Men's Wearhouse (NYSE:MW) unceremoniously fired George Zimmer as its Executive Chairman June 19. The co-founder is well known as the pitchman for the men's retailer; his termination comes as a big surprise. Is Zimmer's departure a sign investors should head for the exits? Should you fire its stock? I'll have a look. 
What's Behind The Move?
Firing George Zimmer from Men's Wearhouse is akin to removing Warren Buffett from Berkshire Hathaway (NYSE:BRK.B). You just don't take out the face of the corporation until he or she is ready to leave. Granted, Zimmer's 3.5% stake isn't nearly as large as Buffett's 21% economic interest (35% of voting), but he still is the seventh largest shareholder. This appears to be nothing more than a blatant move by existing CEO Doug Ewert to consolidate his power. 
According to a Form 4 filed June 15, Ewert owns 143,000 shares in Men's Wearhouse, most of which, if not all, were acquired as part of his annual compensation. None that I'm aware of were purchased on the open market with his own money. The fact that Zimmer openly admits he had a disagreement with the board over the direction of the company in recent months clearly indicates that Ewert, with less than a tenth of Zimmer's holdings, had reason to want him gone. Having read Barbarians at the Gate, the story about KKR (NYSE:KKR) buying the former RJR Nabisco in 1988, it's not difficult to understand how this happened, but it's still puzzling as to why it did. 

SEE: 4 Top Reasons Why Companies Hire New CEOs

Future Marketing
One of the dangers of using a founder in a company's advertising is that the founder becomes the brand more than the company itself. Anyone who watches an iota of television knows Zimmer's signature phrase, "You're going to like the way you look. I guarantee it." Can they survive without Zimmer's baritone voice and grizzled mug staring into the camera? Sure they can. The question shareholders must ask themselves is why did it have to come down to a terse, non-explanatory, three-paragraph statement on the very day of its annual meeting? If Zimmer's statement is to be believed, and there's no obvious reason why he'd be less than forthcoming, the board could and should have acted weeks ago to fire him. Waiting until the very last minute seems to indicate they thought the problem would simply go away with the passing of time. Big mistake.
Now it has a colossal problem. 
The man who co-founded and dedicated 40 years of his life to Men's Wearhouse and is the face of the company to millions of Americans has been kicked to the curb. Do they honestly think he's going to go silently into the good night? What could the board possibly offer Zimmer at this point that would placate him? Frankly, if this happened to me I'd be talking to private equity firms immediately to buy back the business and turf anyone whose fingerprints were on this hatchet job. It boggles the mind that the board could act so callously toward both Zimmer and its shareholders. While it's possible the truth will reveal a fractured business in need of a shakeup, it's also possible that the board has made a serious error in judgment.
Change In Direction
Fortune magazine discussed the dismissal with Mark Jaffe, the head of Wyatt & Jaffe, a Minneapolis-based executive search firm. Jaffe makes the point that the company might have wanted to go in a different direction from a marketing perspective in order to reach a younger demographic and Zimmer was entirely uncooperative to the point of removal. Jaffe further reasons that Zimmer could also have been having a hard time relinquishing control of his baby. That I find harder to believe. Ewert has been CEO since June 2011. If there were a problem it would have come to light by now. The third possibility is that Zimmer pulled a Mark Hurd, the former head of Hewlett Packard (NYSE:HPQ), and it was left with no choice but to cut him loose. That too seems far fetched given the timing. 
Bottom Line
At this point shareholders have no idea what's just taken place. Until the board and the company comes clean about the reasons for Zimmer's dismissal, I don't how anyone could vote in favor of a reconstituted board minus George Zimmer. However, given it's performing reasonably well, I wouldn't sell until it's obvious the board has acted improperly or with poor judgement. If, on the other hand, it's revealed that it indeed wanted to secure a younger audience and Zimmer was standing in the way of that, then I'd hang tight and ride out the controversy. 
Should you fire Men's Wearhouse? Not yet but I'd have your hand on the trigger just the same.      

Related Articles
  1. Budgeting

    4 Unexpected Warehouse Club Bargains

    Warehouse clubs offer surprisingly good deals on items you'd never guess that they sell.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Personal Finance

    How To Get That Entry-Level Financial Analyst Job

    Landing a job as a financial analyst takes study, strategy and a lot of hard work. Here's how to hone your competitive edge.
  4. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  9. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  10. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  1. Warehouse-To-Warehouse Clause

    A clause in an insurance policy that provides for coverage of ...
  2. Warehouse Bond

    A type of financial protection that assures an individual or ...
  3. Warehouser's Liability Form

    A document that describes the obligations of a storage facility ...
  4. Warehouse Financing

    A form of inventory financing in which loans are made to manufacturers ...
  5. Warehouse Lending

    A line of credit extended by a financial institution to a loan ...
  6. Warehouse Receipt

    A receipt used in futures markets to guarantee the quantity and ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!