Little Black Stretchy Pants

by Chip Wilson

  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 pops 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 recently.

  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—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 pop 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 we’d signed a binding agreement with PepsiCo, she said, not to disparage them any further.

  This surprised me. I knew nothing of that agreement. I asked Christine if she was sure it existed. She assured me it did. When I got back to Vancouver a day or two later, I asked Erin Nichols 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.

  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.’”

  Hiring Six Months in Advance

  In formulating the 1998 business model, our employees averaged twenty-two-years of age. Very few men were attracted to our company at that time. This was likely because the product was 90 percent feminine, though it may have also had something to do with men being less interested in personal development in 1998.

  With an employee pool comprised primarily of women, I could foresee a time of risk when 10 to 15 percent of employees would take maternity leave at any one time. This maternity 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 would 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 each person had to have a nominee they were developing to take their position during maternity leave.

  There were those outside voices who were shocked that we could have open and undefended maternity 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 maternity succession planning would mean our women-driven company would fall into mediocrity.

  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 (a.k.a. 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 pipeline, we hired people six-months before we needed them. However, the world was changing exponentially with digital and smartphones. 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 short maternity leaves as compared to Europe and Canada. We spent 10 to 15 percent more on labour costs than most companies to ensure the pipeline was intact.

  If a CEO stops hiring six months in advance to decrease salary expense, the company will show a short-term profit, 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 there was no reason to upset the apple cart.

  I innately understood we would have no extra people at a time when an amazing opportunity would present itself, and experience told me such an opportunity presented itself every five years. 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.

  Level 5 Leadership

  I thought again of Good to Great, and many of Jim Collins’s other writings, which underpinned lululemon’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.42

  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 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 tra
ining 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 the hired Level 4 positions were killing both the advancement opportunities for the Super Girls and the company itself.

  It made me wonder if Christine had been deliberate about this as 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 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 the interim CEO if Christine was 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 Executive Vice President, 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. I did not agree. In my opinion, Christine felt threatened by these women and started undermining their abilities with small, subtle stories of incompetence.

  Meanwhile, the employees who were mostly women in Level 3 leadership positions, were constrained by golden handcuffs. There wasn’t much room to move to another company in Vancouver. No one wanted to rock the boat and be fired or quit.

  The original Super Girls were now thirty-five 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, since 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 the Directors 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.

  A CEO in Survival Mode

  I think because Christine knew she had been caught, 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 exactly that 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 slowly occurring 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 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 top people in the second-in-command position until Christine’s tenure was up.

  I decided to do what I believed was right. I flatly 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 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 and then advise, not the other way around.

  ABC Pant for Men

  In the meantime, I conceived the ABC Pant for the men’s line. I’ve always believed I should never have to think of 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 worst 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 sit at a desk all day long or go on an eight-hour flight to Berlin 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 Christine-hire named Laura Klauberg fr
om Proctor and Gamble. To say Laura was not a culture fit is an understatement.

  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 understood perfectly (five years later, lululemon started calling the ABC Pant the Anti-Ball-Crusher Pant).

  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 Senior Vice President 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 Executive Vice President 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 the culture and onboarding was that everyone in the Store Support Centre worked in the retail stores, one day a week, for eight hours. That way, we all learned what our Guests thought of the clothing, just by 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.