In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, explores the extent to which underwriting risks and even claims exposures can arise when a company founder or former executive publicly criticizes his or her former company. I would like to thank Sarah for allowing me to publish her article at a guest post on this site. Here is Sarah’s article.
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A variety of D&O underwriting risks can emerge when a former executive publicly criticizes the company they created. Given that social media campaigns by customers have led to securities litigation, is the potential for D&O exposure even greater when a founder and major shareholder is on the attack? The ongoing conflict between Lululemon and its former founder may provide an instructive case study.
Lululemon’s founder and major shareholder, Chip Wilson, has, for some time, been publicly trolling current Lululemon CEO Calvin McDonald and the company’s board on LinkedIn, during interviews with various media outlets, and even with a full-page Wall Street Journal (WSJ) ad. According to a recent WSJ article, Wilson lives near the company’s headquarters and stays in touch with employees. Wilson has recently, and, to reiterate, publicly, likened Lululemon’s mistakes to a “plane crash.” While Lululemon recently experienced declining U.S. sales, product-quality issues, and a 50% stock decline, since McDonald became Lululemon’s CEO in 2018, annual sales have more than tripled.
Wilson stepped aside as CEO in 2005 after selling 48% of Lululemon to a private-equity firm. The company went public two years later, and Wilson remains its largest individual shareholder with a roughly 8% stake, now worth about $1.8 billion. According to a Lululemon spokesman, Wilson has not been involved with the business in any real capacity for over 10 years, and McDonald and Wilson have met in person and speak by phone, which is how McDonald communicates with other large shareholders. Wilson has publicly disagreed with this categorization of his lack of involvement and has attacked Lululemon’s current creative vision.
Whether Wilson’s public complaints are being taken seriously by Lululemon or by the market is unclear. In 2013, some D&O Diary readers may recall that Wilson suggested in a TV interview that sheerness and pilling problems with Lululemon pants were the fault of its customers. In particular, Wilson said “[q]uite frankly, some women’s bodies just actually don’t work for it.” Later that year, he apologized and stepped down as chairman and left the board in 2015. Thus, given Wilson’s history with Lululemon and public commentary, it may be difficult to predict whether Lululemon will face D&O exposure in the near term.
There are, however, scenarios familiar to D&O underwriters that may arise from the dynamic between Lululemon and Wilson, including securities claims risk, derivative claims, influence, and governance instability risk.
Securities Claims Red Flags
When a founder, like Wilson, publicly challenges company leadership decisions, securities claims against a company like Lululemon may arise. In particular, shareholders may point to “red flags” that may sound like Wilson’s claims regarding failures in vision and quality; like stalled sales in the Americas and company stock drop. Depending on Lululemon’s narrative, such “red flags” may support future plaintiff shareholder allegations that management concealed or downplayed adverse trends.
When a founder is also a major shareholder, as in Lululemon’s case, criticisms may also carry an insider-like weight that may be put forth as credible evidence of what management “should have known.” Wilson’s repeated assertions that Lululemon lost its innovative edge, diluted its brand identity, botched product development, and mishandled market competition are being made at the same time as Lululemon’s recent financial reforecast amid declining U.S. sales, quality complaints, and a 50% stock drop.
Wilson’s statements, when amplified across LinkedIn, interviews, and a full-page Wall Street Journal ad, have the potential to be reframed by shareholders as indicators that the board and executives failed to timely disclose operational challenges or known risks under Item 303 of Regulation S-K. Even if Lululemon’s management disagrees with Wilson’s claims, plaintiff shareholders can juxtapose his criticisms against the company’s disclosures to support a scienter narrative that management ignored or concealed problems that insiders (Wilson) were sounding alarms about.
Derivative Claims and Oversight Liability
Founder criticism, like Wilson’s, may also increase the risk of derivative litigation, including Caremark-style oversight claims that focus on board-level monitoring failures. Wilson has publicly spotlighted product-quality issues, failed acquisitions (like the Mirror deal), misaligned brand strategies, and competitive missteps. Plaintiff shareholders may reframe Wilson’s critiques as evidence that the Lululemon board failed to oversee product development risks, ignored competitive threats, or permitted operational drift inconsistent with the company’s historical brand and performance. Quality concerns relating to items such as the discontinued Breezethrough leggings, rapidly pulled from the market after customer backlash, may be cited in support of the failure of oversight theories.
Oversight claims can seek to hold directors personally liable for harm to the corporation and may involve allegations of bad faith, may implicate Side A coverage, making them among the most financially consequential exposures for D&O carriers.
De Facto Director Allegations and Founder Influence Risk
D&O risks may also arise when founders maintain informal influence after leaving the board. According to the WSJ article, Wilson stays in touch with Lululemon employees, lives near headquarters, and maintains some level of communication with the CEO, albeit as a significant shareholder.
Thus, there may be an alleged inference that Wilson continues to exert meaningful influence over corporate direction, potentially treating him as a de facto director or shadow fiduciary. Of note, if Wilson is named as a defendant in a shareholder suit, there may not be coverage for him as an “Insured Person” under Lululemon’s D&O policy, as he is no longer a company executive or board member.
In addition, D&O underwriters may want to consider that Wilson’s public commentary may undermine the current board’s ability to assert independence, a key defense against fiduciary-duty allegations. A founder with informal, but visible, power may destabilize formal authority structures and create ambiguity around who is responsible for strategic decisions. Especially when, as the WSJ article points out, Wilson has support from certain Lululemon current and former employees.
Proxy Contest and Governance Instability
In that vein, founder attacks may heighten the risk of governance instability, including potential proxy contests or contested elections. Although Wilson has not formally initiated a proxy challenge, his public posture, combined with his 8% stake and history of influencing corporate direction, may signal future intent. Proxy contests can generate Books and Records demands, disputes over board independence and qualification, and challenges to compensation or strategic decisions. D&O exposure can, as a result, increase because such shareholder challenges may be expensive to defend and lead to litigation. From a D&O perspective, creating the appearance of governance volatility, as Wilson has publicly done, may itself be a risk driver, as unstable board environments can lead to deteriorating shareholder and market sentiment.
Conclusion
While, as the WSJ article points out, Wilson may be an extreme case of post-founder syndrome, the ability for founders to attack or criticize the companies they created has been amplified by social media platforms. Thus, as companies mature and leadership changes, D&O underwriters may want to take note of how the founder, even if they remain a large shareholder, communicates online.
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