Athletic wear company Lululemon failed to structure its diversity program to “meaningfully combat discrimination,” resulting in employees continuing to experience discriminatory treatment, according to a derivative action lawsuit filed Nov. 18 by a shareholder against company officers and directors (Wong v. McDonald, et. al.). Criticism of the program allegedly led to a drop in stock prices, the shareholder said.
Lululemon launched the Inclusion, Diversity, Equity, and Action (IDEA) program in 2020, with CEO Calvin McDonald writing that “after many real and impactful conversations with our underrepresented employees and our greater community, we heard loud and clear that we needed to evolve behaviours both within our own walls and our collective,” according to the complaint.
The shareholder accused Lululemon leaders of making “false and misleading” statements about its DEI efforts and investments in reports filed annually with the Securities and Exchange Commission, pointing to a Nov. 20, 2023, report by media site The Business of Fashion. In the article, 14 current and former Lululemon employees described an environment that is “unwelcoming of Black people” and IDEA as a “misguided” diversity initiative.
Among other examples, the complaint noted the article’s charge that Stacia Jones, the vice president and global head of IDEA, was later also named as “head of employee relations, policy, and compliance,” which shareholders said “raises ethical concerns as to how Jones could both fairly investigate claims of discrimination in her employee relations role while also combatting discrimination in her IDEA role.”
Shareholders noted The Business of Fashion article led to more coverage, including a Yahoo! Finance story on Jan. 5, 2024. “On this news, Lululemon’s share price fell $4.90, or roughly 1%, from a close of $496.00 on January 4, 2024, to a close of $491.10 on January 5, 2024,” they said in the complaint, tying allegedly poor DEI practices to negative publicity and a drop in shareholder value.
The shareholder brought the lawsuit, derivatively on behalf of the company, under the Securities Exchange Act of 1934, alleging executives and board members breached their fiduciary duties. In addition to the DEI allegations, the lawsuit also claims the company experienced issues with a new legging launch and concealed inventory allocation issues, which further hurt stock prices.
Lululemon could not immediately be reached for comment.
