The founder of Lululemon Athletica Inc. (TSX:LLL)(NASDAQ: LULU) is back in the news these days, and like a bad rash that refuses to go away, Chip Wilson is demanding better corporate governance from current management, who he believes are letting shareholders down.
Chip, do yourself and shareholders a big favour: find a hobby—and fast.
Wilson wrote an open letter to Lululemon shareholders June 1 that publicly outlined his current grievances against the existing management team and board of directors. I say current because he’s done this before. Why do you think he’s no longer on the board of the company he founded? It’s not for good behaviour.
First, let me state that I’m all for good corporate governance, but when does it become okay for a shareholder, albeit its largest at 14.2%, to openly criticize a company that he’s no longer associated with in any form or fashion? If Chip truly cared about Lululemon, he’d keep his mouth closed and work behind the scenes to renew his relationship with the board.
But make no mistake. Wilson isn’t demanding good corporate governance because he believes it’s right; he’s doing it because he wants back in on the action.
Specifically, Wilson has two issues with Lululemon.
The first has to do with the company not performing up to Chip’s standards. He believes CEO Laurent Potdevin and company have no plan for the future and no respect for Lululemon’s past. The second is the previously mentioned issue of how shareholders vote for the board. Wilson wants the board declassified and an election held for a full slate in 2017.
Let me address each issue separately.
Wilson suggests that since Potdevin was appointed CEO on December 10, 2013, Lululemon stock has lost 8% of its value, while Nike and Under Armour are up 45% and 79%, respectively. Furthermore, three years ago, Lululemon was worth twice as much as Under Armour; today, the roles have been reversed.
Talk about revisionist history.
Potdevin was hired by the board because former CEO Christine Day had so little oversight on former chief product officer Sheree Waterson and her team that they were able to almost singlehandedly destroy the goodwill generated by the company leading up to the sheer-pant scandal in 2013. Simply put, the company was woefully understaffed in the areas necessary to compete effectively against the Nikes and Under Armours of the world.
Who was the chairman during this time? None other than Chip Wilson.
They say it takes a brilliant general manager five years to turn around a bad hockey team; businesses like Lululemon are no different. Furthermore, Chip Wilson’s poor choice of comments after the debacle led to significant distrust from its customer base, which led to a deterioration of its business.
Potdevin came in with a tough assignment. Not only did he have to right the ship, but he also had to find the talent needed to ensure the ship permanently stayed afloat. So, for Wilson to blame Potdevin and the board for his diminished wealth is misguided at best and pathological at worst.
As for the second issue regarding the board, I will only say that the debate between classified and declassified voting remains deeply contested and unresolved. Arnold Pinkston, former general counsel for Allergen, has written extensively on this subject at the Harvard Law School Forum on Corporate Governance and Financial Regulation. Take the time and read his July 2015 piece about staggered boards. I think you’ll see that Chip Wilson needs to go back to school on this issue.
My opinion as someone who’s covered retail stocks for a long time is that the board itself has significant executive talent from both retail and consumer goods businesses. I fail to see how any slate proposed by Chip Wilson would be any better.
This is an incredible time waster intended to undermine the current board and management team and shareholders need to see it for what it is: vanity run amok.
Potdevin and company are doing just fine without you, Chip. Just let go.
