How Ownership Structure Shapes Purpose and Impact
Eileen Fisher vs. Donna Karan International
by Sarah Stranahan
Fifty by Fifty has a hypothesis: when purpose-driven firms are also employee-owned they have a better chance of maintaining their mission and avoiding the pitfalls of selling to outside investors. To test that theory, we have been researching companies that began with similar missions and values but followed two different trajectories — one sold to financially focused owners and one becoming an employee-owned B Corporation. In the first of these comparisons, we take a look at two clothing design companies: Eileen Fisher and Donna Karan.
Starting Out
When Eileen Fisher founded her business in 1984, she was a struggling interior designer with $350 in the bank. On a trip to Japan, inspired by local designs, she had a vision of comfortable, well-made, simple and elegant clothes for women. She designed and sold her first collection at a craft show and ended up with $40,000 in orders. Today EILEEN FISHER employs 1,100 people and has $800 million in annual revenue.
In the 1980s both Eileen Fisher and Donna Karan were pioneering woman designers who responded to an emerging contemporary feminist sensibility that demanded easy-to-wear professional clothing.
When Donna Karan founded her business in 1986, she had been working in the fashion industry for almost 20 years. After graduating from Parson’s School of Design, she was hired by Anne Klein, where she advanced to head designer after the founder’s death. In 1986, with support from husband Steve Weiss, she decided to start her own line. Today, Donna Karan International and her derivative brand DKNY are owned by G-III Apparel Group, which licenses and markets apparel through retail, online, and outlet stores.
In the 1980s both Eileen Fisher and Donna Karan were pioneering women designers who responded to an emerging contemporary feminist sensibility that demanded easy-to-wear professional clothing. They both pioneered “mix and match” wardrobes; in Fisher’s case, simple, loose garments made from natural fibers; in Karan’s case “seven easy pieces” built around a black bodysuit. Both women grew their personal brands into successful businesses while juggling marriages and families. However, their personal sensibilities and target markets differed. Karan made expensive designer clothing, worn by Barbara Streisand and Demi Moore, exuding glamour, sex, and luxury. Fisher’s clothes, while not inexpensive, were practical, understated, and classic.
Going Public — Or Not?
After their initial successes, their paths diverged sharply. In 1996, Donna Karan went public. The New York Times (June 29, 1996) announced on the first day of trading, Donna Karan sold a 50 percent stake in DONNA KARAN INTERNATIONAL (DKI), or 10.75 million shares, at $24 each in an effort to raise $258 million.
Donna Karan sold a 50 percent stake in DONNA KARAN INTERNATIONAL (DKI), or 10.75 million shares, at $24 each in an effort to raise $258 million. In contrast, Eileen Fisher opted against an initial public offering (IPO).
In contrast, Eileen Fisher opted against an initial public offering (IPO). “I thought about going public” said Fisher, “so we created a platform to test the viability of the IPO idea. I remember being up on stage and looking out at a roomful of men in suits; no women wearing my clothes, no conversation about clothes. It was all about the numbers, it was really just about the money.”
Values Shape Purpose
There were other differences as well. In 1997, when sweatshops were in the headlines and labor standards such as SA8000 were just being written, Amy Hall took on the task of shaping EILEEN FISHER’s Social Consciousness department. Her mandate included:
- Practicing business responsibly with absolute regard for human rights.
- Guiding product and practice toward sustaining the environment.
- Supporting women to be full participants in society.
In 2000, the Asian American Legal Defense and Education Fund launched a suit against DKI on behalf of a group of immigrant workers. The company was charged with running sweatshops, forcing employees to work long hours, and cheating them out of overtime pay.
Ownership Matters
In 2001, as DKI’s stock price fell, Karan accepted a buyout offer from luxury goods conglomerate LVMH of $8.50 per share, or $195 million. She also sold Gabrielle Studio, the private company that owns the Donna Karan trademarks, to LVMH for up to $450 million, making Karan No. 31 on Fortune’s list of the world’s richest women. The deal included Karan staying at the helm of her brand as head designer.
Eileen Fisher continued to pioneer ethical social and environmental practices, with the express purposed of building a movement for sustainable business.
