmer's termination. Successful communication teams support employees' capability and desire to be honest/knowledgeable ambassadors to customers, friends, stakeholders, public officials, and the media. In contrast, Men's Wearhouse employees, feeling unfairly blamed by customers for a decision made by the Men's Wearhouse board, took to Facebook in an attempt to put distance between their own opinions and the opinions of Men's Wearhouse top management.

Remain calm, patient, and good-humored

The firing of George Zimmer came off as rash and unplanned. When Men's Wearhouse published its release providing further comments about Zimmer's termination, the tone of the statement was very icy stating that Zimmer "refused to support the team unless they acquiesced to his demands", "expected veto power over significant corporate decisions", and "had difficulty accepting the fact ... that he has not been CEO for two years." These statements are a far cry from communication in a good-humored fashion. It does not appear that cooler heads prevailed to manage the firing of the Men's Wearhouse founder.

Discussion Questions

1) If you were the chief communications officer at Men's Wearhouse, and you had just learned that founder George Zimmer had been terminated from the company, what are the first three actions that you would take to handle the crisis?

2) What is your reaction to the June 25th company statement "Men's Wearhouse Board of Directors Provides Further Comments on Termination of George Zimmer." Which aspects of this statement worked? Which aspects did not?

3) If you were a part of the Men's Wearhouse management team, how would you suggest the company should have handled customer backlash on Facebook and Twitter? How could communications have been tailored to address other stakeholders such as investors and employees?

4) Is there merit to the Men's Wearhouse decision to stay largely silent on the matter of Zimmer's termination for the six days following June 19th? Whether Men's Wearhouse had communicated the reasons for Zimmer's termination immediately or not, is there a scenario in which Men's Wearhouse could have fired Zimmer without generating a large amount of negative publicity?

5) How would you rate CEO Doug Ewert's handling of the situation? Was his statement to CNBC enough of an explanation for what happened? Should he have taken a more public role during the crisis?

6) Whose statements are more believable: those made by the Men's Wearhouse board or those made by George Zimmer? Why?

Discussion Questions

7) Both George Zimmer and major stockholder Eminence Capital LLC have asserted that the decision process followed by the Men's Wearhouse board has been "reckless and misinformed." If you were in charge of future Men's Wearhouse communications, how would you combat this perception?

8) Communications from Men's Wearhouse during the Zimmer termination crisis were written as if they came specifically from the board of directors. Do you think that the press releases were written solely by the Men's Wearhouse board? Do you believe that senior company executives besides the board of directors were involved? How would you have phrased outbound communications from the company: from the Men's Wearhouse board or from the Men's Wearhouse management team?

9) Did Men's Wearhouse make the correct changes to its website after Zimmer left the company? What did they do well? What did they do poorly? As of December, 2013, the website did not make any reference to Zimmer's termination from the company. Should it?

10) In your own opinion, is having a company spokesperson a good strategy? What are the pros and cons for such a strategy?

11) Should executive conflict (at public companies) be treated as a public or private affair? It can be said that a company's management team has a right to its own disagreements and internal debate beyond the public eye. It can also be argued that conflict within a company's leadership team has the potential to impact the company financially and thus stakeholders have a right know about such conflict. How would you balance these two opposing viewpoints?

Activities

Writing a Press Release

In groups of three of four, pretend you are working in the communications department of Men's Wearhouse on the morning of June 19th, and that you have just learned that founder George Zimmer has been terminated from the company. The Men's Wearhouse board has drafted a statement (use the official June 19th release for this statement) and wants any changes to the statement to be made in a half hour's time, for official release. Rewrite this official statement using the Page Principles.

Social Media Response

You are the head of social media at Men's Wearhouse. Top management has just asked for a statement to be prepared for release via social media in order to address (a) the firing of George Zimmer and (b) the future of Men's Wearhouse as a company. You must decide which social media platform(s) would be best and what message(s) would be released. This activity can be completed either individually or in groups.

Activities

Website Overhaul

Your team has been hired as consultants for a project regarding the Men's Wearhouse website. The project is to address website search results for the term "George Zimmer." (On the date of the writing of this case, the Men's Wearhouse website search results for "George Zimmer" directed customers to a page for top-selling men's suits). Design a strategy and message to be used for a landing page associated with a website search for "George Zimmer."

Full Class Role Play

As a class, divide into 4 groups representing (1) the Men's Wearhouse communications department, (2) customers, (3) investors, and (4) employees in order to simulate the major stakeholders involved in the events that unfolded at Men's Wearhouse on June 19th. Each group is allowed 15 minutes to prepare for discussion. The group representing the Men's Wearhouse communications department should prepare a consistent communications strategy to address stakeholder questions. The customer, investor, and employee groups should each prepare a list of their top three concerns about the future of Men's Wearhouse, given news of Zimmer's termination from the company. The fact that there are 3 stakeholder groups and only one communications group echoes the real-world challenges faced by companies with small communications departments who must anticipate the concerns of all stakeholder groups.