Best Buy's founder Richard Schulze is stepping down as chairman of the beleaguered consumer-electronics chain after the company's investigation revealed that he failed to alert the board of directors when he learned that the CEO was having an inappropriate relationship with a female employee.
Best Buy Co. said Monday that a probe it launched in March determined that former CEO Brian Dunn, who resigned last month, violated company policy and showed poor judgment by having a "close personal relationship" with a subordinate.
The inquiry also found that Schulze, who first heard about the relationship in December when another employee gave him a written statement regarding it, acted inappropriately by not telling human resources or the company's board about the allegations.
"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 statement on Monday. "I understand and accept the findings."
The latest revelations are part of a scandal that couldn't have come at a worse time for the 46-year-old retailer. The company, which has more than 1,400 U.S. locations, is struggling to regain its footing as it faces increased competition from online retailers and discounters. Customers have all but abandoned buying at so-called "big box" stores like Best Buy.
Best Buy reported in March that it widened its net loss to $1.7 billion, and the company announced a major restructuring. That included closing some of its big-box stores, cutting 400 corporate jobs and trimming $800 million in costs in addition to opening 100 smaller, more profitable locations.
Later that month, Best Buy's board learned about the allegations that Dunn was having an inappropriate relationship with the employee after they were brought to the attention of a senior human resources executive — several months after Schulze questioned Dunn. Best Buy's board then hired an outside law firm to investigate the allegations.
The company probe found that although Dunn did not misuse company resources or aircraft related to the relationship, he and the employee were in significant contact for no identifiable business purpose. For example, during one four-day and one five-day trip abroad in 2011, the CEO contacted the female employee by cell phone at least 224 times, including 33 phone calls, 149 text messages, and 42 picture or video messages.
Both Dunn and the employee said the relationship was a close friendship but not romantic in nature. Still, the relationship has claimed the executive roles of two long-time Best Buy executives.
Dunn was a 28-year company veteran who worked his way up from being a sales associate to head of the company in 2009. He will receive a compensation package worth $6.6 million, which includes a 2012 bonus of $1.1 million, stock grants of $2.5 million, a severance payment of $2.9 million and more than $100,000 for unused vacation.
Schulze created the company by opening his first store called the Sound of Music in St. Paul, Minn., in 1966. He was CEO for more than 30 years, overseeing it through decades of steady growth before relinquishing that title in 2002.
Schulze's resignation is effective June 21 at the company's annual meeting. He will become chairman emeritus, an honorary position, and serve out his term as director through June 2013. He will be replaced at Best Buy by Hatim Tyabji, who is currently chairman of Best Buy's audit committee and CEO of Bytemobile Inc., a provider of video optimization and traffic management systems for mobile network operators.
R.J. Hottovy, a Morningstar analyst that follows Best Buy, said Schulze's departure might be good for the company as it seeks a "fresh start." It also may open up the door for a takeover offer, he said, since getting Schulze to part with his shares has been a barrier for private equity companies. Schulze currently owns 20 percent of Best Buy's shares.
"Schulze has been influential in building the business from the beginning," Hottovy said. "That said, the company has struggled to keep its relevance in today's consumer electronics retail environment."
On the news of the departure, shares closed up 28 cents at $19.56 on Monday after earlier sinking to $19.02 — the lowest they've been in more than three years.