RadioShack CEO Should Not Join American Apparel Board

The CEO of one of the worst-run retailers in American is joining the board of another company in the same category. Joseph Magnacca, chief of RadioShack Corp. (NYSE: RSH) since February 2013, is among the new members of the American Apparel Inc. (NYSE: APP) board of directors. The new board has been pulled together after American Apparel was nearly destroyed as its founder and CEO, Dov Charney, was dismissed and it faced a default on some of its debt.

The appointment of Magnacca is either based on the difficulty American Apparel has finding board members or an unusually bad decision by the board’s nominating committee. All of American Apparel’s old board was replaced, except co-chairmen David Danziger and Allan Mayer.

The nominations are part of a “support agreement” with shareholder Standard General, which also essentially controls Charney’s shares. Through various agreements he owns 42.8% of the common shares.

The embarrassment around Magnacca’s role at American Apparel is that RadioShack has fallen apart and may not survive as an independent public company. As a matter of fact, it has been mentioned as a candidate for Chapter 11. Its shares have traded for under $1 for several months, down from a 52-week high of $4.36. This sickening drop of more than 60% has happened as the S&P 500 has risen almost 20%.

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One of the charges against the American Apparel board and management is that they have been dysfunctional as the company’s fortunes have spun out of control. The same charge could be levied against RadioShack, which has been unable to invent a formula to bring consumers back into its stores. In its most recently reported quarter, RadioShack lost $98 million, as revenue dropped to $734 million from $848 million in the same period a year earlier. It is a wonder Magnacca has any time to work outside of the broken company at all.

The appointment of Magnacca to the American Apparel board hurts the reputation of public company governance in general, and it further ruins that of the clothing retailer.

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