Lululemon is facing a new lawsuit that could cost it millions of dollars. A Lululemon shareholder is accusing the 20-year old Canadian athletic apparel brand’s board and a handful of executives of mishandling the exodus of former CEO Laurent Potdevin early this year. In a recently unsealed complaint that was filed late last month in Delaware Chancery Court, Lululemon stockholder David Shabbouei alleges that a handful of Lululemon higher-ups ran afoul of their fiduciary duties to the company’s shareholders.
In particular, Shabbouei claims that the 10-member board of directors breached their duties to Lululemon’s shareholders by failing to failed to adequately address the “toxic” culture of sexual harassment and bullying created by former CEO Laurent Potdevin, who stepped down from his role at Lululemon in February 2018, roughly 4 years after he was appointed to help the company address “operational challenges.” Moreover, the resulting reputational damage to the company, paired with the $5 million in corporate funds that Lululemon paid to Potdevin in severance, has damaged the company’s financial position, the suit asserts.
Lululemon released a statement in early February, saying that Potdevin, who had formerly served as president of Toms and CEO of Burton Snowboards, would resign in connection with behavior that "fell short of [the company’s] standards of conduct" to respect employees and show integrity. At the time of Potdevin’s depature from Lululemon, reports revealed that the Swiss-born CEO had engaged in a romantic relationship with a female designer at Lululemon and that he had created a “toxic” work environment and a “boy’s club.”
According to Elizabeth Torphy-Donzella, who focuses on employment litigation at Shawe Rosenthal LLP, in light of the #MeToo movement, “Eyes are turning to corporate boards of directors. Traditionally loath to get too involved in corporate personnel matters, questions are now being raised about whether their actions or inactions concerning workplace harassment constituted breaches of fiduciary duty.”
And as Shabbouei’s lawsuit demonstrates, “how corporate boards have addressed harassment claims against top executives also are generating lawsuits alleging that the boards breached their fiduciary duties in either tolerating or being willfully blind to obvious executive misconduct to the detriment of their companies (and their shareholders).”
* The case is Shabbouei v. Potdevin, et al., 2018-0847 (Del. Ch.).