Business Ethics- Lululemon Fraud Scandal


The clothing company known as Lululemon Athletica was founded in 1998 by Chip Wilson, a well known Canadian Entrepreneur for innovation and marketing. Wilson’s original idea was to create a new type of clothing to wear specifically for people who did yoga. He saw that most athletic clothing was made of cotton which was a sweat inducing and heavy material.  This gave him the idea of offering consumers a lighter, more comfortable style of sportswear. Since then Lululemon has grown to become one of the most prominent and successful suppliers of sportswear for men and women in the world.

Every company in the world wants to achieve the most success possible in their area of expertise. In order to do that, there are many things the company must do. Things like maintaining the proper market prices on your product to maximize profit or using the right marketing plan to persuade the consumers to buy your product instead of your oppositions. When running a business there are many people who you must keep happy to maintain progress. Those are all of your shareholders- consumers, suppliers,shareholders, employees, owners, managers, etc. A business that is ethical is one that operates on a day to day basis the proper way, they conduct their business legally and do what it takes to be successful.

In July 2013, Lululemon was hit with a lawsuit because they were accused of defrauding shareholders by hiding certain defects in their yoga pants. The lawsuit was filed by a shareholder named Houssam Alkhoury who owned 7500 shares in Lululemon. Lululemon has always been seen as a brand that last a while because it can take the wear and tear. But since they were selling pants that were not the advertised fabric they were committing fraud. Due to this, “Lululemon shares fell 17.5 percent… wiping out about $1.62 billion of market value.” The way Lululemon conducted themselves is a perfect example of business ethics. In this case it is a unethical business action. By false advertising and committing fraud Lululemon’s company as a whole will suffer. They lose money, lose consumer interest, lost market value, this list goes on. Businesses are no longer judged on just their ability to provide goods and services but also on the trustworthiness of their brand and the social view of the company. Nothing good can come out of an unethical business decision. A successful business is one that does not put more work into one area than another or uses illegal means of business. The act Lululemon committed is one that they will have to try and recover from but as of now they are just what R. Edward Freeman calls businesses who do not follow proper conduct, “A business in decline.”



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