NEW YORK, United States — The sexual reckoning consuming American society is rooted in the workplace, where toxic notions of power and acceptable behaviour are being identified and aired publicly, often with serious consequences for the businesses in question. Just this week, the Weinstein Company said it will file for bankruptcy protection, after trying and failing to find a buyer while under investigation by New York’s attorney general. It was not able to survive the revelations of Harvey Weinstein’s decades of alleged harassment and abuse.
That’s an extreme case in which a company is deeply intertwined with the misconduct of its owner. Recently, however, two incidents in the apparel industry at Guess and Lululemon — and the radically different way each company reacted publicly — demonstrated the impact that misconduct allegations can have on a business.
Over the last month, Guess has dealt with the fallout of Kate Upton’s allegations of misconduct against co-founder, chairman and chief creative officer Paul Marciano, first published on Twitter with #MeToo on January 31. The model and former Guess campaign star later went into detail with Time magazine, alleging that Marciano had harassed her on and off set in 2010 and 2011.
Marciano denies any wrongdoing, but the stock price dropped a whopping 18 percent the day after Upton’s tweet published. The story kept building over the following two weeks — Upton shared details, more accusations surfaced — during which Marciano personally lost $52.8 million from his stake of about 12.7 million shares. He finally stepped away from active duties at the company on February 20, pending the results of an internal investigation. The saga continues.
Guess has more problems than the troubling allegations against Marciano. The brand is struggling in the US market, and Marciano’s signature marketing strategy feels increasingly outdated. “Sexy is a difficult sell in today’s ‘Me Too’ environment,” says Jane Hali, founder of a retail investment research firm.
Over at Lululemon, the company surprised many in the industry when it announced that chief executive Laurent Potdevin would resign on February 5 after failing to meet the company’s standards of conduct. It is understood that the departure was the result of a range of incidents, including a relationship with a female designer. The limited details that were revealed came out shortly after the announcement, containing the story in the news cycle. The stock fell 5 percent but has since rebounded to almost record-setting heights, and further media coverage has focused on who chairman Glenn Murphy will hire to lead the company, coming off a better-than-expected holiday season.
What lessons can be learned from how Guess and Lululemon weathered sexual misconduct allegations this month? First of all, the brand is more important than any single leader, even a co-founder, and cases of sexual misconduct rarely happen in a vacuum. Today, the scrutiny that comes from allowing a toxic workplace to thrive will not fade away, and companies can either address it immediately or expect the problem to fester into a bigger issue in the future.
If it does not exist already, a system of checks and balances should be established to prevent any single leader from taking advantage of his position, and for employees to trust its leadership to eradicate misconduct at the highest levels.
From a public perspective, a company must address any issue as quickly as possible — and get all the information out initially — so the news does not drag on in the news cycle, as was the case with Upton and Marciano. That means that investigations need to be conducted immediately.
“Companies have an obligation to investigate to the fullest extent possible, quickly, and to make a decision based on evidence, even if circumstantial,” says Jesse Derris, founder of a New York-based PR, branding and content agency that represent Warby Parker, Reformation and other retail clients. The agency has represented Lululemon in the past, but not in regards to this particular incident.
The best way for a brand prepare to respond to such a crisis is to be clear about what it cares about, whether that is climate change or gun control. “It’s far easier for brands who already stand for something to anticipate how consumers will react to a given controversy,” adds Derris. “It also is easier to understand how to react or respond if you've built a brand around a set of core values. Every response is filtered through those values, and it simplifies and speeds up the decision making process.”
It’s not just the consumers who are judging a company’s response, but their employees too. There is no room for error.