Uncertainty

Metrics Versus the Unprovable

I was beginning to feel that my own role within the company was uncertain. My proposals to the Board had been stopped in their tracks. We were putting less money into quality control and, as a result, quality was falling from our standard. We were increasing prices just because we could, and it seemed like we were selling our future for instant gratification. We were giving the Wall Street stock analysts everything they wanted, and our foundation was weakening by the moment.

I assumed the Board was doing what they thought was right. We had nine very smart independent Directors who met four times a year. They continued to tell me everything was perfect. “You don’t know how a big company operates,” they told me. “The best thing you can do is not interfere with management.”

As 2011 ended, it occurred to me that lululemon’s stock value was rising at the expense of serious reinvestment in the company itself.

My concerns about quality were very difficult to articulate to the Board of Directors, but I’d spent every day for 30 years (between my time at lululemon and Westbeach) feeling our fabrics, looking at them, stretching them, and inspecting the stitching. Tiny, almost unnoticeable errors to a layman were huge indicators of trouble to me.

Over time, those tiny flaws would accumulate. With no deliberate reinvestment in quality control, lululemon had few employees who could raise a red QC flag without being fired by Christine.

Our new head of product started meetings late and was not open to coaching about the ramifications of integrity. By consistently being late, she indicated to the entire company that it was acceptable to be late. Most meetings started 10–20 minutes late while the 10–20 people who arrived on time sat around waiting. My theory was that if a design meeting started late, then the employees subconsciously believed the thousands of intermediate steps to get product to the stores, could in turn also be late. If delivery to the stores is late, the product doesn’t have enough selling days that season and styles must then go on sale to move excess inventory.

Each $1 of sale discount removes $10 from the company’s market capitalization. Companies that consistently discount product attract employees of lesser quality and incur higher employee turnover. Higher turnover means higher human resource expenses, training costs and management issues. Higher turnover results in fewer people being available to develop for the management pipeline. This is how integrity works. It’s why meetings must start on time.

The Soda Story

Staff at lululemon had always practiced what they’d preached. Nowhere was this truer than in our long-standing Manifesto, especially the part about how Coke and Pepsi and all other sodas would be the cigarettes of the future. Lululemon – whether at the Store Support Centre or out at the retail locations – had never been a workplace where you’d see people drinking pop or eating junk food, until the early ’10s.

In late 2012, Deanne, Delaney, and I went with Christine to Whistler to spend a few days away from the office and look at lululemon’s culture and future. We took Susanne Conrad – now our outside development consultant – with us.

While in Whistler, we talked at length about lululemon, the changes it had undergone in the past few years, and what we thought lay ahead. One evening, the subject of seeing Coke and Pepsi cans around the office came up. We discussed what we could do about it, how we could get ourselves back to our core culture.

Seeing cans of soda on people’s desks seemed to coincide with the arrival of American middle management. I wasn’t the only one who’d noticed it – both Deanne and Delaney had seen it too. On its own, this may seem like a small issue, but it was fundamental to our health culture. We were concerned about the edges fraying.

The answer we came up with seemed straightforward – we would just put the Coke and Pepsi part back in the Manifesto. The Manifesto was lululemon’s guiding light.

However, as Christine told us that night in Whistler, we couldn’t put the slogan back in the Manifesto as she told us we’d signed a binding agreement with PepsiCo not to disparage them any further.

This surprised me. I knew nothing of the agreement. I asked Christine if she was sure it existed, and she assured me it did. When I got back to Vancouver a day or two later, I asked Erin Nicholas in our legal department for a copy of the agreement, so I could read the specific clauses. Erin told me no such agreement existed. Later that afternoon, Michael Casey called me, telling me just to drop the whole thing. I wondered if Michael Casey was an idiot or if Christine Day had spun another lie. Both thoughts started to appear possible.

Former Director of Finance, Michelle Armstrong, recalls: “something happened where all of a sudden there was a competition between Chip and Christine. There wasn’t room for both in Christine’s mind. It just went downhill from there. I saw some things they disagreed over, and I thought, ‘Why would she think that? The guy came up with the idea for the whole company.’”

