After Probe Involving Ex-CEO, Schulze Steps Down as Best Buy Chairman
Best Buy Company, Inc., said Monday that founder Richard Schulze will step down from his position as chairman of the board—a move that comes on the heels of the results of an investigation into former-CEO Brian Dunn's conduct.
Global law firm WilmerHale, which Best Buy's audit committee hired to conduct the investigation, found that Dunn violated company policy by engaging in “an extremely close personal relationship with a female employee that negatively impacted the work environment,” according to Best Buy.
The investigation also found that Schulze “acted inappropriately” when he failed to notify Best Buy's audit committee after learning in December about allegations of such a relationship. The report indicates that an unnamed company executive provided Schulze with a written statement from another employee that contained allegations about a possible inappropriate relationship. Schulze did confront Dunn and handed him a copy of the written statement.
“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 in a Best Buy-issued news release. “I understand and accept the findings of the audit committee.”
The investigation report indicated that by showing Dunn the written statement that Schulze had been given, he “revealed to the CEO the identity of the female employee, the employee who authored the statement, and other employees mentioned in the statement,” adding that “this action exposed the employees to potential retaliation and exposed the company to potential liability for such retaliation.”
According to the results of the investigation, Dunn's relationship with the female employee “demonstrated extremely poor judgment and a lack of professionalism,” Best Buy said. However, the investigation found no misuse of company resources and no misuse of aircraft.
The investigation included 45 interviews of 34 current or former employees, searches of e-mails and other documents on computers used by both Dunn and the female employee-as well as their phone and purchase records, and a survey of personnel records. Best Buy's internal audit staff also performed an in-depth analysis of expense reports related to the company's aircraft and Dunn's use of a company credit card.
On Saturday, Best Buy's board of directors elected director Hatim Tyabji to succeed Schulze as the company's chairman, effective at the conclusion of the annual meeting on June 21. Tyabji is chairman and CEO of Bytemobile, Inc.- which sells technology that enable wireless network operators to offer mobile video and Web content to consumers. He is also chairman of Best Buy's audit committee and has served as a director since 1998.
When Schulze steps down as chairman, he will become founder and chairman emeritus, an honorary position, Best Buy said. Schulze will serve the remainder of his director term, which goes through June 2013.
Best Buy said that its board's independent directors have moved from “a neutral position” and now recommend that shareholders approve a shareholder proposal that calls for declassification of the board, which would require every director to stand for reelection on an annual basis. A vote on the proposal will occur at the company's annual meeting next month.
“As a board, we support the proposal for annual elections as an additional demonstration of our commitment to strong corporate governance practices,” Tyabji said in a statement. “Each of us-with no exceptions-will be subject to approval by the shareholders on an annual basis.”
Best Buy said that upon conclusion of the investigation, it reached a separation agreement with Dunn. His severance package totals $6.64 million, which includes a previously earned bonus of $1.14 million, previously awarded restricted stock grants, compensation for unused vacation, and a severance payment of $2.85 million. The company said that the agreement “includes value reflecting the increased period for a non-compete from one year, the standard company policy, to three years.”
To read the full report about the findings of the investigation into Dunn's conduct, click here.
Best Buy in April announced that Dunn had resigned from the company, saying at the time that “there were no disagreements between Mr. Dunn and the company on any matter relating to operations, financial controls, policies, or procedures.”
But it was soon uncovered that Dunn had departed the company amid the investigation into allegations involving his conduct with a female subordinate.
Following Dunn's departure, Best Buy named G. Mike Mikan-who has served on its board since 2008-interim CEO and began the search for a permanent replacement.
The shakeup involving Dunn and Schulze comes amid a major company restructuring involving the closure of 50 big-box stores and 400 corporate layoffs, which were announced in late March.
And the company has recently lost other key leaders: In March, Robert Stephens, founder of The Geek Squad, stepped down from his role as chief technology officer. In early May, news surfaced that Chief Marketing Officer Barry Judge had left the company, and Dave Deno-who served as chief financial officer of Best Buy's international division and as president of its Asia region-subsequently left the company to become executive vice president and chief financial officer of OSI Restaurant Partners.
After stepping down from his position as chairman of the board at Best Buy, Schulze resigned from the board in June and said he would mull options for his 20 percent ownership stake. In August, he announced that he was considering taking the company private and later struck a deal with the board that granted him access to the company’s non-public financial information in order to put together a formal buyout offer. The deal initially gave Schulze until mid-December to make a bid, but the deadline was then pushed back to February.