Chip Wilson is the founder, former chairman and largest shareholder of Lululemon Athletica Inc.
The contrast is startling. Two great businesses. Two corporate leaders in their respective markets,each operating in a competitive and disrupted environment. Two companies brought to life by entrepreneurial founders whose families each remain the largest shareholders of their now public companies. Yet that is where the similarities end, as it relates to respect and desired connectivity to their respective shareholders.
Last week, Wal-Mart hosted its annual shareholder meeting in its home in state of Arkansas. It was a full-day affair. The chief executive officer discussed strategy; the chief financial officer reviewed financials, progress and issues that the retailer sought to address. They even had a comedian! Lululemon Athletica Inc., the company I founded and at which I remain the largest shareholder, also held its annual general meeting (AGM) last week. You'd be forgiven if you didn't know about it. Like a number of other companies facing tough questions from shareholders, Lululemon chose to conduct "a completely virtual annual general meeting of stockholders," via a voice-only webcast.
The misnamed "meeting" lasted all of 20 minutes and lacked any transparency. Shareholders couldn't personally ask questions. Questions had to be previously submitted by e-mail. They were then vetted and read or recast by the board. Only four "softball" questions acceptable to the board were selected and addressed. It was a perfect example of how unresponsive the company has become to its shareholders. An annual meeting is the one opportunity shareholders have to look management in the eye, to interact with them, and Lululemon took that away.
Not even a shareholder who owns 14.2 per cent of the shares has a voice. I asked for 10 minutes to address shareholders at the annual meeting; that request was denied. I submitted just a few questions; they paraphrased and responded to just one. I was forced to outline my thoughts and concerns in an open letter to shareholders. The response from the company, by way of news release, was in essence: look at our "operational performance"; just wait for us to beat the Street's earnings estimates next week (that were once again managed down from what the Street was expecting at 37 cents to new guidance of 28 cents to 30 cents).
I control shares worth $1.35-billion and care very much about the company I founded, its employees and shareholders. I would be remiss if I didn't do everything I can to ensure our investment yields its full potential for myself and the larger community of fellow shareholders.
To be clear, it is not my desire to go back inside Lululemon and run the company. Rather, I want to see the right team with the best capabilities in place to execute a strategy that will return vision, innovation and value creation to the company, traits that have been noticeably absent under its current board and management.
In the meantime, I and all shareholders are left to judge management and the board on what they have articulated as their strategy and how they have performed against that strategy. It is not encouraging. My own analysis shows that if management had just executed marginally on their stated initiatives, the stock would be 150 per cent higher, with about $500-million of additional low-hanging-fruit EBITDA (earnings before interest, taxes, depreciation and amortization). This is not lost on the stock market: Since Lululemon's current CEO has been in place, the value of Under Armour has increased 79 per cent, Nike is up 45 per cent and the general stock market, as measured by the S&P 500, is up 16 per cent. Yet Lululemon stock has dropped 8 per cent. This appears to indicate that investors do not believe it can grow and earn like its competitors.
What is the right "lens" of opportunity for this great company? I feel as if I am listening to a replay of the Kodak board, whose members could not get off the drug of milking the brand for cash and refused to take the risks necessary to perpetuate their position in the market the company created. Our board needs to be thinking like Tesla and about how they can create a brand, product, market and connectivity with our customer that is unique in a sea of apparel alternatives. The bar is how Lululemon owns the next decade in the biggest change in the way people will dress in the history of the world. If this board views a quarterly beat of "managed" analyst expectations off of a low base as success, I am that much more convinced that change is needed.
I hope the company's board will be more transparent, responsive and not combative with me in making this happen. This board should be aligned with the creation of shareholder value, not at odds with it.
I have been vocal about the need for the company to declassify the board so that directors are elected annually, rather than staggered in threes. Approximately 90 per cent of the companies in the S&P 500 have de-staggered their boards. If this is not the right board and team, shareholders should not be required to wait years to course correct, if that's what they want to do.
So why is all this "governance" important? I am an owner of Lululemon for the long term. My view on performance will be measured over decades, not quarters. I am focused on a productive but urgent pace of change. Lululemon is treading water and is going to get lapped. So I ask, once again, does the current board and management team plan to get back to our original leadership position compared with our competitors in a market we invented and built? If yes, by when, and what are the exact signs, metrics and signals we should be looking for to indicate your plan is working?