At this point I had zero trust in Michael Casey or Christine Day, and to be responsible to the share- holders I started to consider what had to be done.

Board Meetings

I take responsibility for the board direction of lululemon. I was as green as they come. I didn’t understand board dynamics, motivations and directors’ desire for power. My biggest mistake was letting Michael Casey and Christine have too much say in in determining the agenda items and the time spent on each. I thought I was being a team player by giving in to their desires without realizing they were eating up valuable time with what they deemed board essentials.

I would have thought the highly experienced lululemon directors would not have wanted their own time wasted and would have coached the whole board to be more efficient.

The lululemon board agenda was inefficiently filled with material that could easily have been provided as pre-reading followed by 10 minutes of questions. We ate up valuable time replicating the audit committee inside the board meeting. The reason boards have committees is to dig deep into detail and then report to the entire board with a 10-minute summary. This is one example of many.

Now that I am older with more experience, I now understand Christine knew very little of the company outside of metrics. To look good to the directors she steered the meeting away from her weaknesses to where she looked good.

With ten competent, time constrained directors getting paid top dollar, a board has to spend most of its time discussing the top three most pressing issues. These issues are usually touchy and fraught with opinion and without fact. Decisions from these discussions are the ones upon which the company relies on its directors. The metrics portion can be managed by committees and management, not the Board.

Like our quarterly analyst reports, the board meetings under Christine and Michael were mostly a waste of time of everyone’s productive time.

Hiring Six Months in Advance

In formulating the 1998 business model, our employees averaged 22 years of age. Very few men were interested in working for our company at that time. This was likely because the product was 90 percent female-focused, though it may have also had something to do with men interpreting personal development as non-masculine.

With an employee pool comprised of 90 percent women, I could foresee a time of risk when 10 to 15 percent of employees would take maternity leave at any one time. This business challenge is not an issue in America, but in Canada and Europe, maternity leave is at least one year.

I anticipated that women would likely have two children in quick succession. Consequently, the average woman could be out of work for two or three years at a time when their company knowledge was essential. Lululemon wasn’t just any company – it was a high-growth company, and we needed every position to be performing at full capacity. Any weakness in any position could create a bottleneck, and we were having too much fun and making too much money to put stress on the business.

The underlying mantra of our transformational development program was “leaders developing leaders.” For lululemon to survive, every woman thinking of maternity leave had to be in full conversation with their manager about their plans and had to have a nominee they were developing to take their position during their leave.

There were outside voices who were shocked that we could have such open and unhindered discussions. Our ability to have these conversations without pushback was a testament to our employees’ sense of ownership in the company they were building. We were all in it together, and we knew we had workforce demographics like no other company before us. Failure to fulfill leave succession planning would mean our woman-driven company could easily fall into bankruptcy.

From this experience, we developed the following Operating Principle:

OPERATING PRINCIPLE: Hire people six months before they are needed full-time. Have them work part-time in the retail stores and slowly pull them into the Store Support Centre as they grow into their full-time job.

WHY? We want to observe people who are advocates for our culture, who understand our business philosophy, and who communicate business decisions based on our common language (i.e., our linguistic abstractions). Hiring proactively allows us to be two to five years in the future. Our future is big, and we have no need for short-term profit. We invest in the right people to make the business philosophy work.

To provide for company growth and the maternity leave pipeline, we hired people six months before we needed them. However, the world was changing exponentially in the digital space. No longer could a woman come back to work after a year of maternity leave and expect to walk into the same role she had left . . . we were simply moving too fast! It took three to four months to get our employees back up to speed after their mat leave, and nobody had the same job from one day to the next. I was scared about our future ability to compete with American and Asian competitors who had shorter maternity leaves as compared to Europe and Canada. We spent 10 to 15 percent more on labour costs than most companies to ensure our pipeline was intact.

If a CEO stops hiring six months in advance to decrease salary expense, the company will show a short-term profit, the stock will increase, but it will result in long-term pain. I sensed we were hiring more slowly, even though our Operating Principle was easy to understand. I brought the issue up to the Board, but the American directors seemed to want to ignore Canadian one-year maternity rules and a critical piece of our business model. Of course, our stock price kept increasing, so the board maneuvered to avoid a meaningful conversation.

