Lululemon's Board Makes Lemons Out of Lemonade.

My familiarity with this story comes from a Peter Lynch-style research experience.  I passed a Lululemon store and had no idea what it was; my seventeen year old daughter said to me with some exasperation, "Dad, it's my favorite store."  I then had a cup of coffee while she went in and looked around with great enthusiasm.  Subsequent to that experience, taking yoga classes to help my soccer-strained low back, I noticed that every woman in the class seemed to have some piece of Lululemon gear.

So, here's the bottom line on this story of yet another CEO departure:

"Over her (CEO Christine Day) tenure, Lululemon's annual revenue more than quintupled to $1.37 billion, profits rose nearly nine times to $271 million, and the stock climbed more than five times higher."

So the company has a quality control snafu on one of their signature products, the yoga pant.  The CEO takes the fall?  Yes, here's a board that isn't afraid to act.  Is that true?  If what's published is accurate one can infer that they completely failed to proactively do their jobs during the period of explosive growth the Wall Street Journal describes.

The board is seemingly well populated by leaders who have track records with high quality, leading branded consumer products from premium coffee to nasal sprays.   But, how could they have let things come to this?

CEO Daly seems to have adopted the Mickey Drexler model used in his first tenure at The Gap. The Journal cites the CEO saying,

" She told the board she had become exhausted working 18 to 20 hours a day and didn't want to commit to the three to four years of heavy business travel needed to implement international expansion plans, according to a person familiar with the matter."

Any board member who had a pulse during the years of Lululemon's growth under CEO Daly should have seen this and known that it was unsustainable personally and undesirable from a risk perspective.  Drexler's time-intensive, high mileage cross country store tours with his family led to a predictable burnout.  This problem is not new.  A passionate, committed leader, who perhaps doesn't know how to delegate, needs the proactive help and support of her board before things go wrong.

And, what exactly did go wrong?  A quality control failure from an overseas vendor, implying both a bad vendor monitoring system and too much risk.  Now, shareholders are told there will be more hires to beef up this function.  Really?  Now?  What about before this problem occurred?  Were staff additions to the organization sacrificed for a penny or two of additional EPS?

Imagine Starbucks announcing a recall of a Honduran High Mountain Super Preemo Blend because of a sharp edge on the aluminum foil package closure that cut a customer's hand.  All packages pulled from stores, refunds, apologies and life goes on.  Would the CEO be asked to resign?  Not hardly.  Would Apple's Tim Cook be asked to resign because of Dickensian sweat shop conditions in its top Chinese supplier?  Ridiculous.

There's more to this story than meets the eye.  As shareholders, they should (but won't) look to their elected board.  An expensive new CEO hire, a new, bigger executive team, and a larger quality control and vendor management organization.  Organizational development is not easy, but it is absolutely front and center for any fast growth company, especially in the fickle, fashion-driven business of Lululemon.

Boards can be asleep when the engine is humming and when it is throwing a rod.  This board needs to put on their yoga pants, and collectively get into some inverted postures to get their blood flowing and wake up.