Olivia Cruises: Out to Sea

By Julie Weisberg

Originally published on Advocate.com February 26 2008 12:00 AM ET

Having charted
the challenging waters of lesbian entertainment and travel
for 35 years, you’d think business would at last be
smooth sailing for Olivia. But for the past several
months the brand has found itself in troubled waters
after former chief executive officer Amy Errett and three
members of her senior management team filed suit against the
company, claiming they were unjustly fired or forced
to resign in March 2007 by Olivia founder and
chairwoman Judy Dlugacz. The plaintiffs -- who include
Olivia's former chief financial officer Dianne Dubois, chief
business development officer Brad Lande, and chief
marketing officer Sabrina Riddle -- are seeking
several million dollars in unpaid severance, bonuses,
and stock options. Not surprisingly, Olivia has countersued,
claiming in court documents that Errett had
“grossly” mismanaged the company during
her tenure from 2002 to 2007 and schemed to “wrest
control” of the company from Dlugacz.

Since entering
their legal battle last year, the two sides have used
their legal filings in San Francisco superior court to shoot
accusations of smear campaigns, backstabbing, and
jealousy back and forth. The fallout has seen a
startling and public clash between two ambitious,
successful women who approached the rise of Olivia from
different sides of the business world.

In the 35 years
since Dlugacz cofounded Olivia in 1973, she has produced
more than 40 albums (which have collectively sold over a
million copies); hundreds of entertainment events,
including four sold-out concerts at Carnegie Hall; the
PBS documentary The Changer: A Record of the
Times
; and an HBO comedy special with comedian Suzanne
Westenhoefer. That success, compounded by the creation of
Olivia's lesbian-focused travel business, has earned
Dlugacz the iconic status of pioneer and visionary
within the lesbian community.

Errett lays claim
to different successes. After earning her MBA in
finance from the University of Pennsylvania's respected
Wharton School, Errett founded the international
strategic consulting company the Spectrem Group, where
she served as CEO and chairwoman. In 2000 she joined
the senior management team at E*Trade, which is where she
was working when Dlugacz talked her into joining
Olivia two years later. Errett currently serves as
“entrepreneur-in-residence” for the venture
capital firm Trinity Ventures in Menlo Park, Calif.

Beyond the
spectacle, the lawsuit has been a cause of concern for those
who travel on Olivia's voyages. Numerous postings expressing
worry about the future of the company and its
financial health have appeared on Olivia.com message
boards, particularly after the plaintiffs sought to
force the company to dissolve in their initial filings. In a
legal victory for Dlugacz, however, that request was
dismissed by the San Francisco superior court in
October and is no longer part of the suit, allowing
the company to stay intact and operating.

According to
Errett's lawyer Michael Rugen, the dissolution request was
not an act of "ill will" but simply "a procedural method"
to try to force Dlugacz to pay the former executives a "fair
buyout for their shares." Errett, Riddle, Lande, and
Dubois currently own some 30% of Olivia’s
shares, with Dlugacz controlling the remaining
balance.

Rugen tells
The Advocate that his clients "never had any
desire" to stop the company from operating with their
dissolution request. Any thought that they're "trying
to destroy Olivia is so far from the truth. Our
clients are very proud of the company that they helped
to build," he says. "And they still think it is an
important institution and certainly hope Olivia will
continue to thrive." Rugen adds, however, that while
the former employees would prefer to settle out of
court, they "intend to pursue their case through to
trial, if necessary."

Although Olivia's
lawyer Brian Maschler declined to comment on specifics,
he’s "confident" that all will be resolved
"favorably." Errett and Lande turned down our requests
for interviews, and Dubois and Riddle did not reply.

Dlugacz, for her
part, acknowledges some challenges, but she's still
bullish about the company's future. "This is a time of
transition and invention at Olivia," she said in a
written statement to The Advocate. "We believe
that the future lies in what we do best, providing
travel and entertainment experiences for lesbians."

Because it is a
privately held company, Olivia’s financial statements
are not a matter of public record. Dlugacz does offer
that the new website, advertisements, and partnerships
created under Errett’s leadership
“generated so little revenue” for Olivia
“that combined they did not pay for even 10% of
the cost of the website, much less the numerous other
initiatives being pursued.”

Consequently, she
says it eventually became clear to her that the company
was “overspending in areas where we had no expertise
or revenue potential -- like a new website. In many
ways we were off course pursuing a strategy that was
'old bubble burst.com' -- spend, build, spend some
more, and hope someone will pay you for it,” she
explains. “Like many dot-com companies’
experience, the promise of great revenues never
materialized.”

Olivia is now
working “to redirect and course correct” the
role of technology at the company. Dlugacz says,
“We want it to be one of several ways lesbians
can experience Olivia, and not an ongoing business
sinkhole. One thing I know for certain is there will be
always be an Olivia.”

-------------

Olivia was
founded in 1973 by Dlugacz and nine other women as an
independent record label aimed at producing and promoting
the work of female musicians like Cris Williamson, Meg
Christian, Teresa Trull, and Linda Tillery. Dlugacz
became the sole owner in 1984. Six years later, Olivia
expanded its scope and began offering vacation cruises
geared toward lesbians. Throughout the ’90s,
amid a sea of male-targeted brands, Olivia grew to
become the largest promoter of lesbian travel and services
in the world, chartering ships, resorts, and tours ranging
from small vacation groups to vessels accommodating
more than 2,000 women.

“Marketing
to lesbians has been difficult,” says Michael Lamb,
editor of the LGBT business publication Echelon
magazine, as they tend to be more financially
conservative than gay men. “But [Olivia] stuck to
their guns. They seemed to have struck gold.”

Amid the success,
Dlugacz recognized the need to have someone with a
strong corporate background on board to manage the growth,
so in November 2002 she hired Errett as
Olivia’s CEO. It was a new position within the
company, and Errett quickly developed a top senior
management team—Riddle, Lande, and
Dubois—to help steer the company’s growth.

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.”

--------------

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.”