Lululemon Athletica CEO Laurent Potdevin had a multi-year relationship with a female designer at the company he oversaw, and this was one of the issues that contributed to his departure, sources familiar with the situation tell CNBC.
The employee in the relationship with Potdevin resigned in 2014, after the relationship had begun. Lululemon later brought her back to work on discrete company projects as a contractor. In January 2018, it did not renew her contract. CNBC is not identifying the employee to protect her privacy.
The sportswear retailer on Monday announced Potdevin's resignation, saying he "fell short of ... standards of conduct" to respect employees and show integrity. Sources previously told CNBC that it was not one particular action that led to the resignation.
Lululemon's board has started searching for a new global CEO.
Potdevin's relationship with the designer is one of several instances in which he demonstrated a lack of leadership at Lululemon, sources tell CNBC. Former employees say he had a negative impact on the company's culture, for example, which they described as toxic.
"Any time violations of company policies or standards of conduct are brought to our attention, we take appropriate action," a spokesperson for Lululemon said.
Efforts to reach Potdevin were not successful.
Potdevin took the helm of Lululemon in 2014, as the company was facing operational challenges.
Lululemon was among the first to kick off the craze of the "athleisure" trend, but faced a rush of competitors investing the space. It was criticized for lack of innovation and struggled to keep customers willing to pay its high prices.
Meantime, several major sportswear retailers, including Sports Authority, struggled to keep up with competition from big-box retailers and Amazon.
Under Potdevin, Lululemon has sought recapture its growth by maintaining leaner inventory, focusing on selling directly to its customers and fostering a clearly defined brand. The company has recently been growing in the men's category after deciding last year to wind down its Ivivva business for kids, closing those standalone stores.
"Laurent Potdevin's surprise resignation ... may be a blessing in disguise given that Lulu's solidified brand position, scaled operations, and increasingly global footprint should attract more experienced, marquee CEO candidates compared to the last search in 2014," said Omar Saad, an analyst at Evercore ISI.
Shares of the athletic wear company closed up about 1.5 percent Tuesday, in an unusually erratic day of trading. They had fallen more than 3 percent after market close Monday on the news of Potdevin's departure.
The #MeToo movement, which has motivated men and woman to come forward with their stories of sexual harassment or impropriety, has had a growing impact on corporate America. It has led to a number of departures including NBC's Matt Lauer, SoFi's Mike Cagney and Amazon Studios chief Roy Price.
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