Best Buy founder Richard M. 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 said Monday that a probe it launched in March determined that then-CEO Brian J. 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, 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. "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 Best Buy. The retailer, 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 "big box" stores such as 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 a female 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 during 2011, the CEO contacted the female employee by cellphone at least 224 times, including 33 phone calls, 149 text messages, and 42 picture or video messages.
Both Dunn and the employee both said the relationship was a close friendship but not romantic in nature.
Still, the relationship has claimed the executive roles of two longtime 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 severance 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, 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. Schulze will receive the title chairman emeritus, an honorary position, and serve out his term as director through June 13.
He will be replaced at Best Buy by Hatim Tyabji, who is currently chairman of Best Buy's audit committee and CEO of Bytemobile, 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.
Shares of Best Buy closed up by 28 cents, to $19.56, after earlier falling to $19.02, its lowest level in more than three years.