Can things get worse for Barnes & Noble? In 2018, it comes across as a silly question. Decades removed from its heyday as the brutalizer of small bookshops—the inspiration for Tom Hanks’s soul-destroying monolith in You’ve Got Mail—the store is running on fumes. Its stock price sits at five dollars. Its high-profile attempts to compete with Amazon in e-commerce and e-books have been expensive failures. It has had four CEOs in the past five years, a period in which it has closed stores and laid off staff, including 1,800 in February.
But on Tuesday, Barnes & Noble hit a new low when its last CEO, Demos Parneros, sued the company for defamation and breach of contract. Parneros alleges that he was pushed out after a deal to sell the company to an unnamed buyer fell through, and that Barnes & Noble covered it up by bringing bogus charges of sexual harassment and bullying against him. Barnes & Noble fired back that Parneros had been “terminated for sexual harassment, bullying behavior, and other violations of company policies.” (It had previously declined to specify the former CEO’s alleged misdeeds in a statement announcing his departure on July 3.)
Parneros’s filing is apparently designed to generate a settlement and should be taken with a grain of salt. Still, its contents are damning. It portrays a company in dire straits being presided over by a longtime chairman, the 76-year-old Len Riggio, who spends his time berating subordinates. While Riggio has presented himself as the heart and soul of the company, the lawsuit depicts him as an albatross. It shows that the company is struggling in every conceivable aspect of its business, which means that finding a new CEO—let alone a buyer capable of turning the company around—will be exceedingly difficult.
For the past four decades, Riggio has been one of the most consequential figures in publishing—only Amazon founder Jeff Bezos has had a greater influence over the current retail landscape. An art collector and philanthropist with a ruthless streak, Riggio spent two decades steamrolling independent booksellers and bending publishers to his will. But when Amazon emerged, Riggio was caught on his back foot. He lacked Amazon’s technical expertise and its even deeper pockets. Barnes & Noble’s attempts to compete with Amazon—a clunky website, then a clunky e-reader—were disasters that cost the company hundreds of millions of dollars.
Between Amazon’s disruption, the 2008 financial crisis, and the ongoing retail apocalypse, Barnes & Noble has struggled to stay afloat. It has lost money in eight of the last ten quarters and six of the last eight years. Riggio has at times seemed ready to exit the company: He announced his retirement in 2016, but never stepped down as chairman.
Much of Parneros’s lawsuit is aimed at Riggio’s leadership. According to the filing, Riggio is an abusive manager given to publicly belittling subordinates—he called one a “head case” and “dead wood,” while he described another as “schizophrenic.” Parneros also reports that Riggio described the company’s CFO—the person Parneros supposedly bullied—as being a “bean counter” unsuited for the rigors of the position.
It’s this portrait of Barnes & Noble’s corporate culture, rather than the circumstances of Parneros’s firing, that sticks out. (The ex-CEO’s claim that his personal reputation has been damaged by Barnes & Noble is based on articles in The Washington Post and Bloomberg that don’t directly imply he was fired for sexual harassment. He also cites a self-published blog, reader comments, and a Forbes contributor’s blog.)
There has been growing frustration with Riggio in the publishing industry, as Barnes & Noble has failed to settle on a strategy after it all but abandoned its e-book business. Since Borders went out of business in 2011, publishers have become enormously dependent on Barnes & Noble, which for many is their second-largest account after Amazon.
According to the suit, Riggio’s solution may be to just sell the company. Here is part of the section about the alleged sale, which fell through in June:
Riggio was extremely upset about the withdrawal of the book retailer’s offer. He said that he felt that he no longer had a graceful exit from the company. Riggio made many statements about how B&N could not survive without his being more involved. He said that he had to run the company and could not be a spectator. Riggio routinely repeated that he had to be “all in” or “all out” and that B&N could not survive without him as the founder making the decisions.
Who could this retailer be? It’s unlikely to be Amazon, which is forging its own path and has thus far seemed only marginally interested in physical book retail. It’s not clear that Books-a-Million and Half-Price Books, the second- and third-largest general trade book retailers, have the resources, let alone the ambition. One possible candidate, according to multiple sources in book publishing and retail, is the Canadian book seller Indigo, which has defied the bleak trends in publishing in recent years, posting profits and selling literary fiction by the crateload. (People in book publishing talk about Indigo the way liberal voters talk about moving to Canada—as an almost mythical promiseland.)
Indigo is known to be interested in entering the American market and is set to open its first American store in the fall. It has the expertise and resources to pull off such a deal. (Barnes & Noble did not respond to a request for comment. Indigo would not comment on a proposed sale.)
Many in publishing seem to believe that only Indigo could do the job of reviving Barnes & Noble. The company’s current situation—declining revenue, an aging chairman, and an apparently toxic corporate culture—isn’t great. Riggio has traditionally stepped in to grab the reins in times of trouble. But after firing four CEOs in five years, Riggio’s problem might be staring back at him in the mirror.