Best Buy Co. founder Richard Schulze will step down as chairman after a probe found he failed to tell the board about allegations that then-Chief Executive Officer Brian Dunn was having an inappropriate relationship with a female employee.
The internal probe found Dunn acted inappropriately, such as sending multiple e-mails and text messages to the woman, lending her money and giving her free tickets to concerts and sporting events, Richfield, Minnesota-based Best Buy said today in a statement. Schulze will be replaced by director Hatim Tyabji after the annual meeting on June 21.
Schulze’s resignation marks a complete change at the top of Best Buy, which has struggled to compete against rivals such as Amazon.com Inc. and Apple Inc. Two weeks before Dunn’s resignation was announced, the company reported a $1.7 billion fourth-quarter loss and said it would close 50 big-box stores.
“If none of these things had happened,” Best Buy “still faces one of its most significant challenges in the history of the company,” Brad Anderson, Best Buy’s CEO before Dunn took charge in 2009, said in a telephone interview. “They have a tremendous destabilization of power at the top of the organization, both at the CEO level and the chairman level.”
Director G. Mike Mikan is serving as Best Buy’s CEO while the board seeks a permanent replacement. The company has said that search may take as long as nine months.
Best Buy rose 1.5 percent to $19.56 at 4:03 p.m. in New York. The shares have declined 16 percent this year.
Dunn, 52, and the 29-year-old female employee, who wasn’t identified, acknowledged meeting for lunches and drinks during the work week and on weekends among numerous incidents that “reflected poorly on the CEO’s judgment,” according to the audit committee’s report on the investigation.
“The growing awareness and speculation surrounding the friendship created friction and disruption in the workplace and, according to her supervisor, impeded efforts to supervise the female employee,” the committee said.
Dunn gave the woman tickets to at least seven concerts and sporting events and engaged in “a significant amount” of texting and mobile-phone conversations with “no identifiable business purpose,” the company said. On one four-day and one five-day trip abroad last year, Dunn contacted her by mobile phone at least 224 times, including 33 phone calls, 149 text messages and 42 picture or video messages, the company said.
He also loaned her about $600 of his own money so she could change a plane ticket from Las Vegas, Best Buy said.
Schulze was made aware of the allegations about Dunn in December. While he confronted Dunn with the complaints, he failed to inform the board’s audit committee about them, the company said. It also was “inappropriate” for Schulze to reveal to Dunn the identity of the employee who raised the concerns because of “serious risks of employee retaliation and company liability,” Best Buy said.
Schulze helped start Best Buy as a single store with three employees in 1966. Dunn was hired as a salesman at one of the company’s stores in 1985 and went on to become a store manager, a regional manager and regional vice president. He was named executive vice president of U.S. retail operations in 2002, a few months before Schulze stepped down as CEO and handed the job to Anderson, another company lifer.
Schulze had known Dunn for years and supported his promotion to CEO, saying in 2009 that he was a product and steward of Best Buy’s “unique culture.”
It’s problematic “if you’re very close to the person whom you’re monitoring,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “The closer you are, the less objective you are and the less effective you’re going to be, that’s the issue.”
Schulze still is Best Buy’s largest investor with 69.2 million shares, a stake of 20 percent, according to a filing with the U.S. Securities and Exchange Commission last week.
The company announced Dunn’s resignation last month, saying that the change was part of a “mutual agreement” that new leadership was needed. The company later said that a board committee was probing Dunn’s “personal conduct.” The probe found that Dunn violated company policy by engaging in “an extremely close personal relationship” with an employee, the company said today.
Both Dunn and the employee have said the relationship was a close personal friendship that wasn’t romantic, the company said. Best Buy found no misuse of company resources or aircraft.
Dunn will receive a severance package of about $6.64 million, which includes previously earned bonuses, restricted stock grants, a severance payment and pay for unused vacation time, Best Buy said.