Es­tée Lauder wins bid to re­move CEO from De­ciem af­ter ‘er­ratic be­hav­iour'

The Globe and Mail (Prairie Edition) - - REPORT ON BUSINESS - JOE CASTALDO

An On­tario court granted a re­quest from Es­tée Lauder Cos. Inc. to re­move De­ciem Beauty Group Inc. founder Bran­don Tru­axe from the Toronto-based skin­care com­pany on an in­terim ba­sis.

De­ciem owns a hand­ful of beauty brands and be­came a cult hit af­ter it launched The Or­di­nary line in 2016. De­ciem es­chews tra­di­tional mar­ket­ing, al­low­ing it to avoid charg­ing the markups that its com­peti­tors do. The com­pany em­ploys ap­prox­i­mately 400 peo­ple in Canada.

But Mr. Tru­axe’s ac­tions have thrown De­ciem into chaos. In the past year, he cut ties with a busi­ness part­ner (in an In­sta­gram post) and uni­lat­er­ally fired cochief ex­ec­u­tive Ni­cola Kil­ner, only to bring her back a few months later. Many of his In­sta­gram posts from De­ciem’s cor­po­rate ac­count have been “out­ra­geous, dis­turb­ing, defam­a­tory and/or of­fen­sive,” ac­cord­ing to Es­tée Lauder’s court fil­ing.

“He has es­sen­tially lit the busi­ness on fire,” Mark Gelowitz, a lawyer with Osler, Hoskin & Har­court LLP who rep­re­sented Es­tée Lauder, said in court. Ear­lier this week, Mr. Tru­axe or­dered em­ploy­ees to shut down all of De­ciem’s op­er­a­tions, in­clud­ing pro­duc­tion fa­cil­i­ties and its 29 stores. Mr. Tru­axe also threat­ened in a com­pany-wide e-mail to fire em­ploy­ees who didn’t fol­low his di­rec­tions. “All hell broke loose,” Mr. Gelowitz said.

The or­der granted on Fri­day re­moves Mr. Tru­axe from his posts as CEO and a board mem­ber for De­ciem, which he founded in 2013. Mr. Tru­axe is also for­bid­den from us­ing De­ciem’s so­cial-me­dia chan­nels and tak­ing any ac­tion to dis­able or oth­er­wise mod­ify any com­pany sys­tems and in­fra­struc­ture.

Ms. Kil­ner will serve as the sole in­terim leader. Lawyers said in court that she is pre­pared to open stores, in­clud­ing 10 in Canada, on Satur­day. The De­ciem board will now con­sist of An­drew Ross, a se­nior ex­ec­u­tive at Es­tée Lauder, which owns one-third of the com­pany, and Pasquale Cu­sano, a Van­cou­ver-based en­tre­pre­neur and De­ciem in­vestor.

“To­day’s court de­ci­sion re­in­forces the Es­tée Lauder Com­pa­nies’ strong com­mit­ment to De­ciem and its em­ploy­ees,” a spokesper­son for Es­tée Lauder said. “We are con­fi­dent that De­ciem will con­tinue to pro­vide its con­sumers with the in­cred­i­ble prod­ucts that they know and love. As a mi­nor­ity in­vestor, we strongly sup­port Ni­cola Kil­ner, the De­ciem lead­er­ship team and its em­ploy­ees as they con­tinue to run their busi­ness.”

Mr. Tru­axe did not ap­pear in court, nor did he have le­gal rep­re­sen­ta­tion. He did not im­me­di­ately re­spond to re­quests for com­ment.

Ten­sions had been build­ing for some time, but a video posted to In­sta­gram on Mon­day trig­gered alarm. In the video, Mr. Tru­axe said De­ciem would be shut down and he re­it­er­ated his di­rec­tive in an e-mail to the en­tire com­pany. He also said that “al­most every­one at De­ciem has been in­volved in ma­jor crim­i­nal ac­tiv­ity, which in­cludes fi­nan­cial crimes.”

Mr. Gelowitz said in court that Mr. Tru­axe’s er­ratic be­hav­iour and in­ap­pro­pri­ate so­cial-me­dia post­ings are de­stroy­ing De­ciem’s busi­ness and harm­ing Es­tée Lauder’s rep­u­ta­tion. He said Mr. Tru­axe’s be­hav­iour may be due to a “com­bi­na­tion of men­tal ill­ness and drug use.” While Mr. Tru­axe’s “spi­ralling de­cline evokes sym­pa­thy and sad­ness,” the ef­fect on De­ciem’s busi­ness is in­tol­er­a­ble, Mr. Gelowitz said.

The com­pany’s em­ploy­ees have been left in a state of un­cer­tainty, along with count­less cus­tomers, Mr. Gelowitz said in court. De­ciem’s sup­pli­ers, re­tail part­ners and land­lords have also been harmed, and may con­sider the com­pany in breach of its obli­ga­tions, he added. “Lit­er­ally noth­ing like this has ever hap­pened in the world be­fore,” Mr. Gelowitz said.

“The or­der sought to­day for in­terim re­lief is nec­es­sary and war­ranted to save the com­pany from self-de­struc­tion,” On­tario Su­pe­rior Court Jus­tice Michael Penny said in his de­ci­sion on Fri­day.

Mr. Cu­sano also took le­gal ac­tion against Mr. Tru­axe in June, al­leg­ing Mr. Tru­axe im­prop­erly tried to re­move him from the board and used cor­po­rate doc­u­ments with a forged sig­na­ture. Mr. Cu­sano’s court fil­ing said Mr. Tru­axe be­gan to “ex­hibit er­ratic be­hav­iour” af­ter a trip to Mon­go­lia in De­cem­ber, 2017, “where he ap­par­ently al­most died as a re­sult of ex­po­sure to ex­treme weather.”

Derek Bell, a lawyer with DLA Piper who rep­re­sents Mr. Cu­sano, said in court on Fri­day that a De­ciem board meet­ing was held af­ter Mr. Cu­sano went to court and “peace broke out.” Both Mr. Cu­sano and Mr. Ross, Es­tée Lauder’s rep­re­sen­ta­tive on the board, at­tempted to help Mr. Tru­axe with his per­sonal prob­lems, but the re­la­tion­ship fell apart again, Mr. Bell said. “The busi­ness is be­ing de­stroyed as each mo­ment passes.”

A De­ciem em­ployee, who was granted anonymity be­cause they are not au­tho­rized to speak on be­half of the com­pany, said the em­ploy­ees felt a tremen­dous amount of re­lief af­ter Fri­day’s de­ci­sion, but also felt some sad­ness for Mr. Tru­axe.

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