Does Lululemon need more than a new CEO?
Just when the athleisure innovator seemed to be putting a series of quality and public relations snafus behind it, the board may be bungling the ouster of its chief executive.
You know what a brand — one that caters mainly to women, sells at the steepest price points in a highly competitive market and only recently recovered from misogynist remarks from its founder — doesn't need right now?
A CEO who runs afoul of the #MeToo movement, that's what.
We're in a moment of cataclysmic change ushered in months ago by revelations of Hollywood mogul Harvey Weinstein's predatory behavior — cultural upheaval that has proven to be abiding and expansive. As a result, several retailers of late have been forced to act as sexual harassment claims have surfaced about executives, founders and brand representatives. Guess, Signet Jewelers and even Donna Karan have been on the hot seat lately.
Last week, it was Lululemon's time. CEO Laurent Potdevin resigned as CEO and board member. Details are murky.
"Lululemon 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," the company said Feb. 5, adding that it's already searching for a new chief executive.
It was a particularly dispiriting announcement considering how far the brand has come in recent months. Lululemon for a few quarters now has managed to put previous quality, production and public relations snafus behind it. Analysts have given Potdevin loads of credit for the turnaround, built upon the brand's successful expansion into men's products, relentless innovation with patented fabrics, and the ability to charge as much for a sports bra as for its famously expensive yoga pants even as competition in athleisure has soared.
"His innovative approach and his clear sense of Lululemon's values and essence is one of the reasons the company has enjoyed continued success, even while other sporting brands struggle to generate growth," GlobalData Retail Managing Director Neil Saunders told Retail Dive in an email.
"Lululemon owes it to investors and to customers to be clear about the reasons Mr. Potdevin was made to depart. Failure to do so will likely lead to speculation which could ultimately harm the brand."
Managing Director, GlobalData
Potdevin's departure undermines that momentum and reminds everyone of how founder Chip Wilson compounded past quality headaches by saying that only women too big to wear his pants would have problems with them. And while the loss of that leadership is troubling for any company, Lululemon's board may be making things worse by botching its message, experts warn.
"Lululemon owes it to investors and to customers to be clear about the reasons Mr. Potdevin was made to depart," Saunders said. "As a company that prides itself on transparency and openness, we would expect it to have an honest conversation with stakeholders. Failure to do so will likely lead to speculation which could ultimately harm the brand."
The (inevitable) speculation
Speculation indeed followed Lululemon's Monday announcement as news reports from unnamed sources dribbled out throughout the week. Potdevin, according to several reports, had carried on a relationship with a subordinate and may have shifted her status to become a contractor in order to avoid having to follow the company's rules.
"There were a range of instances where he demonstrated a lack of leadership, and out of respect for the privacy of the individuals involved, additional detail is not being provided," according to a company statement provided to Retail Dive.
"Rather than blowing over quickly, the story is still running its course. People are curious about what happened and are asking questions," Saunders told Retail Dive later in the week. "In the absence of any solid information, speculation and leaks will continue, and interest will remain heightened. Lululemon made a mistake by not being open about the matter from the get-go. They need not have gone into massive detail, but they should have given a general indication of the reasons behind Potdevin's departure. Rather, they created a vacuum and that's an unhealthy thing for the brand."
It's more like a disaster, according to Mark Lipton, graduate professor of management at The New School and author of Mean Men, The Perversion of America's Self-Made Man.
"Lululemon takes pride in transparency and openness — they're breaching their own values," he told Retail Dive in an interview. "The board's behavior is anything but transparent, and their announcement is a countervailing force to their stated values. They need to hold up the behavior and explain why it didn't meet their criteria."
Not doing so serves as a negative balance to the otherwise swift action on the matter, which is commendable, especially in light of Potdevin's success, he also said. "While I have deep respect for the board to take down an otherwise effective CEO, I need to know, as the public, as an analyst, as a potential customer — what did this guy do? It's my strong belief that the absence of detail doesn't just neutralize that but diminishes it."
