Ted Baker chief executive Ray Kelvin resigned with immediate effect on Monday morning following allegations of harassment late last year.
Kelvin has denied all allegations, including claims the chief executive and founder harassed female staff members with "forced hugs" and unwanted attention.
His resignation follows a period of voluntary leave since the start of December when the claims emerged. Shares fell four per cent on the news in early morning trading, before they rallied to one per cent above Monday's opening price.
Since that date an internal Independent Committee has been in the process of looking into the claims and has commissioned the law firm Herbert Smith Freehills LLP (HSF) to investigate further.
Kelvin will not be entitled to any salary or benefits related to his resignation.
Kelvin said on Monday: "Difficult though this decision is given that Ted Baker has been my life and soul for over 30 years, I’ve decided that the right thing to do is to step away from Ted and allow the business to focus on being the outstanding brand it is.
"The past few months have been deeply distressing and I’ll now be taking time privately with my family to consider what my next adventure will be."
Last week the retailer warned investors of a £10m hit to profits for its full year, blaming a series of unexpected blows to its bottom line.
Newly-installed executive chairman David Bernstein said he was grateful for Kelvin’s “tireless energy and vision”.
“However, in light of the allegations made against him, Ray has decided that it is in the best interests of the company for him to resign so that the business can move forward under new leadership,” he said.
“As a board of directors, we are committed to ensuring that that all employees feel respected and valued. We are determined to learn lessons from what has happened and from what our employees have told us and to ensure that, while the many positive and unique aspects of Ted’s culture are maintained, appropriate changes are made.”
Acting chief executive Lindsay Page has agreed to continue in the role, and the board has asked Bernstein to act as executive chairman to provide additional support.
The company said this morning Bernstein will continue in the position until no later than 30 November 2020, when a successor will be in place.
The investigation will continue, with the main focus being on Ted Baker's policies, procedures and handling of complaints. It is expected HSF will conclude its investigation at the end of March or beginning of April.
The FTSE 250 retailer’s shares plummeted at the start of December after a group of employees launched a petition calling for an end to a culture of harassment from Kelvin.
“He'll want to brush this under the carpet,” the petition’s author wrote. “But staff won't be ignored if thousands of us stand with them.”
George Salmon, analyst at Hargreaves Lansdown said: “As founder, chief executive and largest shareholder, Ray Kelvin was crucial to building Ted Baker up from a single shirt shop in Glasgow into a £1bn-plus global company.
"However, a rocky few months has seen that premium market value disappear. The allegations around the CEO have of course played a part, but a profit warning at the back end of February shows it’s not just the company’s former CEO under pressure, the financials are too."