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.”