In a lawsuit made public Wednesday, Lululemon investor David Shabbouei alleged that former CEO Laurent Potdevin, who was ousted from the company in February, fostered a toxic culture at the athletics retailer and that the board ignored it, which had a negative impact on the company's financial outlook and reputation, according to a Law360 article. The suit was filed in Delaware Chancery Court.
The lawsuit further claimed that Potdevin's leadership promoted bullying, sexual harassment and gender discrimination, including certain female employees being promoted over others based on their romantic relationships with Potdevin and other company executives, the publication reported.
In addition to the claims about Potdevin's inappropriate behavior and management style, Shabbouei's lawsuit also calls out the board for granting the former CEO a $5 million severance package, which he said was a breach of its fiduciary duties to shareholders and caused the company financial harm. A Lululemon spokesperson declined to comment and pointed Retail Dive to the company's press release about Potdevin's resignation.
It seems Lululemon isn't out of the woods yet. Potdevin's exit had been characterized by some as an isolated issue — a problem with the CEO, but not as systemic as claims made against Under Armour and Nike.
However, Shabbouei's allegations, if found to be true, imply a much larger culture problem spearheaded by Potdevin, whom the lawsuit claims encouraged the bad environment through an "inner circle" management style and his own nightlife habits, per Law360.
The main argument of the lawsuit is that Potdevin's actions caused the company, and its shareholders, financial harm through not only the severance package, but also damages to its reputation and standing, and through the cost of defending lawsuits filed against the company. Shabbouei is seeking damages from breach of duty on the board's part, disgorgement of Potdevin's large severance package and actions to reform Lululemon's governance, Law360 said. According to the report, the lawsuit calls the athletics retailer out for allowing Potdeven to resign with a severance payment, instead of firing him for cause.
The lawsuit has the potential to push Lululemon's culture back into the spotlight after it faded slightly from the company's ledger. In July, the company hired former Sephora executive Calvin McDonald to replace Potdevin, which seemed to be a good choice based on the innovative store concepts and success that Sephora has seen in the past. Yet, that could be drowned out if there are any further investigations into the company's culture.
Both Under Armour and Nike have faced similar criticisms this year, but the impact that culture issues have on sales seems — at least for now — to be minimal, if any. Nike's revenue rose by 10% in its most recent quarter and Lululemon seemed to be relatively unaffected by the nature of Potdevin's departure, announcing plans for 40 more stores in the midst of another strong quarter reported in August.