The Search for the Replacement
By the end of 2013, traffic and sales trends were decelerating exponentially. Operating lululemon with no one from Vancouver on the Board or at the management level was like running Brooks Brothers from an Ashram in Big Sur. That’s how I felt as the board began looking for Christine Day’s replacement. The Board was under immense pressure to announce a new CEO. They had failed at their number one job of ensuring succession, but at this moment, that was beside the point.
With the little power I had left, I was adamant that the upper levels of management would return to our foundational concepts. This meant our new CEO would have to fully understand how our culture ensured our best-in-the-world metrics.
One possible contender for the CEO role was Jerry Stritzke, who’d joined the lululemon Board of Directors in 2012. Jerry had a background with Coach, Inc. and Victoria’s Secret, which gave him much of the operational experience we required. Jerry and five lululemon people attended a course in Vancouver called “Creating a Leader” run by Werner Erhard and Michael Jensen. Jensen had joined the faculty of the Harvard Business School in 1985, founding what is now the negotiations, organizations, and markets unit. I believe Erhard and Jensen’s world-class, three-page document on integrity should be framed and hung in every home and office (the document is available as an Appendix at the end of this book).
Ultimately, Jerry felt that his Christian beliefs conflicted with the leadership-based concepts of Erhard and Jensen. The conflict for Jerry was so severe that he’d quit the seminar two days early. As far as the employees and I were concerned, this eliminated him from being our next CEO even though he might have been great. The Board thought I was nuts, but I knew the employees needed the right cultural fit after two CEO-operators.
Again, I put forward Delaney Schweitzer, but the Board had little interest in a CEO who might be perceived as a “Chip ally.” Sadly, Delaney didn’t stand a chance.
Finally, after 13 candidates had either declined or been rejected, the CEO head-hunter delivered a wildcard candidate. Laurent Potdevin seemed like an average candidate to take over a public company of this size.
We’d already put him through two interviews, but his appointment to CEO seemed a foregone conclusion with absolutely no one else in the pipeline. The pressure was immense for the Board to announce a new CEO.
I clarified that I wanted Laurent to take the Landmark course before he started with us. With Laurent, I wanted to know upfront if he would fit with lululemon’s unique culture.
“We’ll make sure he does the course,” the Board assured me. “It’ll be one of the first things he does when he comes on.”
Until Laurent had committed to guided transformational development as part of due diligence and onboarding, I wouldn’t vote for him. Eventually, I was confronted by the Board. “Look, Chip, if you don’t agree with the rest of the Board, then it’s going to be all of us against you, and we’re going to vote him in anyway.” I didn’t want the optics of having a new CEO voted in by a divided Board, so I acquiesced. This was a very dumb move on my part and I will always regret it.
Laurent Potdevin was appointed CEO of lululemon in December 2013 – one full year after Christine’s initial resignation. Despite all the difficulties that had occurred with our previous CEO, I wanted to hit the reset button, work collaboratively, and set Laurent up for success with lululemon. Not long after he’d started, I invited him over to my house to show him why the business model and philosophy were so powerful and distinctive from the competitors.
After a short while, I realized he just wasn’t engaged. I got the sense he wasn’t interested in anything I was saying. There was no real exchange of knowledge, and I felt lululemon was in for a rough time as it seemed he had no fundamental base to lead a cultural company. His character seemed conflicted, and he didn’t appear to be a leader to himself, let alone capable of being a leader to others.
After Laurent left my house, I realized this was one more nail in the coffin. In an earlier time, having someone so blatantly dismiss the business philosophy might have been a devastating feeling. At this point, I just felt tired.
Laurent ultimately attended the Landmark Forum seminar, given he’d promised the Board he would go, but I am confident he went only out of obligation and was not receptive to the learnings that were offered to him. Later, on “advice” from the head of HR, he eliminated the course from lululemon’s people development plan altogether and did not provide a substitute. Since then, I’ve come to believe the culture of lululemon is living on the fumes of its past. To newer employees, the culture appears great in comparison to other companies, but lululemon was built to be in a class of its own.
Kit and Ace and the New Dynamic
My family, at least, had moved on from 2013, and from lululemon. Early 2014 saw the beginning of Kit and Ace.
Shannon had ideas and designs for T-shirts, partly inspired by the technical cashmere she’d conceptualized a year or two earlier. As Shannon says: “We really started it as a hobby…I thought, well, why don’t I just hire a few people. I’ll get another designer, and I’ll bring along a fabric person, and we’ll probably need somebody to help us with some logistics, and we’ll work in the heritage building.”
It was all simple and straightforward.
“This was about the size of the business I wanted to have,” Shannon says. “Just one shop, getting the assortment right.”
As Kit and Ace got started, my son JJ also became prominently involved with it. He had been raised with Westbeach, and then when lululemon started, he’d always worked in the stores. From there he got a retail business degree from Ryerson University in Toronto, had spent a summer at Advent International in their retail department, and lastly, had returned to lululemon in 2014.
JJ was also the perfect age to understand the new social media and e-commerce landscape, so Shannon brought him on as a partner working on that part of the brand. I was proud to see it working as a true family business.
Dinner table discussions revolved around lululemon and Kit and Ace, but I had a lot to think about on my own.
Was I being a leader? Was I creating a future that would otherwise not have occurred? Was I giving before the expectation of return? Were my internal struggles about my vision (elevating the world from mediocrity to greatness) at odds with the new lululemon? Was I the weird uncle to be kept quiet? What was my commitment to employees and family? Was my identity as a person too wrapped up in the identity of lululemon? Could I recreate myself to live something other than the life I felt born to live? Was I in choice?
I knew if I blamed other people, I lost the power to change a situation. Blaming does nothing to shift a power balance. A rule I’ve always adhered to is: if I ever complain twice about something, I either must act or shut up. The time had come for me to apply this rule to my present situation with lululemon.
For starters, I’d never taken the time to write the story of lululemon. Under new management, lululemon’s PR and social media machines were reframing the company’s foundations and my history. Often with social media, once anything is documented on a digital platform, it may as well be true.
Now that I had “resigned” as chairman, the dynamic had changed. I could make it my mission to hold the lululemon Board and upper management accountable for its appalling performance since 2011. And although streetnic apparel and stock markets had grown exponentially, even by as late as January 2018, lululemon was still valued at the same amount it had been valued five years prior. This lost growth would forever keep lululemon at half the value it could have been.
The company was no longer an agent for change or as a social experiment, but maybe, just maybe, that could be fixed. I thought investors would want to know how lululemon could again recreate the world of technical apparel.
The challenge that I encountered was that the lululemon shareholder base was primarily comprised of financial institutions who would sell if the company didn’t fit into their short-term growth parameters. Institutions will not work to change the rules of how directors are elected. Activists gain little from agitating as the company does just well enough to not be worth the effort, and it cannot be broken up into smaller, more profitable entities.
Lululemon’s governance structure doesn’t allow shareholders to change the directors as fast as the world changes. This has created nepotism and a “leave it be” mentality. A principal foundation of lululemon culture had been to view everything as though “nothing works.” Within this context, we never rested on our laurels, and we were willing to abandon what looked good to perfect a better future.