I innately understood a time would come when an amazing opportunity would present itself, and experience told me such an opportunity occurred every five years. When a new idea or trend would present itself (surf, skate, snowboard, yoga, mindfulness, owning production or buying a company with complementary technology), we wouldn’t have the extra people required to acquire and leverage. Lululemon certainly had too much unused cash on hand (usually around $1 billion) indicating the company didn’t understand how to re-invest.

Lululemon had the market lead, and we were in a position to be proactive about the future. In addition, the big growth in the technical apparel market was just starting. My theory was to invest in people because the cost of not having people at the right time created a bottleneck that cost us additional salary expenses.

In 2020, lululemon bought an online subscription business called Mirror for $500 million. I think Mirror was a good purchase, but had the board been comprised of more people who eat, live and breathe the athletic business, they likely could have bought a similar business two years earlier for $20 million dollars

Level 5 Leadership

I thought again of Good to Great, and many of Jim Collins’s other writings, which underpinned lulu- lemon’s foundation from day one. Among Collins’s ideas is the concept of the “Level 5 leader” who builds enduring greatness through personal humility and professional will.1

In Collins’s hierarchy, there are four subordinate leaders, (1) the highly effective individual, (2) the contributing team member, (3) the competent manager, and (4) the effective leader. But, without the Level 5 leader in the executive position, a company cannot be transformed from good to great.

A key distinction of the Level 5 leader is someone who selects, trains, and prepares their eventual successor, ensuring the company will continue to grow and succeed into the future.

This succession pipeline was a cornerstone to lululemon’s survival, not only because of our anticipated maternity leave turnover, but also because of our exponential growth.

We had a large framework of Super Girls who’d started with the company in the early days, and who had since risen to the Level 3 leadership spot (mid-level management). But I could see that with the exception of Delaney Schweitzer, we had stopped developing Level 3 women for Level 4. We had to have those highly effective senior managers next in line for executive positions.

Christine had hired people into the senior management positions, but they seemed mediocre at best. As Deanne Schweitzer said, “Christine surrounded herself with a core management team comprised of older, non-athletic women instead of Super Girls.” I wondered: why? Lululemon was the iconic public company at the time. Lululemon could have hired the best from anywhere.

Christine’s senior manager hires did not seem interested in training their own successors, so a whole generation of Super Girls who’d grown lululemon and formed its backbone could not grow. For the time being, there was no position higher than the mid-level management positions they’d already achieved. It seemed Christine’s Level 4 managers were killing both the advancement opportunities for the Super Girls and the company itself.

I wondered if Christine had been deliberate about this - if she’d wanted to put a barrier between herself and the next generation of lululemon’s leaders. Possibly, Christine ensured she would have no direct competition for the CEO position for the foreseeable future.

In 2010, I was clear with the Board that Christine should name and develop someone under her to take over should she get hit by a bus or quit. Christine deferred for a year, and Michael Casey, as chair of the nominating and governance committee, was hesitant to press her on the issue. Further, the compensation committee under Tom Stemberg did not want to include “succession development” as a key component to Christine’s compensation. The Board, to their credit, later nominated Delaney Schweitzer to be interim CEO should Christine be hit by the proverbial bus.

There were two excellent people in Level 4 leadership positions. One of them was a woman named Kathryn Henry. She’d come from a senior position with Gap Inc., and we’d hired her as our Chief Information Officer in 2010. Within the first few months Kathryn worked for us, she’d turned lululemon’s entire IT infrastructure around.

The second person was Delaney, who had made it from the bottom to the top at lululemon. Delaney had started off as one of our first store managers and worked her way up to become EVP, global retail. In that capacity, Delaney ran all retail operations, e-commerce, store culture, and anything that made money.

Christine was adamant that neither Kathryn nor Delaney had the ability to succeed her as CEO. In my opinion, Christine felt threatened by these women and started undermining their abilities, creating small, subtle stories of incompetence.

