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Restoration Hardware CEO resigns, reportedly over relationship

Gary Friedman, 54, is stepping down to head an apparel company, allegedly after complaints by a 26-year-old female worker's former boyfriend.

August 17, 2012|By Shan Li, Los Angeles Times
  • The co-chief executive and public face of upscale home decor chain Restoration Hardware Holdings Inc. has resigned, reportedly amid an internal inquiry into his relationship with a 26-year-old female employee.
The co-chief executive and public face of upscale home decor chain Restoration… (David Zalubowski / AP Photo )

The co-chief executive and public face of upscale home decor chain Restoration Hardware Holdings Inc. has resigned, reportedly amid an internal inquiry into his relationship with a 26-year-old female employee.

Gary Friedman, 54, who has served as chief executive since 2001, is widely credited with turning around a company once teetering on the brink of bankruptcy. The Marin County retailer is now readying for an initial public stock offering.

A black-and-white photo of Friedman, with a 5 o'clock shadow and wearing a leather jacket, is still prominently featured on the retailer's website, next to a letter from the San Francisco native quoting the late Apple CEO Steve Jobs: "If you live each day as if it was your last, someday you'll most certainly be right."

"Steve demonstrated how precious and valuable time can be," Friedman wrote before ending the letter with "carpe diem," Latin for "seize the day."

Friedman never finished college, beginning his career in retail as a stock boy at the Gap and eventually working his way up to president and chief operating officer of home and kitchenware chain Williams-Sonoma Inc. He assumed the mantle of chief executive at Restoration Hardware in 2001 and was named chairman in 2010. The retailer, based in Corte Madera, operates 87 retail stores and 10 outlets in North America.

Restoration Hardware has stayed quiet about the reasons for Friedman's departure, but announced earlier this week that co-Chief Executive Carlos Alberini, a former Guess executive who joined the company in 2010, would take over.

The report came months after electronics giant Best Buy's then-chief executive, Brian Dunn, stepped down in April under similar circumstances. An investigation by the board discovered he had shown "extremely poor judgment" with a 29-year-old female employee; the scandal later forced company founder Richard Schulze to resign as chairman.

Former Hewlett-Packard Chief Executive Mike Hurd resigned in 2010 after accusations of sexual harassment and falsifying expense reports to hide a "close, personal relationship" with an independent contractor.

Details of Friedman's departure were spelled out in Friday's New York Times, which cited unidentified individuals who it said were briefed on the investigation. It reported that Restoration Hardware, acting on a tip from an ex-boyfriend of the female employee, created a special committee and hired the law firm of Weil, Gotshal & Manges to conduct an investigation.

The committee ultimately determined that Friedman engaged in an inappropriate relationship with the worker, who has since left the company, the newspaper said.

The board started the investigation almost immediately after the ex-boyfriend contacted it, but was concerned about the allegations' credibility because the man was airing his accusations widely and also has a criminal record.

But the female employee confirmed to internal investigators that she and Friedman had a "consensual and ongoing" relationship, the report said. Friedman, divorced for seven years, is reportedly still in a relationship with his former employee.

The company's board was worried about how such a relationship would affect the initial public offering and presented Friedman with the results of the inquiry this month.

Calls to its Board of Directors were not returned. Company spokeswoman Katya Sorokko declined to comment beyond a statement released this week that announced a "reorganization" of the retailer, which includes the departure of Friedman to head a newly created apparel and accessories company called Hierarchy, with a minority stake being held by his former company.

Friedman will assume the role of chairman emeritus and serve in an "exclusive advisory role" for Restoration with a "focus on strategy, creative and design direction." He also remains the largest individual shareholder.

People briefed on the matter told the New York Times that the board did not want Friedman as chief executive before an initial public offering, but tried to keep ties with Friedman because he is personally involved with the brand and has been credited with driving the retailer's upscale aesthetic of pricey antique reproductions.

Two private equity firms, Catterton Partners and Tower Three Partners, control the company, which was taken private in 2008 for approximately $175 million, the report says. Catterton Partners declined to comment. Now the company is updating its filings with the Securities and Exchange Commission, ready to go public once again.

For the first six months of its 2011 fiscal year, the company reported in filings that net income was $1.1 million. Revenue increased 27% to $420.4 million compared with the same period a year earlier.

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