This morning, we have news that two high profile corporate leaders have declared that they will be stepping down. Dan Akerson at General Motors (GM) and Chip Wilson at Lululemon (LULU) have both declared their intention to leave their companies, Akerson as CEO and Wilson, the founder of Lulu, as Chairman.
The circumstances are completely different. Akerson is retiring earlier than expected for personal reasons and many who believe that he has done an outstanding job turning around the automotive giant are sorry to see him go. Wilson, on the other hand, is resigning as Chairman (he will stay on the board) amid controversy surrounding some comments about customers and some quality concerns.
Lululemon has also announced that Laurent Potdevin, most recently the President at trendy TOMS footwear, will replace retiring CEO Christine Day. Potdevin has a record of success and, while Wilson built an amazing success story at LULU, his relinquishing the spotlight is seen as a positive. LULU was higher in pre-market trading this morning as traders expect the company’s fortunes to improve under Potdevin’s guidance, but I am not convinced.
I am English, you see, and old enough to remember the saga of Gerald Ratner. Ratner was the founder and CEO of a massively successful jewelry chain in the UK in the 1970s and1980s. Successful, that is, until he jokingly described the company’s products as “total c---” in a speech. Ratners Jewelry came close to collapse, and the founder and Chairman was forced to resign. The problem wasn’t that he had spoken in a derogatory way about the products, it was that in doing so he had insulted their customers’ intelligence. They quickly started to buy their c--- elsewhere.
When Chip Wilson said that the brand’s yoga pants didn’t work for “some women’s bodies,” then, I had an overwhelming sense of Déjà vu. As if that wasn’t enough, Wilson’s “apology” told us that he was sorry about the reaction and the potential damage done to his staff, rather than what his comments implied about Lululemon’s customers.
Apparel, like mass retail jewelry, is a trendy business, and damage to a brand is hard, if not impossible to reverse. Fairly or not, to many people the name Lululemon now conjures up an image of a corporate culture of smug arrogance rather than customer service. I have no doubt that Potdevin is good, but he may not be good enough in that environment.
The corporate culture problems at GM since the restructuring are different, but also relate to something with which I have experience. In my career as a forex broker, I was lucky enough to live and work in both Russia and Poland as those countries began to embrace capitalism after decades of Communist rule. The people and cultures of the two countries are very different, but there was one hangover from those days that was shared. We had employed the most dynamic, market oriented people we could find, but when faced with a problem, even they focused on avoiding blame and passing the problem up the chain, not finding a solution. This behavior was ingrained over decades when avoiding blame could not only save your job, but also your life.
I am not saying that GM’s management are Communists or that their lives have been at risk, but from what we have heard about the old GM’s reluctance to embrace new policies, products and technologies, it sounds like a similar level of institutional inertia. The good news from my experience, however, is that we quickly changed the behavior in both Russia and Poland. I borrowed from a friend who was a fellow expat and country manager for a large pharmaceutical company. He told his local employees not to come to him with a problem unless they also had at least two solutions from which he could choose. After a short while of considering possible solutions, he said, the best one usually quickly became obvious to the person who had identified the problem, and a decision was made. I adopted the same policy with the same results.
Inertia at the corporate level can be changed, and Mary Barra has already indicated that she is capable of changing it. She is a career GM woman, so is trusted by and understands those whom she must change. She has, however, in her “No more c--- cars” comment (there’s that word again!) demonstrated that she has bought in to the notion of a “new GM” and is not afraid of change.
GM and LULU are both facing changes at the top, but my opinion of the stock remains the same in each case. Barra will continue, and could even accelerate the turnaround in GM and, as the global recovery grinds on, further appreciation in the stock looks likely. Potdevin, on the other hand, has to deal with a fundamental image problem in a trendy market. I believe the damage to LULU has already been done, and the stock will suffer as the next couple of earnings releases reflect that.