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The Big Story Blog: May 14, 2012 Archive

Monday 5/14/2012
What's Best Buy's future?

Posted at 9:14 AM on May 14, 2012 by Paul Tosto
Filed under: Hed

An internal investigation at Best Buy snags company founder and Twin Cities business icon Richard Schulze, who agreed to step down this morning as chairman. What happens next at Best Buy?

Best Buy probe points a finger at Schulze

Posted at 9:18 AM on May 14, 2012 by Paul Tosto
Filed under: Retail

Richard Schulze, one of the great Minnesota business success stories, praised in his career for doing things the right way, today said he would step down as chairman of Best Buy, the company he founded, for doing the wrong thing.

20081211_dickschulze_2.jpg

An internal Best Buy investigation released this morning said Schulze knew CEO Brian Dunn was engaging in "in an extremely close personal relationship with a female employee that negatively impacted the work environment," but failed to tell the board's audit committee.

Best Buy said:

It was determined that (Schulze) acted inappropriately when he failed to bring the matter to the Audit Committee of the Board of Directors in December 2011, when the allegations were first raised with him.

"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. I understand and accept the findings of the Audit Committee," said Mr. Schulze.

In light of these findings, the Audit Committee of the Board will launch an effort to review and enhance, if appropriate, Best Buy's relevant corporate policies and procedures. The goal of this review is to ensure a positive and consistent workplace environment for all employees at all levels.

The company said Schulze will serve out the remainder of his term as director through June. But it's another blow to Best Buy, a company already struggling with the future of electronics retailing.

The report accused Dunn of "extremely poor judgment and a lack of professionalism," but found no inappropriate spending of company funds.

We'll be reading through and posting documents and information today. But here's the conclusion of the Best Buy internal investigation:

We find that the CEO violated Company policies with respect to inappropriate conduct, conflicts of interest, and vendor gifts, but we find no evidence of misuse of Company resources.

As the CEO of a publicly held company, he was in a position in which his leadership skills were critical to his capacity to oversee approximately 167,000 employees and to maintain the confidence of shareholders and investors. Here, the CEO developed a close personal relationship with a subordinate that negatively impacted the work environment. Such behavior was disruptive and reflected poorly on the CEO's judgment.

Further, by unilaterally confronting the CEO in December 2011, the Chairman failed to act in a manner consistent with the Audit Committee's mandate and good governance practices, and he created serious risks of employee retaliation and Company liability.


Fallen Best Buy CEO gets $6.6 million exit package

Posted at 10:10 AM on May 14, 2012 by Paul Tosto
Filed under: Retail

Best Buy chief executive Brian Dunn resigned in April after allegations surfaced he had an inappropriate relationship with a female subordinate. But he still exits with a package worth more than $6 million.

Best Buy made details of the exit package available this morning as it released the results of its internal probe of Dunn's behavior.

The investigation found no evidence that Dunn misused company funds or aircraft. But slapped the ex-CEO for violating company policy by "engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment" a relationship that "demonstrated extremely poor judgment and a lack of professionalism."

Dunn still leaves with a big payday, though

After the investigation, he and the company negotiated a separation deal, including:

-- Previously earned FY2012 bonus: $1,140,000
-- Previously awarded and reported restricted stock grants of 131,876 shares, valued at close of business on Friday, May 11, 2012, ($19.28 per share), totaling $2,542,569
-- Severance payment of $2,850,000
--Compensation for unused vacation: $106,742
Using the May 11 stock price for calculation, the company calculates the total value of the severance package is $6,639,311.

As part of the deal, Best Buy said Dunn agreed to three-year non-compete deal with Best Buy, up from the usual one year for executives leaving the company.

Market likes Best Buy probe, changes

Posted at 10:57 AM on May 14, 2012 by Paul Tosto
Filed under: Retail

The fallout from an internal Best Buy probe that led its iconic founder today to step aside as chairman may be roiling the Richfield-based company. But the markets are good with it.

In a down market today, Best Buy stock was up more than 1.5 percent in mid-morning trading.

Overall, the company remains in a financial funk. Best Buy stock remains down more than 16 percent so far in 2012.

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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."

20081211_dickschulze_2.jpg

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.

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