Dive Brief:

• Legion Partners Asset Management on Tuesday released a public letter to the Guess brand's board of directors, demanding the removal of co-founders Paul and Maurice Marciano over what the activist investor called "a pattern of appalling sexual assault and harassment allegations," including new accusations against Paul Marciano.

• The firm, which said by email that it holds a 2.5% stake, said the company has grounds "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."

• Guess released a statement defending its progress on its strategic plan under CEO Carlos Alberini and Paul Marciano and dismissing Legion's letter as "resurfaced information" about Marciano that it says was based on public information and its own disclosures. "Regarding subsequent allegations against Mr. Marciano, the Company has strongly refuted these claims and is contesting them vigorously," the company said.

Dive Insight:

Although Paul Marciano in 2018 stepped down as executive chairman amid sexual assault allegations and reports the company had settled with several accusers, he managed to hang on to his role as creative chief and a spot on the board — an achievement that surprised many observers given the emerging Me Too movement and the serious nature of the claims.

His reinstatement in 2018 followed a "comprehensive investigation" into the allegations by a special board committee and "independent outside legal counsel," Guess said on Tuesday.

Guess also said that since 2019 it has worked to redefine its "global e-commerce strategy, optimize store footprint, enhance supply chain and drive efficiencies across the business," noting efforts to upgrade quality and sustainability of its assortment, update marketing and merchandising, remodel stores and launch a new global product line.

In a research note last month, B. Riley analysts acknowledged some accomplishments, including fewer markdowns, margin expansion, improved inventory management, a better customer experience and the new product line. But the Marcianos' continued association with Guess is stymying the brand and enabling Paul Marciano's behavior to continue, according to the letter from Legion Managing Directors Chris Kiper and Ted White.

They provide a litany of lawsuits, media interviews and other claims surrounding Paul Marciano's actions. While they praised Alberini as a "talented CEO" who has made positive moves since his arrival in 2019, "including optimizing its store portfolio, improving supply chain and logistics, and implementing significant cost savings and profit improvement plans," they also said he's hampered by the Marcianos on several fronts.

"[W]e 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," they wrote.

The board's reinstatement of Paul Marciano after its investigation into his behavior has left the brand open to "at least one new settlement and potentially more liability that may not be covered by insurance," they said, noting that in recent weeks Guess's insurance company sued to absolve itself against covering claims related to Paul Marciano's alleged behavior.

The Marcianos' involvement has been costly in other ways, too, according to the letter, which documents $17 million spent on private aircraft chartered by the brothers since 2004, $11 million of that in the last decade alone. The brand has also been leasing warehouse and corporate facilities, including its Los Angeles headquarters from partnerships affiliated with Marcianos "since at least 1996," to the tune of $105 million, per the letter.

Maurice Marciano's inability to participate in board meetings after a serious accident in 2020 "on its own would be a strong reason for him to be replaced on the Board by a new highly-qualified independent director," Kiper and White also said.

As they point out in their letter, Legion was instrumental in the 2019 board and executive management shakeup at Bed Bath & Beyond and last year's board changes at Kohl's. The firm's recent actions against Genesco and Perry Ellis were less successful.