Founder Chip Wilson’s feud illustrates how boardroom politics can impact the bottom line
Lululemon founder Chip Wilson recently turned on the yoga wear retailer’s board, announcing before a shareholder meeting that he would vote against chairman Michael Casey and director RoAnn Costin, whom he helped install only six months earlier. Despite this, they were re-elected.
Daniel Skarlicki, a Sauder School of Business professor who specializes in business leadership, explains the implications of this kind of disruptive corporate behaviour.
How can company founders influence publicly traded companies?
It is not unusual for a founder to care deeply and have strong opinions about the firm’s direction and strategy. However, by taking the company public, the founder essentially sells the firm and has “cashed out,” thereby handing the reins over to a board of directors that is responsible to oversee the strategic direction of the company. The board has a fiduciary responsibility to shareholders. So while the board is likely interested in the founder’s views, it really has no obligation to him or her other than what he or she would be normally entitled to as a shareholder and a potential board member.
Wilson’s letter of non-support sends a strong signal that there is significant conflict on the board, and that he does not have confidence in the board’s leadership. Generally the investment community has a strong preference for certainty, so this type of move will very likely weaken the company’s stock value. This letter, compounded by recent events, such as his public comments that large people should not wear Lululemon products, shows that Wilson’s gestures may be doing more harm than good to the company’s brand.
How can this kind of conflict impact a chairman’s leadership?
Although debate and disagreement is a normal and necessary ingredient in making quality decisions, Wilson’s letter can cause dissension on the board and polarize board members. This type of public conflict can be highly distracting, diverting energy and time away from effectively running the company. Thus the chairman can be severely disadvantaged.
What advice would you have for the Lululemon board in light of these developments?
The board is in a tough spot. On the one hand Casey and Costin could succumb to Wilson’s concerns and resign. On the other hand they could hold steady and stay the course. It is noteworthy that Wilson has not been involved in running the company for over three years, and during that time the company has gone through massive changes. Therefore, he could be out of touch with how to lead Lululemon.
Wilson’s behaviour should not be too surprising to the board, as he has been known to be quite volatile and say things publically that have hurt the company. Whether Wilson will refrain from further disruption is not clear. Stay tuned.