NEW YORK (MarketWatch) — Best Buy Co. said Monday that founder Richard Schulze will resign as chairman, after its investigation of former chief Brian Dunn found that Schulze acted “inappropriately” in failing to bring the allegations of Dunn’s personal misconduct to the board. The electronics retailer also said Dunn, who resigned last month, did not misuse company resources.
Dunn didn't misuse funds: Best BuyBest Buy's investigation found that ex-CEO Brian Dunn violated company policy by engaging in an inappropriate relationship with a female employee, but found no misuse of company resources. Karen Talley has details. (Photo: Reuters) Schulze, who has a 20% stake in the Richfield, Minn.-based company, will resign as chairman of the board after Best Buy’s /quotes/zigman/219712/quotes/nls/bby BBY +1.48% annual meeting on June 21. He’ll be succeeded by Hatim Tyabji, currently chairman of the audit committee and a Best Buy director since 1998. “This is a big deal,” said Janney Capital Markets analyst David Strasser. “This makes the decision about who the new CEO is even more critical to the company. Now there’ll be no ‘old-school’ decision makers in charge. The new CEO will come in with complete control over the company.” Incoming Chairman Tyabji has more than 40 years of experience in various tech-industry segments, Best Buy said. He’s been chairman and chief executive of Bytemobile, a provider of traffic management and video optimization for mobile-network operators. His background “makes him well suited for the role and for understanding the degree of change that’s necessary,” commented Credit Suisse analyst Gary Balter. “The board will now have more autonomy when charting the company’s trajectory.”
Dunn was with Best Buy for 28 years; in April director Mike Mikan was named interim chief executive. Richard Schulze The former chief executive violated company policy by engaging in an “extremely close personal relationship with a female employee that negatively impacted the work environment,” the company said. See related story on Dunn’s resignation. “[Dunn’s] relationship with the female employee demonstrated extremely poor judgment and a lack of professionalism, but the inquiry revealed no misuse of company resources,” the board said in a statement, adding that the inquiry also revealed no misuse of corporate aircraft. Shares of Best Buy rose 1.5% to $19.57 on Monday, when the broader markets declined. Analysts have said that the company’s investigation into Dunn’s conduct was a distraction at a time when it’s trying to fend off competition from Amazon.com Inc. /quotes/zigman/63011/quotes/nls/amzn AMZN -1.57% to Wal-Mart Stores Inc. /quotes/zigman/245476/quotes/nls/wmt WMT -0.24%.
The company has announced plans to lower costs and cut the overall square footage of its stores, increasingly viewed as product showrooms. Best Buy is remodeling locations with a test format focusing on mobile, video and broadband connections, its Geek Squad tech-support service and as a place to pick up purchases made on its website. See related story on Best Buy’s move meets with investor skepticism. In March, Best Buy reported a fourth-quarter loss, hurt by lower sales of traditional electronics including notebook computers and televisions, product lines that are its bread and butter. The conclusion of the Dunn probe also gave investors some relief as it didn’t involve any other senior management as had been feared, according to Sanford C. Bernstein & Co. analyst Colin McGranahan. “Schulze has been actively involved in developing the company’s strategy,” he said. “The combined departures of the chairman and CEO suggest the potential for a cleaner break with history and more strategic flexibility going forward. We continue to believe that the outlook for Best Buy remains challenging.”
Schulze failed to raise the matter to the audit committee of the board when the allegations were first raised with him in December, according to the company. “In December, when the conduct of our then-CEO was brought to my attention, I confronted him with the allegations (which he denied), told him his conduct was totally unacceptable and contrary to Best Buy’s policies and everything I, and the company, stand for,” Schulze said. “I understand and accept the findings of the audit committee.” Best Buy also said Dunn’s total severance package will be $6.64 million. That includes a severance payment of $2.85 million, a previously earned bonus of $1.14 million and previously awarded and reported restricted stock grants valued at $2.54 million based on the company’s closing price on Friday.
Details of friendship The company said its findings came from 45 interviews of 34 current or former employees; searches of emails and other documents on the computers of Dunn and the female employee; and an analysis of expense reports and records detailing Dunn’s corporate use of aircraft, as well as records of his corporate credit card over a three-year period. Best Buy said both parties have said their relationship was a close friendship and nothing romantic or otherwise improper. “Even accepting those statements as true, the relationship nevertheless reflected extremely poor judgment by the CEO,” Best Buy said, adding that Dunn’s perceived favoritism also undermined her supervisor’s ability to manage her. The board’s audit committee found that the inappropriate relationship between Dunn, 51, and the 29-year-old employee in question disrupted the work environment and created friction. She spoke “openly and frequently” about her friendship with him and the favors he provided to her. They both admitted social meetings outside the office, including lunches and drinks both during the week and on the weekend. Dunn also gave her tickets to at least seven concerts and sporting events, and violated company policy by soliciting from a vendor a complimentary ticket for the employee.
