While executive misconduct will cause turmoil at any company, the ousting of American Outdoor Brands (NASDAQ:SWBI) president and CEO James Debney is going to have significant repercussions, because it was spinning off its Smith & Wesson firearms unit into a separately traded company later this year.

Although Debney was going to remain with the outdoor gear business, and although the board of directors quickly replaced him with two new individuals to serve as co-presidents and co-CEOs, the ouster creates significant doubt because American Outdoor was counting on Debney to be the steadying hand on the business with the greatest growth potential.

American Outdoor Brands stock barely registered a reaction to the news, but investors need to remain cautious if they were planning on remaining with the rugged outdoor equipment company.

Man in woods looking through binoculars

American Outdoor Brands' vision for itself as a separate company has been upended by its CEO's ouster for "non-financial" misconduct. Image source: Getty Images.

A vision disrupted

The gunmaker didn't divulge the nature of the misconduct, only saying it was of a "non-financial" nature, but Debney's swift replacement with two company veterans and an assurance the spinoff was continuing as planned may have helped contain the fallout.

Yet it may also be that despite American Outdoor's shares having surged 77% higher from the lows they hit last October, the stock has still lost two-thirds of its value over the past three years.

It was the desire to unlock value for shareholders that led to the decision to split the company in two in the first place. The Smith & Wesson firearms business and the outdoor products-oriented American Outdoors unit did not share a unified strategic vision despite obvious overlaps in product and target customer. The former was narrowly defined in a much smaller industry, and would be subject to bouts of extreme volatility; the latter was a much larger opportunity.

And though a small business now, American Outdoor sees a chance to grow and capture a bigger share of the market.

Changing horses midstream

Debney had led American Outdoor since 2011 and had served as president of Smith & Wesson's firearms division for two years before that. Yet prior to joining the company, he had little knowledge of the gun industry, having come from the U.K. where he worked for a consumer plastics product division at Alcoa

That consumer products background translated well to marketing firearms, but it's also likely why Debney wanted stay with the outdoor products and accessories business at the completion of the spinoff. As he said at the time, "While my passion for the firearms part of our business will always remain strong, I believe this new leadership role is truly the best use of my knowledge and skill set."

Now, of course, American Outdoor is inserting two new people to lead the new company. Mark Smith was the president of the manufacturing services business and Brian Murphy was the president of the outdoor products and accessories unit, and though both seem to have the qualifications to lead the company, it's Debney who has guided the gunmaker's transformation over the years.

The hand on the tiller

Almost immediately upon assuming the role of president and CEO, he sold off Smith & Wesson's security business and then guided the acquisition of Battenfeld Technologies, which began the company's transition to a more diversified business.

The name change to American Outdoor Brands was both an attempt to make the company more palatable to institutional investors and to signify it would be heading in a new direction. Splitting the company in two suggests it was never really a good fit, but the $30 billion rugged outdoors market had more potential and it gave investors a choice of whether they wanted to invest in a firearms manufacturer.

Because American Outdoor would be an exceptionally small company upon completion -- it is estimated it will have only $200 million to $210 million in annual sales at the start -- it would have given Debney and the company the opportunity to create from scratch a competitive growth business.

No longer the same thing

That's what's been disrupted by Debney's ouster. It's going to be a tiny business in a sea of competitors, a number of which are much larger than American Outdoor, but the outdoor gear maker will be without the individual who had the vision for the change to keep it moving forward.

It already seemed a dubious investment option, considering its size, but investors might want to give it time to see if it can establish itself now before climbing on board.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.