Best Buy Co Inc founder and Chairman Richard Schulze is stepping down after being accused of covering up an affair between former Chief Executive Officer Brian Dunn and a colleague.
He failed to tell the company board about the disgraced CEO's elicit relationship that violated company policy.
The woman involved in the scandal has been reported in local news as being 19-year-old Dayna Cline, the Leadership Institute Coordinator at Best Buy's leadership training institute in Richfield.
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Dayna Cline (pictured), the Leadership Institute Coordinator at Best Buy's leadership training institute in Richfield is reportedly the employee Dunn was having an affair with
Her identity came out after Thomas Lee, a reporter from the Star Tribune, tweeted Dunn to ask for a response to the allegations, citing Cline's name.
Lee meant to send a private, direct message, but accidentally pressed the wrong button, sending her name out into the public domain.
He quickly spotted his mistake and deleted the accusatory tweet but reporters from the City Pages blog had already noticed the revealing post and printed a publicly available photograph of Cline online.
Best Buy spokesman Bruce Hight said the company would not comment on the identity of the woman involved. Messages sent to Cline were not responded to.
In the wake of the scandal Dunn resigned from his position, taking home a hefty payoff of $6.6m to his wife and three sons.
Dunn's golden parachute is made up of a $2.85 million severance payment, his previously earned bonus of $1.14 million for fiscal 2012 and previously awarded stock grants, valued at $2.54 million, as well as unused vacation time.
The only catch for the dad-of-three, who last year earned more than $10.2 million, is that he must not work for a competitor for three years, up from the standard one year that is Best Buy's policy.
Best Buy said an investigation by the board had found that the relationship 'negatively impacted the work environment', but involved no misuse of company resources.
The investigation report detailed how the employee spoke openly in the office about her relationship with Dunn, who gave her tickets to at least seven concerts and sports events, according to the New York Times. They pair met several times for lunches and drinks, both during the week and on weekends.
Dunn, a Best Buy veteran, worked for the company for 28 years, following in the footsteps of his mother, Ethel, who was an accountant there, Smart Money reported.
He had worked in grocery stores since he was 14, never having gone to university, and made the switch to Best Buy at 24, according to the New York Times. He took over as CEO in 2009.
Richard Schulze, (right) resigned as Chairman of Best Buy after failing to tell the board that Brian Dunn (left) was having an affair with a colleague
Out: Best Buy CEO Brian Dunn abruptly called it quits in April during an investigation into his 'personal conduct' that found he had had an affair with a female colleague
Schulze is also married. He and his wife Sandy founded the Richard M. Schulze Family Foundation in 2004 to help families with medical costs.
On the foundation's website is written: 'The Schulze family has been impacted by cancer and type 1 diabetes and understands the challenges families endure while battling a disease. His daughter, Susan Schulze Hoff, is the founder of Fantesca Estate & Winery founder in the Spring Mountain District AVA of Napa Valley.
Schulze will be succeeded by Hatim Tyabji, chairman of mobile network software company Bytemobile and chairman of Best Buy's audit committee. The change takes effect at the end of the company's annual meeting on June 21.
Dunn's departure and ensuing revelations about the board investigation come as the company struggles to fend off rivals like Amazon.com Inc. Best Buy is still in the midst of what it expects to be a six-nine month search to replace Dunn, with board member G. Mike Mikan acting as interim CEO.
'It's been clear that the company hasn't taken an aggressive enough measure to offset the competitive and structural pressures they face,' Morningstar analyst R.J. Hottovy said. 'Taking a clean slate and beginning with not only a new director, chairman but also with a new CEO is just what the company needed.'
Schulze will become chairman emeritus, an honorary position, and serve out his term as director through June 2013, the company said.
'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,' Schulze said in a statement released by the company. 'I understand and accept the findings of the Audit Committee.'
At the time of his departure the company said that it was a mutual decision and that it was time for new leadership given the challenges the company faces. Best Buy said that it has created a search committee to choose a new CEO.
Internet outage: Best Buy has been trying to revamp its business in the age of the internet, where the retailer is facing strenuous competition with Amazon.com and other online rivals
Analysts say it's going to be a big challenge to find a CEO to lead the company in this new era. Up until a few years ago, Best Buy had been the big bully on the block, pulling shoppers away from small electronics stores with its massive offerings.
Now, in the age of the Internet, those offerings look paltry. In response, Best Buy has been trying to revamp its business.
Earlier in April, Best Buy unveiled a restructuring plan that calls for closing 50 of its U.S. big-box stores, opening 100 small-format stores focusing on its burgeoning mobile business which focuses on cell phones. It's also cutting $800 million in costs over the next five years.
'Best Buy faces an uphill battle to find the right CEO,' said Michael Pachter, an analyst at Wedbush.
'Mr. Dunn's replacement must be prepared to manage the transition from big box to small box format. A CEO with this experience will be difficult to find'.
The abrupt departure of Dunn, 50, ends a Best Buy career that spanned nearly three decades. He stated as sales clerk at a store in Minnetonka, Minn. in the mid-1980s.
At the time, the chain was losing sales due to the recession. Best Buy officials were hoping to benefit from the liquidation of the company's main competitor Circuit City, which had was overcome by the growing competition in the sector. But Best Buy never regained its footing.
Veteran: Dunn has been with Best Buy for 28 years, and has been its CEO since 2009
Revenue at stores opened at least a year - a key measure because it excludes results from stores that open and close within the year - has declined in three of the past four years.
In the most recent fiscal year ended March 3, revenue at stores opened at least a year fell 1.7 per cent last year after having fallen 1.8 per cent in the prior year.
The chain lost $1.23billion, or $3.36 per share, compared with a profit of $1.28billion, or $3.08 per share, in the prior year.
Its stock also has taken a beating. Best Buy's shares were at $19.67 in morning New York Stock Exchange trading on Monday after initially climbing higher on the CEO departure.
Best Buy's shares have lost more than half of their value since April 2006, when they were trading at $56.66 per share.
Once the bread-and-butter of electronics retailers, sales of TVS, digital cameras and video game consoles have weakened.
Meanwhile, sales of lower margin items like tablet computers, smartphones and e-readers have increased.
And Best Buy's largest vendor Apple Inc., has become a fierce competitor as its products like iPads have hurt overall computer sales and sucked up shoppers' dollars earmarked for other electronic purchases, says Jefferies & Co. analyst Daniel Binder in a recent note.
Adding to that, Best Buy, like other big-box retailers, is finding that those hulking stores are no longer attractive to consumers looking for one-stop shopping.
Instead, more people are using them as showrooms to browse for products and then going online to Amazon.com and other rival sites to buy at a lower price.
Over the past year, Best Buy has made some inroads in shoring up its business.
In the community: Dunn is pictured with the first shoppers in line at an Eden Prairie, Minnesota, Best Buy store on Black Friday last year
The company has cut its square footage by 15 per cent in about 43 stores. It did that by either subletting the space to other merchants or giving it back to the landlords.
But analysts and industry watchers say Best Buy hasn't moved fast enough to reduce its large foot print.
And, they say, Best Buy should close even more stores and take advantage of its fast-growing mobile business.
Gary Balter, an analyst at Credit Suisse, says Best Buy's mobile business makes up nearly one-third of the retailer's profits but accounts for less than 10 percent of the overall square footage.
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