Lululemon: A Sheer Debacle in Risk Management

Abstract

In March 2013, Lululemon Athletica removed its inventory of women’s black yoga pants from its stores because recent shipments of the product were “too sheer.”

For a company reliant on a reputation for quality, the news was devastating. Worse, the recall set off a series of PR related disasters that were largely of the company’s own making.

We examine these events in greater detail, and ask:

• Why are companies so ill-prepared to manage risk? • How can companies develop a reliable way to track and respond to risk? • How can companies better manage social media risk? • When do risk-related matters become a board-level issue?

The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: social media, social media monitoring, corporate risk management, reputational risks, corporate governance

JEL Classification: G10, G11, G12, G14, L14, Z10