Meanwhile, the employees who were mostly women in Level 3 leadership positions, were con- strained by golden handcuffs. There wasn’t much room to move to another public company in Vancouver that paid what lululemon did. No one wanted to rock the boat and be fired or quit.

The original Super Girls were now 35 years old with a mortgage and kids they were sending to private school. Where were they going to go? Aside from other Vancouver companies like Aritzia, Arc’Teryx, or MEC (Canada’s version of REI), there weren’t too many options. Once a person has lived in Vancouver, they will not leave, as Vancouver is easily the most livable city in the world.

One director, Brad Martin, left the Board to pursue a board position with FedEx. With his parting words, he reiterated what the Board had been telling Christine for two years. He told her that lululemon had “B-class” executives heading up HR and other top management positions. We did not have the people to take the company to the next level, Brad said.

Despite this warning, Christine would not fire her head of HR, and the Board would not fire Christine. One can only call the board members incompetent for not taking action.

A CEO in Survival Mode

I think because Christine knew she had been caught in multiple lies, she moved quickly to control her job security and business reputation. My own personal development had illustrated to me what I do in survival mode, and my sense was that Christine was in that same place.

Christine had the ability to control Michael Casey, her top Power Women, and CFO John Currie. It seemed that she had shifted from “building a company” to boosting her own financial position by maximizing short-term stock value. Perhaps she suspected her time as CEO was limited.

The best and easiest way to maximize stock was to harvest lululemon’s brand power by lowering standards and expenses and increasing prices for the short-term. She could lower the standards because the top people were under her control – except for Delaney Schweitzer. Many employees could not risk exposing a mounting crisis because they all needed their high-paying public company salaries.

The Level 5 leader defined in Good to Great develops an amazing pipeline of people under them. Christine’s lack of such a pipeline ironically gave her more power over the Board as it made her seem irreplaceable.

2011 had been a great year in the media for Christine. She ended the year as the Globe & Mail’s CEO of the Year, the first woman to earn that honour.

All things considered, maybe she was not the problem.

Personal Reflections and Decisions

Maybe the problem was me. If I genuinely believed in the principles of personal accountability and authenticity, I had to consider that possibility.

I continued to believe our directors provided the experience and knowledge the company needed. Most of them had run companies bigger than lululemon. Many were icons of American business. They understood the nuances of being public and how we could avoid being sued in the American legal system. Directors Michael Casey, Marti Morfitt, Emily White, Rhoda Pitcher, Tom Stemberg, and RoAnn Costin told me lululemon didn’t need to change.

All we had to do was keep doing what we were doing. Michael told me we had the best CEO possible and we didn’t need to develop a pipeline for Level 4 executives. Michael thought it would be too expensive to keep a well-paid competent COO in the second-in-command position until Christine’s tenure was up. In retrospect, this was poor corporate governance and I was saddened by the board’s unwillingness to spend money in a fast growing company to help prevent future disasters from occurring.

I decided to do what I believed was right. I flat-out told the Board, “Christine is the wrong person for the CEO job, and she is killing the company. Her hires are dependent on her and are not strong enough to speak up. We are not investing in quality processes, and we are going to have a quality disaster. The employees are unhappy, but Christine has built a wall to prevent you from talking to them. You are out of touch. If we can’t get rid of Christine now, then the issue is not the CEO, it is the Board of Directors. Our number one job is to have a CEO who can add long-term value. Our CEO is strangling the golden goose. If you can’t see you are complicit in the company’s destruction, then for the sake of lululemon, please resign.”

Unfortunately, the directors disagreed with my assessment, and I was back to being a team of one. Lululemon’s stock value kept increasing. We were headed to a $12 billion valuation in the next year, but I knew we were only worth $10 billion. I believed clothing was a bigger market than shoes, but the tide had turned against us to own any future exponential growth. That’s when I knew our foundation was crumbling and we had lost the momentum to overtake Nike.

When I was young and held the Canadian record in the 100-metre backstroke, I was visited by Howard Firby, Canada’s head Olympic coach. He looked at my stroke and changed my stroke technique to that of the world’s top swimmers. As it wasn’t effective, I got to thinking that perhaps Howard had it the wrong way around. As I had beat the time of the top swimmers when they were my age, shouldn’t they be looking at my stroke and trying to emulate what I had done?

