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Schulze's Resignation Cues New Chapter For Best Buy

5/21/2012 12:01:00 AM Eastern

MINNEAPOLIS – The disarray at Best Buy headquarters
hit a crescendo last week with the surprise
resignation of company chairman and founder Dick
Schulze.

But his succession at next month’s annual meeting
by board member Hatim Tyabji, for failing to disclose
a relationship between former CEO Brian
Dunn and a subordinate, could help usher
in a new era for the No. 1 CE chain as it
struggles to find its place in a changing retail
landscape.

“This has undoubtedly been the most difficult
period in Best Buy’s history,” interim
CEO Mike Mikan said in a video address
distributed to employees and posted on
Best Buy’s YouTube page. “It will take some
time for our community to absorb these
changes … [but] given the challenges we
face, Best Buy doesn’t have a day to waste.

Credit Suisse retail analyst Gary Balter
agreed, calling the recent series of events
“an unwanted distraction for a company that needs to
be focused on the core business.”

Schulze founded the company in 1966 with a single
Sound of Music audio shop in St. Paul, Minn., from
which he built an international chain of nearly 4,300
stores with annual sales of $50 billion. He handed
off his CEO title to Brad Anderson in 2002, but remained
an active chairman.

Mikan described Schulze’s successor as “a longtime
member of the board who has deep experience
in the technology world so important to Best Buy and
our future plans.” Indeed, for the past 11 years Tyabji
has been chairman/CEO of Bytemobile, a global provider
of video optimization and traffic-management
systems for mobile network operators. He
is also chairman of Jasper Wireless, which
provides operators with Cloud-based
machine-to-machine (M2M) and devicemanagement
services. He also serves on
the boards of Merchant e-Solutions, Touch
Networks (Australia) and the Missile Defense
Advocacy Alliance.

Prior to Bytemobile, Tyabji was chairman/
CEO of Saraide, a provider of wireless
Internet and data services, and was
also an early board member at Ariba, a
pioneer in e-commerce software for enterprises.
Before that he was chairman/
president/CEO of VeriFone, which provides
transaction automation systems for multiple
retail segments, and he previously spent 13 years at
mainframe manufacturer Sperry, where he rose from
a project manager to information systems president.

Credit Suisse’s Balter described Schulze’s resignation
in a research note as “a major positive move,” and lauded the choice of Tyabji, whose background
makes him “well suited for the role and
for understanding the degree of change that is
necessary.”

A story from the Minneaplois Star Tribune wonder
how much Schulze’s influence will actually
wane. The 71-year-old founder, who will receive
the honorary title of chairman emeritus, will retain a
seat on the board through June 2013, and remains
Best Buy’s largest shareholder, with a voting bloc
of more than 20 percent of company stock.

Schulze has other financial ties to the company
as well, including two leased stores (one
is marked for closure) for which he collected
$965,000 last year, and private aircraft that Best
Buy chartered for $1.3 million in 2011.

In addition, the company purchased more than
$9 million worth of fixtures from his brother Robert
last year, and daughter Susan Hoff draws a
salary as a corporate VP through her work as
founder, chairperson and CEO of the Best Buy
Children’s Foundation.

Separately, Balter chastised the board for taking
too long – six to nine months, it projected
– in finding a new CEO who will hopefully have
“the vision and operating acumen necessary to
right the ship.” But the fact that the company is
mounting a global search, rather than instinctively
promoting from within as it had with Dunn
and his predecessor Brad Anderson, is seen as
another indication that retailer is ready to turn a
new page.

In the meantime, Mikan said he is “working intensely
with the leadership team on a long-term
plan that will position Best Buy to compete in a
much broader and deeper marketplace.

“It is my hope that Best Buy will connect with
many more consumers than we do today, and
build deeper and more lasting relationships with
them,” he said, and expressed confidence that
the company “will come out of this period stronger
and better.”

Mikan also paid tribute to Schulze, who “built
this company with hard work and vision. His decision
to step away should not, and will not, obscure
his many achievements and the legacy he
leaves behind as founder of Best Buy.”

His resignation was triggered by the board’s
investigation into whether Dunn misused company
resources, including aircraft, in the course
of “an extremely close personal relationship” with
a 29-year-old female employee.

Dunn was absolved of the misuse allegations
and received a separation agreement valued at
$6.6 million. He and the employee claimed their
friendship was neither romantic nor improper, although
the board said the relationship “damaged
employee morale and created unnecessary distraction
in the workplace,” and showed “extremely
poor judgment and a lack of professionalism.”

The investigation also revealed that Schulze
was alerted to the relationship in December after
receiving documentation from an unnamed
company executive. According to a federal filing,
Schulze confronted Dunn but failed to bring the
information before the board, the company’s attorneys
or appropriate corporate officers.

In a statement, Schulze said, “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.”

In light of the findings, the board is supporting
a shareholder proposal that would require
all directors to be elected on an annual basis.
The move, said Credit Suisse’s Balter, should
give members “more autonomy when charting
the company’s trajectory.”

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