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A woman carries a shopping bag with the Lululemon Athletica Inc logo outside one of the company's stores in New York, March 19, 2013. (LUCAS JACKSON/REUTERS)
A woman carries a shopping bag with the Lululemon Athletica Inc logo outside one of the company's stores in New York, March 19, 2013. (LUCAS JACKSON/REUTERS)

Lululemon founder triggers board battle over strategy Add to ...

Lululemon Athletica Inc. founder Chip Wilson moved to unseat two directors of the yoga-wear retailer in a boardroom rift over corporate strategy, but his bid was quickly shot down at the company’s annual meeting.

Mr. Wilson touched off the dispute on Wednesday by disclosing that he opposed the re-election of two outside members of Lululemon’s board of directors, including chairman Michael Casey, a former executive of coffee giant Starbucks Corp. Mr. Wilson, a 27-per-cent shareholder of the company, accused them of focusing on short-term results “at the expense of product, culture and brand, and longer-term corporate goals.”

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But within 10 hours, shareholders re-elected the board members and the company dismissed Mr. Wilson’s assertions. Even so, because he still sits on the board, his views threaten to become a distraction for Lululemon as it tries to implement its turnaround strategy and win back customers after a profit-squeezing product recall last year.

At the root of the conflict are board-level tensions between Mr. Wilson and other directors. Mr. Wilson, who was recently replaced by Mr. Casey as board chairman, is prone to “micromanage” the company, in its day-to-day operations industry sources familiar with the retailer said. “Sometimes his ideas aren’t embraced by other members of the board – he doesn’t respond well to that,” a source said.

An example of an idea generated by Mr. Wilson was the move by Lululemon in 2011 to have the Ayn Rand reference “Who is John Galt?” printed on the retailer’s bags, without management’s blessing. The board did not find that and other initiatives of Mr. Wilson appropriate, a source said.

The board also struggled with Mr. Wilson suggesting late last year that some women may be too large for the chain’s pricey athletic clothing. Those comments prompted an angry response from some customers, who said Mr. Wilson was flouting the company’s own healthy-first image. In December, Mr. Wilson agreed to step down as chairman by this month.

Industry observers warned Mr. Wilson’s latest disagreements with board members could be a distraction for the company in its efforts to revive its fortunes.

“This may be a distraction and I think any distraction is a setback,” Sam Poser, retail analyst at Sterne Agee in New York, said in an interview. “But this is just annoying. … I just think this is noise.”

As for Mr. Wilson, “I think that he got put to the back of the bus and he is mad and so he wants to raise a little hell,” Mr. Poser said.

Others said the boardroom dispute could delay Lululemon’s turnaround efforts.

“I am worried and feeling this could be a great growth story interrupted,” said Luke Sklar, founder of retail consultancy Sklar Wilton & Associates. “Any business, but particularly retail, is a people business first. Without common purpose and positive energy, things can quickly go off the rails.”

Lululemon has grappled since last year with the recall of its signature black yoga pants because they were too sheer. By January, chief executive officer Christine Day left the company and was replaced by Laurent Potdevin, a former global shoe and snowboard executive.

In an interview in early 2013, Ms. Day said she had to rein in Mr. Wilson at times and convince him to back off. “Chip is an idea-a-minute guy and he’d pursue all of them tomorrow and that would set the organization off on so many different things.”

Lululemon essentially created the yoga wear category in 1998 when Mr. Wilson founded the company in a small Vancouver storefront. He helped build it into a global brand with more than 250 stores and $1.6-billion of annual sales.

Mr. Wilson said on Wednesday he believes “change is now needed at the board level to increase shareholder value.”

He said that after being asked by the board to return from Australia to help the company recover from the product recall last year, “I have decided to vote against the re-election of the company’s outside board members. While I am excited about the new management team that I helped put in place, I am concerned that the board is not aligned with the core values of product and innovation on which Lululemon was founded and on which the company thrived.”

He said the board lacks balance and is “heavily weighted towards short-term results at the expense of product, culture and brand and longer-term corporate goals. I believe this is impacting the company’s prospects. My vote today sends a signal to the financial community that the company must address this imbalance if Lululemon is to fully recover.”

A source familiar with the situation said Mr. Wilson’s initiative is “the first action in a multi-step effort by Chip to refocus the direction of the board.” Mr. Wilson is uncertain the board can return Lululemon “to its true potential,” the source said.

Among other controversial initiatives, Mr. Wilson is a believer in a personal development course known as the Landmark Forum, which Lululemon staff are encouraged to take after a year with the company and which some suggest is a form of indoctrination.

At Lululemon’s annual meeting at a downtown Vancouver hotel, Mr. Casey sat at the front of the room and presided over the gathering as Mr. Wilson sat in the front row, directly across from the chairman. Mr. Wilson did not speak during the meeting. Despite Mr. Wilson’s decision to vote his shares against Mr. Casey and RoAnn Costin, president of a Boston private equity firm, shareholders approved those two director nominees. One shareholder, Vancouver businessman Roger Hardy, voiced his objections to three-year terms for directors in Lululemon’s staggered election format.

Another shareholder asked about takeover speculation, but Mr. Casey responded that there isn’t substance to the rumour. “We have not received any overtures from any company in that regard,” he said.

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