Eileen Fisher, by contrast, continued to pioneer ethical social and environmental practices, with the express purposed of building a movement for sustainable business: not just for her business, but for all businesses. “We don’t want sustainability to be our edge; we want it to be universal,” she said.
EILEEN FISHER was among the first businesses to offset 100 percent of their carbon footprint. They were the first U.S. fashion house to be certified by bluesign@, a safe chemical certification program for textiles. They are on track toward a goal of using 100 percent organic cotton and linen by 2020. And they are reaching out to other firms to collectively develop more transparency in textile industry supply chains.
Still grappling with what would happen to her business after she retired, Fisher explored the option of selling to another company, but she “realized that most people were interested in what they could get out of the company, nor what they could give to it.”
In 2006, Fisher sold 30 percent of the company to her employees. Today 40 percent is held by the Employee Stock Ownership Plan (ESOP), and the company also distributes a large portion of its pre-tax profits back to its employees in the form of an annual year-end bonus.
In 2015, EILEEN FISHER became a Certified B Corporation, joining like-minded companies in formally committing to using business as a force for good. In 2017, they took an additional leap and became a New York State Benefit Corporation (a form of incorporation under state law).
While Fisher decided to share her wealth with the employees who create it, G-III outsources its manufacturing to companies in China and several other countries where exploitation of labor is common.
In the meantime, the Karan and LVMH relationship was not going well. With the brand losing money, LVMH announced in July 2015 that it planned to shut down DKI’s designer collections, though they would continue to run DKNY, Karan’s less expensive “off the rack” retail line of clothes. Shortly afterward, Donna Karan decided to quit the company that owned her brand and focus on a small new enterprise, Urban Zen.
Soon after, LVMH announced that it was selling DKI, the parent of New York label DKNY, to the G-III Apparel Group for $650 million. A publicly traded company, G-III Apparel Group is highly leveraged, with $2.8 billion in revenue and $70 billion in corporate debt. The clothing company designs, licenses, and manufactures apparel through a large portfolio of proprietary and licensed brand names such as DKNY, Donna Karan, Calvin Klein, and Tommy Hilfiger.
While Fisher decided to share her wealth with the employees who create it, G-III outsources its manufacturing to companies in China and several other countries where exploitation of labor is common. More than half of the 9,000 employees work in retail, earning $9 to $15 an hour, while the four top executives earned more than $25 million last year.
Employee-Owned Benefit Corporation = Uncompromised Corporate Social Responsibility
LVMH’s sale of Donna Karan to G-III was a big step down in terms of corporate responsibility as well. The website “rankabrand” said, “DKNY has achieved the E-label. This is our lowest possible sustainability score, and DKNY has earned it by communicating hardly anything concrete about the policies for environment, carbon emissions or labor conditions in low-wages countries.”
EILEEN FISHER, on the other hand, published its first Benefit Corporation report in 2017, which opens with this moving statement:
We do business differently. Purposefully. Consciously. . . .
Doing business consciously demands rising to the challenge of a world faced with crisis and constraint. Working with others to find real solutions to complex problems. Recognizing competitors as partners, and consumers as allies.
Our clothing can change the lives of those it touches, but we can go further. We can change the lives of those who arrive long after we’re gone.
It’s difficult to know how Donna Karan reflects on the history of her brand, but she appears to be giving it some thought. She recently hosted a conference at her Urban Zen store in the West Village about the impact that clothing production has on the environment, where one of the speakers declared, “It is on the shoulders of the [fashion] companies to take upon themselves the responsibility to manufacture in a way that minimizes damage to the environment.”
Eileen Fisher appears to have no regrets. She did very well as an entrepreneur: her personal wealth is estimated at over $200 million. She continues to design timeless clothes and to demonstrate that business can lead a movement for social change. When asked about selling her company to its employees, she responded, “Employee Stock Ownership just rang so true when I first heard it. It meant … the people who put their blood, sweat and tears into it, the people who love it and care about it and are thinking about it everyday will own this. Knowing that made me feel held and really safe, knowing that this company would live on.”
Sarah Stranahan is senior editorial associate at The Democracy Collaborative and a leading member of its Fifty by Fifty employee ownership team.
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