Under Armour has been working for nearly two years to turn around its faltering business. Now, the Baltimore-based company acknowledges it needs to transform its corporate culture as well, so it can stand up to scrutiny of the #MeToo movement.
The once predominantly men’s brand with deep roots in football has aggressively courted women in recent years, but found itself the subject of unwanted attention last week after it was disclosed employees were allowed to charge strip club visits and other adult entertainment to expense accounts. The Wall Street Journal reported that Under Armour ended that practice only this year and went on to say the company fostered a workplace culture in other ways too that was demeaning to female employees.
Under Armour declined Friday to elaborate on a statement issued earlier last week saying it has addressed “serious allegations of the past,” and will continue to address behavior in the workplace that violates policies.
“Inappropriate behavior that challenges our values or violates our policies is unacceptable — and will not be tolerated,” the company said. “We are committed to providing a respectful and inclusive workplace.”
But the damage may be done, analysts and observers said.
“Hearing and reading about these things is often a turnoff for women consumers and is very much against the culture of the time,” said Neil Saunders, a managing director for retail of New York-based GlobalData.
Under Armour joins a long list of companies forced to confront inappropriate behavior and discriminatory policies in a #MeToo climate where employees feel more emboldened to speak out and “activist” employees are demanding accountability, experts say.
The Wall Street Journal story said Under Armour executives and other employees over the years had accompanied athletes and co-workers to strip clubs after sporting and corporate events, and that employees were allowed to expense those visits to the company. The newspaper said a company executive alerted employees earlier this year that they were no longer permitted to pay for strip clubs, gambling or other adult entertainment using corporate cards.
The story also found that “some top male executives violated company policy by behaving inappropriately with female subordinates” and that women were invited to an “annual company event based on their attractiveness to appeal to male guests.”
“That it actually existed and was going on a long time is disturbing for sure and shocking to many people,” but “this has been a way of life in many organizations and was accepted and went on,” said Elaine Newman, founder and CEO of Toronto-based Global Learning, a consulting firm specializing in corporate culture and diversity. “The #MeToo movement has shined a light on these kinds of behaviors … and said it’s not acceptable, and we need to take action and stop these practices and examine the way people have been conducting themselves.”
That point came through loudly in the past few days from social media channels to Wall Street. Criticism flared on Twitter, where people questioned why such practices existed at Under Armour in the first place and said management stopped short of taking responsibility and outlining changes. The company’s shares fell nearly 6 percent this week after the story broke, shortly after better-than-expected quarterly results at the end of October seemed to breathe new life into the sagging stock. One analyst warned of long-term consequences.
“With the #MeToo movement building global momentum, we expect these allegations to strain (Under Armour’s) partnerships with influential female athletes, and to dampen brand trust long term,” said Camilla Yanushevsky, an equity analyst at CFRA Research.
The revelations surfaced as Under Armour is tackling challenges on several fronts. After years of rapid growth came to a halt toward the end of 2016, it’s fighting to reverse sales declines in the United States, the brand’s biggest market. It’s struggling to keep a performance-based brand relevant in a hyper-competitive sports apparel category dominated by much larger rival Nike. And it’s trying to control costs and high inventory levels.
The company last stepped into a controversy in early 2017 when founder and CEO Kevin Plank’s praise of President Donald Trump’s pro-business agenda was met with calls for boycotts and tweets of opposition from brand endorsers, including NBA star Stephen Curry, ballerina Misty Copeland and actor Dwayne “The Rock” Johnson.
Workplace culture issues could further hurt the brand as it seeks to expand its women’s business, analysts said. The brand has courted female consumers aggressively, in part by building apparel collections around high-profile endorsers such as Copeland and skier Lindsey Vonn.
“One of the problems for Under Armour has been trying to grow its share of the female sporting and apparel market,” GlobalData’s Saunders’ said, “and these reports make it much more difficult to do that.”
At the same time, it’s not especially surprising from a brand with a masculine image, he said. Rival Nike fired a number of high-level executives this year and took steps to improve pay parity after women complained of sexual harassment and discrimination. Nike CEO Mark Parker apologized to employees in May for the sneaker giant’s “boys culture.”
“Nike’s been through these sorts of issues, and it was quick to take action and managed to hold off damage to its brand,” Saunders said, “but it was starting off from a much better position.”
While Under Armour has some breathing space to sort out problems, Plank’s leadership could be in jeopardy if problems are not remedied fairly quickly, Saunders said
“Where you have a very strong figure at the top of the company while things are going well, that’s fine, but when it is associated with negative behavior, that becomes risky,” Saunders said. “They obviously need to look at the internal culture and take steps pretty quickly to remedy that.”
Companies more often than not find themselves in public relations crises of their own making, often because of issues that have become embedded in the way of doing business, said Barie Carmichael, a Batten Fellow at the University of Virginia’s Darden Business School who has made a career of helping companies out of corporate crises. The impact of those “inherent negatives” will only grow with the company, said Carmichael, who led global communications at Dow Corning for more than a decade after the breast implant controversy.
Problems with behavior, discrimination, environmental practices and other issues are “easy to recognize in retrospect but hard to anticipate,” she said. “Unless you have a culture and leadership that’s perpetually questioning the way you do business, the practices become almost invisible when you’re on the inside. … Suddenly a strategic surprise becomes a blinding glimpse of the obvious.”
The stakes are higher than ever, she argued, as CEOs battle for the next generation’s talent.
Carmichael said Under Armour management deserves credit, though, for recognizing a need to change its culture.
“Before everyone jumps on Under Armour,” she said, “do you want to criticize people beginning to take an honest look at their practices?”
In a letter to employees last week, Plank and company president Patrik Frisk said of The Wall Street Journal report: “This was tough to read. This is not the culture we envision for Under Armour.”
“We believe that there is systemic inequality in the global workplace and will embrace this opportunity to accelerate the ongoing meaningful cultural transformation that is already underway at Under Armour,” the letter read. “We can and will do better.”
(Article written by Lorraine Mirabella)