Olivia Cruises: Out to Sea

After 35 years as a leading lesbian-focused business, Olivia faces an ongoing lawsuit by former executives that could mean stormy weather.

BY Julie Weisberg

February 26 2008 12:00 AM ET

Early on, it
appeared Dlugacz and Errett were on the same page. In a 2002
press release announcing her hiring, Dlugacz said that
Errett was “the natural choice to head Olivia
and guide the company through its next phase of
evolution,” and that she amounted to the
“ideal cultural and business fit” to
manage the company’s day-to-day business operations.
The honeymoon continued for Dlugacz and Errett into
2006, when they accepted a regional Ernst & Young
Entrepreneur of the Year award and the company
announced record revenue of $20 million.

But somewhere
along the way, the vision for Olivia’s expansion
split into two separate ideals: Errett aggressively
sought to make the company a full-service lesbian
lifestyle distributor—with a magazine, a website
with online dating for lesbians, an Olivia credit card, and
cross-promotion deals with other corporations. But Dlugacz
balked at the financial investment that new direction
was taking and pulled back the reins of control.

Dlugacz argues in
her June 2007 countersuit that Errett’s drive to
reposition Olivia as a lifestyle services company led to
“ill-conceived initiatives” that
“lost money, put the company at risk, and squandered
opportunities to earn money.” She estimates that
Errett’s “gross mismanagement”
led to losses totaling “in the millions of
dollars.”

The court filings
also contend that Errett attempted to hide her
management missteps by “mischaracterizing and
misclassifying” financial reports “and
falsely inflating the revenue figures presented to Dlugacz
and others at the company.” Errett, according to her
own filings, maintains that Dlugacz participated in
and approved the long-term planning for the
company’s expansion plans and “agreed to the
financial expenditures”—including a 2007
plan to have the company go public or stage another
“liquidity event.”

“Several
private investment firms had by then offered to invest in
Olivia, placing values on the company as high as $30
million,” the former executives maintain in
their suit. “For reasons known only to Ms.
Dlugacz, she repeatedly refused to entertain such investment
offers.”

All four former
Olivia executives have strongly denied mismanaging the
company and instead have attributed any financial problems
to Dlugacz’s use of company revenue for
personal use.

In their suit,
Errett, Lande, Dubois, and Riddle allege that Dlugacz
insisted that Olivia pay her “excessive compensation
each year, in the form of salaries, bonuses, and
distributions of profits, which far exceeded the value
of any contribution she made to the company.” Some
years, the plaintiffs contend, Dlugacz removed
“amounts in excess of $1,000,000,” which
deprived “the company of needed working
capital,” while at the same time insisting the
company “make large expenditures” to her
partner, Rachel Wahba, and her daughter, Tiffany, who is
employed by Olivia.

“Ms.
Dlugacz also insisted that Olivia pay for many of her
personal expenses, such as vacations and other
personal travel,” reads one court document,
“for which the company received no benefit in
return.”

The cross
complaint says that Errett increasingly sought to
marginalize her employer’s management role at
Olivia and actively sought to “wrest control of
the company by forced purchase of only a portion of
Dlugacz’s shares.” Not so, counters
Errett, who claims these allegations are nothing more
than Dlugacz’s “imagination.” With the
new management team at the helm, she says, Dlugacz
began to devote less and less time to the business
operations of her company.

At the heart of
all the accusations may be just a classic clash of the
strong wills and healthy egos of two successful
businesswomen. Errett claims that jealousy of her
team’s success prompted Dlugacz to fire her and
have a “change of heart regarding the strategies,
plans, and future of Olivia.” The former
executives further say that resentment caused Dlugacz
to treat “employees of Olivia in a harsh and
unprofessional manner,” creating a morale
problem at the company.

Olivia’s
lawyers, however, point to a series of
“disparaging” and
“scurrilous” e-mails that Errett “wrote
on company computers and company time,”
criticizing Dlugacz to other company executives. According
to court files, Errett wrote in separate e-mails that
Dlugacz “is a fucking idiot and
megalomaniac” whose “D day is coming,”
adding “she will get hers.”

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While the legal
battle’s finger-pointing continues, Echelon
editor Michael Lamb says that Olivia’s place as
the largest lesbian-owned business marketing to other
lesbians should be secure—as long as the
company “doesn’t blink an eye” and
“continues to identify the same way as it
has.” He adds that the company’s success is
important to LGBT people in a wider sense, because it
demonstrates to mainstream America that “we are
working and own businesses, and we contribute to the
economy.”

After
Errett’s departure in March 2007, Dlugacz hired Lisa
Henderson as Olivia’s general manager. In
addition to having worked with companies such as
Nestlé and MSN, Henderson has cofounded several
start-up technology companies. In a statement to
The Advocate, Dlugacz wrote, “The
new management team is seasoned veterans with both business
growth and fiscal correction experience. They average over
20 years of experience each. They bring experience in
all the critical areas of expertise from travel,
customer services, start-ups/early-stage,
entertainment, and technology.”

And despite the
distraction caused by the lawsuits, Dlugacz says Olivia
is rebounding financially after “two years of
losses.” She says that the cost of
Errett’s initiatives and a lack of focus on
Olivia’s entertainment and travel divisions
hurt the company. “We have taken action to
eliminate these losses by focusing on our core competencies
and moving toward new, fresh ideas that leverage those
competencies,” says Dlugacz. “More
specifically, we have moved away from the lifestyle
expansion plan which had us in everything from technology to
publishing.”

Furthermore,
Dlugacz says Henderson’s new management team
recognizes that “the younger market wants a
different type of experience from someone my age. You
will begin to see a shift in our product portfolio that
reflects the next generation of Olivia customers while
creating new experiences for women who have traveled
with us 15 or more times.” As for the future,
Dlugacz believes good things await Olivia, saying,
“This company is more forward-thinking than it
has been for years—we recognize that lesbians
are changing, interests are changing, and we are
listening.”

Tags: Business

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