Lu­l­ule­mon panned over ‘thin’ re­port on CEO’s exit

Res­ig­na­tion deal prompts in­ves­ti­ga­tions

National Post (Latest Edition) - - FINANCIAL POST - Armina Lig­aya

TORONTO• Share­holder ad­vo­cates and an­a­lysts are call­ing on Lu­l­ule­mon Ath­let­ica for more dis­clo­sure sur­round­ing the abrupt res­ig­na­tion of its chief ex­ec­u­tive who “fell short” of the Cana­dian ath­leisure com­pany’s con­duct stan­dards.

Frank Allen, the ex­ec­u­tive di­rec­tor of the Cana­dian Foun­da­tion for Ad­vance­ment of In­vest­ment Rights ( FAIR Canada), said the Van­cou­ver- ap­parel maker’s state­ments ex­plain­ing the sud­den de­par­ture of CEO Lau­rent Pot dev in af­ter four years at the helm were “thin.”

“Share­hold­ers, in­vestors are en­ti­tled to a full ex­pla­na­tion for some­thing of this sig­nif­i­cance,” he said.

The Van­cou­ver- based ap­parel maker was mum on Tues­day af­ter an­nounc­ing a day ear­lier that Pot­devin had re­signed, ef­fec­tive im­me­di­ately, and was no longer on its board of di­rec­tors.

Lu­l­ule­mon said in a state­ment it “ex­pects all em­ploy­ees to ex­em­plify the high­est lev­els of in­tegrity and re­spect for one an­other, and Mr. Pot­devin fell short of th­ese stan­dards of con­duct.”

Ac­cord­ing to a fil­ing to the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion, Lu­l­ule­mon and Pot­devin reached a sep­a­ra­tion agree­ment in con­nec­tion with his res­ig­na­tion.

Un­der t he agree­ment, Lu­l­ule­mon will pay Pot­devin a $ 3.35- mil­lion cash pay­ment “as soon as prac­ti­cal” and an­other $1.65-mil­lion to­tal in monthly in­stal­ments made over a year and a half.

In re­turn, Pot dev in agreed not to sue the com­pany and would co- op­er­ate with it in the fu­ture, among other stip­u­la­tions.

Lu­l­ule­mon has be­gun search­ing for a new CEO, the com­pany also said.

The news prompted at least two U.S. law firms to launch in­ves­ti­ga­tions into Lu­l­ule­mon.

New Or­leans- based firm Kahn, Swick & Foti, said their in­ves­ti­ga­tion is fo­cused on whether the com­pany’s board breached their fidu­ciary du­ties.

Michael Swick, the firm’s owner, prin­ci­pal and part­ner, ques­tioned Lu­l­ule­mon’s $ 5- mil­lion pay­ment to Pot­devin.

He noted that un­der the ex­ec­u­tive’ s em­ploy­ment agree­ment in its lat­est proxy state­ment he is not en­ti­tled to any sev­er­ance if ter­mi­na­tion is vol­un­tary.

How­ever, Lu­l­ule­mon used the term “res­ig­na­tion” in its re­lease, and was un­will­ing to share fur­ther de­tails out of re­spect of the pri­vacy of the peo­ple in­volved.

“We don’t be­lieve that the board is fol­low­ing their own con­structs,” he said.

New York- based law firm Bron­stein, Gewirtz & Gross­man also said Tues­day it was launch­ing an in­ves­ti­ga­tion.

Cor­po­rate gov­er­nance ex­pert Richard Leblanc says Lu­l­ule­mon’s pub­lic state­ments on the mat­ter are “bor­der­ing on in­ad­e­quate.”

“The down­side of hav­ing suc­cinct, in­ad­e­quate dis­clo­sure is that peo­ple make in­fer­ences,” said LeBlanc, a gov­er­nance pro­fes­sor at York Univer­sity.

“And you lose the abil­ity, as a board, to con­trol the mes­sage. So, some­thing a lit­tle more ful­some would have been bet­ter.”

Canac­cord Ge­nu­ity an­a­lyst Camilo Lyon said in a re­search note Tues­day that the Lu­l­ule­mon board has moved quickly to quar­an­tine the fall­out that could have en­sued if de­tails were to have been made pub­lic.

How­ever, he noted, judg­ing by the com­pany’s spe­cific lan­guage in its state­ment, “we can only as­sume there were claims of in­ap­pro­pri­ate be­hav­iour.”

Still, Canac­cord does not see Pot­devin’s de­par­ture as a ma­jor set­back for Lu­lul emon, “al­though un­cer­tainty will re­main el­e­vated un­til the CEO po­si­tion is filled,” Lyon added.

Shares of Lu­l­ule­mon were rel­a­tively flat in New York on Tues­day af­ter­noon.

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