Consider this as an analogy for lululemon. As we were producing the best metrics in apparel, shouldn’t people want to figure out what we were doing right and learn from it? Each time someone with outside experience came in, they wanted to change our model into something that was familiar to them. People should have been coming on board to learn from us, not the other way around.

Our director Tom Stemberg – who was the founder and Chairman Emeritus of Staples – suggested I step down and become the Chairman Emeritus of lululemon. This sham title may have meant something to Tom, but it meant nothing to me. Tom needed the stature when he was exited from Staples, but I didn’t. I also thought Tom wanted to control lululemon to make up for his loss at Staples. It was the wrong suggestion for the wrong reasons.

ABC Pant for Men

In the meantime, I had conceived the ABC Pant for the men’s line. I’ve always believed I should never have to think about my clothing and that the feeling when wearing it should be akin to the feeling of being naked. Although not every man is comfortable admitting this, pants can be the most uncomfortable garment to wear, and we all know why.

I realized that we had created these amazing stretch pants for women – why not for men? We, too, want pants that move with our bodies. We want to be able to sit at a desk all day or go on an eight-hour flight and not be concerned with our testicle compression. So, we created a warp knit fabric and made it into a design I called the Anti-Ball-Crusher Pant.

This caused a complete rebellion from the head of branding, a hire of Christine’s from Procter & Gamble, named Laura Klauberg, who was not the best culture fit.

The pants were renamed ABC Pants for fear of any social media backlash. This was a missed opportunity for original, irreverent branding that men would have perfectly understood. Five years later, lululemon started calling the ABC Pant the Anti-Ball-Crusher Pant but by that time I was using the term Anti-Ball-Crusher as a descriptive term for other brands. In 2019, I tried to trademark Anti-Ball-Crusher but was told by my lawyer that because the term was descriptive it was consequently not possible to trademark. In 2019, lululemon sent an aggressive letter to Kit and Ace to stop using the term, (a brave and late attempt) claiming their recent application to the trademark.

The design of the men’s line was moving farther away from meeting the masculine and athletic demand from the market. If lululemon had put adequate focus on men’s apparel, lululemon could have be worth another $10 billion in 2021. As I’ve said, lululemon owned 90 percent of the women’s market before 2011, and declined to 10 percent from 2011 to 2018. Conversely, lululemon had the opportunity to own 30 percent of the global men’s business because no competitor was putting style into men’s athletic apparel yet.

In the early 2010s, I felt compelled to define what a lululemon male was in the following email:

“Our man is not a show-boater or a grand-stander. He has no need for self-promotion or self-marketing. He plays a clean game, led by the desire to win, following the rules of the gentleman’s game.

Our man does not have to talk about himself. He has such confidence in himself as a good person, he is smart enough to know others will do the talking for him: good or bad.

Our person does not need to win with the use of drugs because he competes against himself using his own morals and goals. Overwhelmingly, he wants to have a nice family, a good business and decent friends. He doesn’t want to die early or walk poorly because of sports injuries.

He is a decent person who wins by helping others with no expectation of return. Those he has helped speak well of him when he is not present and would drop everything to be part of his team or to help him succeed in life.

People will give him business because he has integrity and is humble.

To the sport: it is old English / Canadian. The way Steve Nash shows up (even if he isn’t that clean). An “aw, shucks” type of guy. Not the biggest or the fastest but certainly the smartest. He leads his teams by example and never talks about himself.

Rugby players/old school hockey players/swimmers /Tough Mudder participants. We show him doing these sports as it differentiates us from Nike and Under Armour.

Turning our thoughts to the Vancouver male. We know hockey. We know rugby better than the rest of North America, the psychology of swimmers can be exposed.

I believe we can make a connection between Tough Mudder and its required level of cooperation, athleticism, teamwork and what it is to be a lululemon male.

We have to work on these ideas until a new Tough Mudder concept comes, and then commit to owning it.

We need a head of men’s design who will lead the pipeline from the psychology of the athlete, through to the product and then to the educators.

