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Lululemon to hold online-only annual meeting as founder Chip Wilson says company has ‘lost its way’

Yogawear retailer Lululemon Athletica Inc's logo is pictured at its store in downtown Vancouver in this file photo.

Ben Nelms/REUTERS

Yoga-wear chain Lululemon Athletica Inc. is taking the unusual step of holding an online-only annual meeting on Thursday as founder Chip Wilson again attacks the retailer, raising concerns among some governance experts about the company quashing dissent. Lululemon faced criticism from Mr. Wilson at its annual meeting two years ago when he questioned the direction of the Vancouver-based retailer in a more crowded athletic wear segment. On Wednesday, Mr. Wilson, who remains Lululemon's largest shareholder with almost 14.2 per cent of its stock, again lashed out at Lululemon and its performance – and for refusing to allow him 10 minutes to address shareholders at the annual meeting.

"Unfortunately, Lululemon has lost its way and I believe a call to action is needed," he said in an open letter to shareholders.

Corporate governance specialists questioned the company's move to conduct a virtual-only annual meeting, even as more companies south of the border shift in that direction, opening Lululemon up to criticism that it is suppressing debate among shareholders.

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"Online meetings block dissent and spontaneity," said Richard Leblanc, a York University law professor and a governance specialist. "Institutional shareholders don't like them either in the main."

Lululemon needs to be particularly sensitive to the perception it is crushing criticism because of its public battle with Mr. Wilson, he said. "It seems odd that they're going online right away, shortly after this shareholder issue."

A growing array of U.S. companies ranging from Intel to GoPro, SeaWorld Entertainment, PayPal and Fitbit are holding online-only shareholders' meetings.

Broadridge, the biggest U.S. provider of virtual meeting technology, projects it will help 160 companies in holding virtual-only meetings this year, up from just one (its own meeting) in 2009, said Broadridge vice-president Cathy Conlon. The firm has enjoyed almost 30 per cent annual growth in virtual meetings, she said.

Lululemon, which is using Broadridge as its tech provider for its meeting, has opted not to allow non-shareholders to attend Thursday's meeting, she said. Most companies that do virtual-only meetings allow guests to listen in, she said. Lululemon has never allowed non-shareholders, including media, to attend its meetings, a spokeswoman said.

Carol Hansell, founder and senior partner of law firm Hansell LLP and a governance expert, said she believes close to 100 companies have conducted virtual-only annual meetings in the United States. But she is not aware of any in Canada to date.

The benefits of online participation are lower costs for the company and shareholders, allowing them to participate more easily, Ms. Hansell said.

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But when a company holds virtual-only meetings with no option for shareholders to participate in person, it is easier for the company to control the environment and avoid embarrassing protests or difficult encounters with shareholders, she said.

"There has been concern expressed that the company's control extends too far at virtual-only meetings," she said. "Because the company controls the technology, it can control the extent to which shareholders can speak at the meeting."

Laurent Potdevin, chief executive officer of Lululemon, said in a filing that it is "excited to embrace the latest technology to provide expanded access, improved communication and cost savings for our stockholders and the company.

"We believe hosting a virtual meeting will enable increased stockholder attendance and participation from any location around the world."

Nevertheless, Mr. Wilson called on Lululemon's board of directors and management to "clearly articulate and execute a strategy with urgency towards regaining Lululelmon's competitive advantage and profitable growth."

"There's so much opportunity there," he said in an interview. "We just need the right leadership."

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Mr. Wilson said that while Lululemon has shown "incremental improvement" lately, its stock performance is disappointing. Three years ago its shares were double the value of rival Under Armour while now they are worth less than half.

He said that since December, 2013, Under Armour's stock has increased 79 per cent, that of Nike Inc. is up 45 per cent while Luluelmon's shares dropped 8 per cent.

He criticized Lululemon management for generating $500-million more in revenue over the past few years while profit declined. "Management competence is uninspiring at best," he said. "I am not convinced we have the right leadership in place" to win in the fast-changing, global and e-commerce landscape.

Two years ago, Mr. Wilson was at war with Lululemon's board, a spat that threatened to derail the retailer's recovery efforts at a critical time in its aggressive global expansion.

At the annual meeting in June, 2014, Mr. Wilson tried unsuccessfully to remove two members from the board, including the chairman who had recently replaced him in that position.

It was his way of expressing his frustration with the board, which he had accused of sacrificing product quality for short-term results, hurting the company's prospects.

The dispute, which was resolved in part with Mr. Wilson cutting his stake in Lululemon in half, came in the wake of the retailer being forced a year earlier to pull its signature black pants for being too sheer. Under new leaders, Lululemon was feeling the heat to fix its problems quickly and shore up its expansion efforts beyond North America as it faced mounting competition.

Since then, Mr. Wilson has launched a rival upscale casual wear chain called Kit and Ace with his wife Shannon and son J.J that used a "technical cashmere" fabric. He had offered the concept to Lululemon but the retailer had turned it down. Kit and Ace expanded quickly outside of Canada but recently had to let go some employees in a retrenchment.

In his latest missive, Mr. Wilson criticized the Lululemon board for only allowing shareholders to vote on three directors at a time, entrenching them and management.

He will e-mail three questions to the board, including asking for signs and metrics that the retailer is rebuilding its business and calling for shareholders to vote in a full slate of directors in 2017.

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