The Big Story Blog

Old-school approach proved Schulze's undoing

Posted at 12:19 PM on May 14, 2012 by Paul Tosto
Filed under: Retail

When Brian Dunn was named chief executive of Best Buy in 2009, company founder and chairman Richard Schulze praised him as a "product of -- and a steward of -- a unique culture at Best Buy that continues to drive the company's performance."

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As the company's founder and first CEO, Schulze had a huge role in building that culture and the people who came up through it.

That may have been his undoing as he confronted Dunn with allegations of an inappropriate relationship with a female subordinate.

Details released today of an internal Best Buy investigation today reveal Schulze, 71, took an old-school approach to the allegations, one that ultimately cost him his chairmanship.

The report said Schulze got a heads-up on Dunn's inappropriate relationship in December when a company executive provided the chairman with a written statement about the allegations.

Instead of taking it to the board's audit committee as company policy required, Schulze confronted Dunn, showing him the letter signed by the employee raising the concerns. "I ..., told him his conduct was totally unacceptable and contrary to Best Buy's policies and everything I, and the company, stand for," Schulze said in a company statement.

Dunn denied doing anything wrong, according to the investigation, and Schulze did nothing more.

The board discovered the allegations in mid-March after a human resources executive heard them and passed them on to the company's general counsel.

Schulze's informal probe might have worked in a different business era. But not now.

Here's the relevant investigation text:

Allegations about the inappropriate relationship first came to the attention of the Chairman in December 2011. At that time, a Company executive provided the Chairman with a written statement from another employee containing specific allegations about a possible inappropriate relationship between the CEO and the female employee.

After receipt of the statement, the Chairman confronted the CEO and handed him a copy of the written statement, which was signed by the employee who had raised the concerns.

The CEO adamantly denied any inappropriate conduct or romantic relationship with respect to the female employee.

Following this conversation, the Chairman did not share information about the conversation, the CEO's denial, or any of the related allegations with the Audit Committee, the General Counsel,the head of Human Resources, the Chief Ethics Officer, or any other Board member.

The Board of Directors and the Audit Committee learned about these issues for the first time from the General Counsel in mid-March 2012, after allegations of the inappropriate relationship came to the attention of a senior Human Resources employee.

The Company's Audit Committee charter assigns oversight responsibility for ethics matters to the Audit Committee. Given the specificity and potential gravity of the allegations, the Chairman's decision to unilaterally address the situation without promptly notifying the Audit Committee was inconsistent with the Audit Committee's responsibility for such matters pursuant to its charter.

The Audit Committee should have had the opportunity to independently assess the concerns that had been raised and to determine the appropriate course of action, as
happened in mid-March 2012 when the allegations first were presented to the Audit Committee.

Moreover, it was inappropriate for the Chairman to show the CEO the signed, written statement containing the allegations. In doing so, the Chairman revealed to the CEO the identity of the female employee, the employee who authored the statement, and other employees mentioned in the statement.

This action exposed the employees to potential retaliation and exposed the Company to potential liability for such retaliation. More generally, improper handling of employee allegations discourages employees from reporting potentially improper behavior to
their supervisors, adversely affects the Company's governance, and inhibits its ability to run an effective ethical compliance program.


About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.