Lululemon exit needs clarity
CEO left company due to unbecoming conduct, and investors may demand details
Coincidence?
So Lululemon Athletica Inc. has announced the sudden departure of CEO Laurent Potdevin, effective immediately. “Lululemon expects all employees to exemplify the highest levels of integrity and respect for one another,” the athleisure wear company said in a press release Monday, “and Mr. Potdevin fell short of these standards of conduct.”
What are the chances that Lululemon founder Chip Wilson was oblivious as he tweeted his Monday motivation that morning? Wilson’s message was spare: “What does integrity mean to you?”
(Wilson has no position on the board of the global company now known for its laser-cut workout gear, and has no corporate role in the business, but he controls Lipo Investments USA Inc., which has a 10.3-million share position in Lululemon.)
Potdevin’s departure had been in the works for weeks. A separation agreement filed with regulatory authorities — an agreement that specifies a $5-million (U.S.) severance to be paid out across 18 months — notes that the CEO was given 21 days to review the terms of separation. The official corporate announcement quoted executive chairman Glenn Murphy: “Culture is at the core of Lululemon, and it is the responsibility of lead- ers to set the right tone in our organization.”
A dip into the company’s corporate code of conduct and business ethics turns up the predictable watchwords where unacceptable behaviour is concerned: harassment; intimidation; hostility; threats. Precisely how and where the CEO ran afoul of appropriate behaviour, and how that came to the board’s attention, is not known and is bound to draw speculation. The logical extension is this: What is a corporation’s duty to shareholders in a situation such as this? And is it potentially harmful to the brand if the company doesn’t offer up more fulsome disclosure?
Part of the answer lies in the relatively smooth way in which the departure was announced. The word “relatively” is used here in relation to past disruptions at the company, which has had a bumpy track record when it comes to top leadership.
Robert Meers, ex of Reebok, wasn’t long for the CEO’s job, and Christine Day, ex of Starbucks, would diplomatically tell an audience at a Fortune magazine symposium that “In a founder-led company, sometimes you have a person who has a different view than you do.”
Of course she was speaking of Wilson, whose impolitic comments (some women are simply too bulky of thigh for the Lululemon look, he infamously remarked) and legendary interference in the running of the company raised the reasonable fear that the visionary enterprise with the “friends are more important than money” manifesto might never grow up.
Wilson seems to have — grown up, that is.
Or at least he came to admit that he was doing a mediocre job of being chairman of the board.
So the little company that he started is today a multi-billion-dollar (sales) enterprise. Revenues in- creased 14 per cent in 2016 to $2.3 billion. Net income for the same period rose to $303 million from $266 million.
Competition is fierce and fashion fickle. Initiatives include a recent alliance with 7mesh, the West Coast high-performance garment maker known for its Glidepath mountainbiking shorts. Large institutional investors include Blackrock, Vanguard and Fidelity.
One of the more important takeaways from the announcement of Potdevin’s departure is that the CEO has been held to account for corporate conduct that is unbecoming. Too often have top executives — and corporate “stars” — been given a pass when it comes to misbehaviour, sheltered by their status. There is every indication here that board governance is working internally as it should.
Hallelujah.
As for brand management and reputational damage, it’s a stretch to argue that consumers will be turned off by what they don’t know. Is the 20-year-old yoga-phile less likely to purchase another pair of Luon tights because of behaviour about which she (or he) is ignorant?
Something tells me the buyer base will not be overly riled by Potdevin’s departure, and the lack of disclosure.
What is key is the institutional investor base. If we put aside the unseemly tales of Steve Wynn and his casino empire, Lululemon is perhaps the first publicly traded company in this era of #metoo to reach a termination agreement with a CEO for his bad behaviour. In this, the yoga-wear maker is setting an example.
I don’t know that the #metoo reference is relevant here. But I don’t know that it’s not. Therein lies the problem. At minimum, the board needs to publicly do a better job of defining why Potdevin needed to exit “for the good of Lululemon.” Reach Jennifer Wells at jenwells@thestar.ca
An important takeaway from Potdevin’s departure is that the CEO has been held to account for unbecoming corporate conduct