While Lululemon was widely commended for its timely (if not well elucidated) move in showing Potdevin the door, Lipton notes that some observers have begun to worry that, in this climate, businesses might begin to act too hastily in such situations. "I'm in conversations, including with many women, who are starting to pose the question — are boards too quick to pull the trigger now?" he said.
But both Lipton and Saunders, among others, insist that immediate action was vital. There may come a time when a board can take a beat to more fully asses its options. But the ongoing cultural revolution around the treatment of women countermands that, Lipton said.
"This cycle is changing very quickly, and I think eventually — and it may take time — we will figure out a normative way of gauging these situations more quickly," he said. "But in the meantime, I'd rather an organization err on the side of caution and act immediately."
Lululemon's assertive expansion of its men's assortment notwithstanding, it is manifestly a women's brand. That has been an advantage against rivals like Nike and Under Armour that are playing catchup in their appeal to women. Adidas tried to buy its way on to the inside track two years ago by hiring former Lululemon CEO Christine Day as an adviser to reach the competitive women's sportswear market. That makes not just Potdevin's behavior, but also the board's transparency failure, all the more damaging, Lipton said.
"My rule of thumb is — the behavior of the brand is the brand," he said. "All we can do is speculate on what this guy did. As a man, I can't tell you how a woman would react, but I would certainly take pause. And women are overwhelmingly their dominant market."
Exacerbating the damage is the rumor common in last week's news reports that Potdevin oversaw a "toxic" work environment, another suggestion that Lululemon doesn't live up to its own professed philosophy of mindfulness and inner peace. "That grabbed my attention," Lipton said. "What is Lululemon's toxic culture, what's going on there? Is it toxic because of this CEO or was it toxic when he got there?"
The board matters
In Potdevin's absence, three senior executives, (Celeste Burgoyne, Stuart Haselden and Sun Choe), are taking on additional responsibilities, reporting to former Gap Inc. CEO Glenn Murphy, who has also taken a newly expanded role as executive chairman. But in order for Lululemon to get past these troubles, it mustn't dilly dally in replacing him. "This is fairly urgent, as Lululemon needs leadership during its drive to expand globally," Saunders said.
"The size and profile of the brand should mean they are not short of talent to choose from. Preferably, they should appoint someone who has a good track record of growing brands internationally."
Managing Director, GlobalData
A changing of the guard doesn't absolve the company of its duty to be more forthcoming, however. "Lululemon should not be putting out PR fires – especially not ones it started," Saunders said. "It should be focusing on driving the business. Therefore, the first thing to do is to draw a line under this matter and move on. That can only be achieved by being open."
Many analysts share Saunders' sense of urgency around hiring Potdevin's replacement, and by the end of the week, plenty of them said they thought the company should bring on former Ralph Lauren CEO and Old Navy chief Stefan Larsson. But Saunders isn't sure that's the play. "While they must hire on talent and merit, it would be good to see a woman lead Lululemon. After all, part of their brand essence is about empowering women," he said. "The size and profile of the brand should mean they are not short of talent to choose from. Preferably, they should appoint someone who has a good track record of growing brands internationally."
Difficult as it will be to find an effective chief executive so quickly, that's hardly the end of it, Lipton said, noting that too often, boards fail to anticipate or prevent such crises and can't handle them when they do arise because they suffer from a one-dimensional perspective. Corporate governance is in need of more directors of diverse backgrounds, who are willing to put these issues on their agenda.
Take Best Buy for example: The company had struggled to add diversity to its board of directors for years and, when former CEO Brian Dunn resigned in 2012 after a relationship with a female subordinate came to light, the need to recognize — and to not just act, but be proactive — became critical. Best Buy ultimately appointed Hubert Joly as CEO who, at the National Retail Federation's Big Show in January, boasted of a board now composed of 40% women — and a retail operation that effectively competes with Amazon in a very competitive and price sensitive category.
"Boards need to step up and take on a new role, of stewardship of culture," Lipton said. "It's so related to performance. There's solid research, scholarship coming out of business schools, that the more gender diversity on boards the better, that it goes straight to the bottom line. To me it's 'case closed.'"
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