Best Buy Releases Results of Independent Investigation; New Chairman of the Board Elected
The Board of Directors of Best Buy Co., Inc. (NYSE:BBY) announced that on Saturday, May 12, 2012, it elected director Hatim Tyabji to succeed Richard Schulze as Chairman of the Company, effective at the conclusion of the annual meeting on June 21, 2012. Mr. Tyabji, currently Chairman of the Audit Committee, has served as a director since 1998.
When Mr. Schulze steps down as Chairman, he will become Founder and Chairman Emeritus, an honorary position. Mr. Schulze will serve out the remainder of his term as director through June 2013.
"Hatim's history of leadership combines technology, retail, financial and mobile experience at the most senior levels," said lead independent director Matthew Paull. "He has founded companies, chaired and served on boards and successfully led enterprises through long-term growth and change. The Board is grateful for his many years of service and is pleased to expand his role to Chairman."
"The story of Best Buy is a remarkable American success story," said incoming Chairman Hatim Tyabji. "Dick's leadership and vision changed the landscape of American retail, and he will forever be remembered as an iconic entrepreneur. We join Best Buy's 167,000 employees in thanking him."
The Board also publicly released the results of an independent investigation into personal conduct allegations involving former CEO Brian Dunn, who resigned in April. When these allegations, which were unrelated to the company's operations or financial controls, were brought to the Board's attention, the Audit Committee immediately initiated an investigation. Prior to the completion of the investigation, Mr. Dunn resigned.
When the Audit Committee was first informed of the allegations in mid-March 2012, it hired outside law firm WilmerHale to conduct an independent investigation. In the interest of transparency and accountability, the board made a commitment to publicly release the findings.
Key findings of the investigation include:
· The CEO violated Company policy by engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment.
· The CEO's relationship with the female employee demonstrated extremely poor judgment and a lack of professionalism, but the inquiry revealed no misuse of Company resources. The inquiry also revealed no misuse of aircraft.
· In addition, as part of the investigation, it was determined that the Chairman of the Board of Directors acted inappropriately when he failed to bring the matter to the Audit Committee of the Board of Directors in December 2011, when the allegations were first raised with him.
"In December, 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," said Mr. Schulze.
In light of these findings, the Audit Committee of the Board will launch an effort to review and enhance, if appropriate, Best Buy's relevant corporate policies and procedures. The goal of this review is to ensure a positive and consistent workplace environment for all employees at all levels.
In addition to electing a new chairman, the independent directors of the board have moved from a neutral position to a recommendation that the shareholders approve the shareholder proposal recommending declassification of the Board, which would require every director to stand for reelection on an annual basis.
"As a Board, we support the proposal for annual elections as an additional demonstration of our commitment to strong corporate governance practices. Each of us - with no exceptions - will be subject to approval by the shareholders on an annual basis," said Mr. Tyabji.
The full report can be viewed at www.bby.com.
The inquiry relied upon voluminous interviews, documents and other data. The inquiry included 45 interviews of 34 current or former employees; searches of e-mails and other documents on the CEO's and the female employee's computers; a review of relevant internal ethics complaints; a survey of personnel records; a review of the CEO's and the female employee's purchase records using their employee discount; an analysis of the log of products the CEO tested as product samples; and an analysis of the CEO's and the female employee's Company phone records. The Company did not have access to the CEO's complete personal cell phone records. In addition, the Company's Internal Audit staff performed an in-depth analysis of expense reports, records reflecting corporate use of aircraft, and records of the CEO's use of a Company credit card over a three-year period.
Mr. Dunn's Separation Agreement
At the conclusion of the investigation, the Company reached a separation agreement with Mr. Dunn that includes value reflecting the increased period for a non-compete from one year, the standard company policy, to three years. The separation agreement is comprised of a previously earned bonus for FY 2012, vesting of previously awarded restricted stock, a severance payment and an unused vacation payment.
Previously earned FY2012 bonus: $1,140,000
Previously awarded and reported restricted stock grants of 131,876 shares, valued at close of business on Friday, May 11, 2012, ($19.28 per share), totaling $2,542,569
Severance payment of $2,850,000
Compensation for unused vacation: $106,742
Using the May 11, 2012, stock price for calculation, the estimated total value of the severance package is $6,639,311.