Nothing about this can be siloed.

What do you think?

We can define this person using the words above. We need to show the lululemon male in sports but reacting and being the opposite of what Nike and UA would show.”

High-level Departures, Quality Worries

“Chip kept taking on a lesser role in the day-to-day operations,” says Deanne, who by 2013 had risen to SVP of women’s product, “but at least I still felt his presence on the Board. I always respected what Chip was up to and what his vision was. Right or wrong, I always felt compelled to follow him. So, as he got less and less involved – and as he and Christine started not to get along – I started to think about my own future with the company.”

Delaney, the former EVP of global operations, says, “With a new CEO and new senior leadership, they created the next phase of lululemon. In my opinion, almost a new company. I think for a lot of the original people who started with lululemon, this new vision did not fit with their values, and they subsequently left lululemon.”

Working in the Stores

Part of every new Store Support Centre hire’s onboarding included working an eight-hour shift in one of the retail stores. Through this experience, each employee learned what our Guests thought of the clothing, just by seeing their facial expressions, body language, and comments when they were trying things on. Most importantly, through this process, we got to see what was staying in the change rooms. This type of information doesn’t show up in metrics.

Later, as upper management changed, many of the new people didn’t want to carry on the tradition of working in the stores. In fact, many of the people in upper management didn’t even see most of the stores. As lead director, Michael Casey would not approve chartering a plane to have our senior most management team members visit 10 stores in a few days, so the connection between stores and head office was weakening. Short-term expense savings and public optics became more important than ensuring the business model was working or investing in the health of our highly-paid, very busy, top staff.

But I loved working in the stores, either working as an Educator or in the change rooms once a week, so I never lost my ability to know just by touch or sight the state of our quality.

At that time, there were a lot of subtle things I was noticing, especially in the change rooms. Our Guests didn’t seem to have the right facial expressions when they were trying things on, or they weren’t coming out to show other people how they looked in front of a mirror. Maybe the elastic in the waistband didn’t fit quite as well as it used to, or the stretch of the fabric wasn’t right.

At the cash registers, Guests weren’t buying three items at a time anymore – they were buying two.

The prices were getting too high, the quality was dropping, and we had competition.

The trouble was, this subtle instinctual knowledge was almost impossible for me to verbalize to the Board. I knew something was happening, but as the stock value kept increasing, my communication had little sway.

When I first raised my concerns to the Board, I tried to be proactive and positive about it. In September 2012, I wrote a lengthy message to Michael Casey.2 There were several issues – many related to our culture and quality-control – that I brought forward for Michael’s attention.

Once again, I proposed a “king or queen of Luon,” since Luon was the main fabric we used and comprised 75 percent of everything we sold. This was something I’d asked Christine to take on, but she’d turned it down.

I still strongly believed we needed to have somebody who was the third-highest paid person in the company, and whose sole responsibility was eating, breathing, living, and loving our Luon fabric, and keeping a close eye on every yard of Luon we made.

Leaving on a Jet Plane

Perhaps I was a starter of businesses, while other people were meant to be the operators of existing companies? Perhaps creative founders were destructive and disruptive? Perhaps the lululemon business philosophy wasn’t supposed to work in a bigger company? If so many of lululemon’s directors were telling me I was wrong, then maybe I needed to step out of the way and let Christine prove her long-term value.

I could no longer look the employees in the eye. They knew I was not upholding the culture of integrity and openness with which I had led them. I had told them it was my job to protect them, and I couldn’t fulfill my promise. I was confused as to how I had lost the power to fulfill our vision. Worse, I didn’t know how to reverse my loss of influence.

Our children were young, so Shannon and I decided to move the family to Sydney, Australia. We would be able to pursue mindfulness as a potential brand since the concept had been turned down by lululemon’s directors. In any case, I set aside my dreams for lululemon and chose to focus on my family. If the directors were correct in their view that Christine was running a great company and I was a deterrent by interfering, then we would all benefit by my being far away.

On the other hand, if our investment in people and processes was in tatters and a disaster was imminent, then the proof would reveal itself soon enough.