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Sorry saga of Best Buy is brimming with lessons to be learned

Best Buy empty basket

Best Buy Chairman Richard Schulze was invited to speak at the University of St. Thomas in February on “how to build an ethical culture in an entrepreneurial company.”

We learned this week that Schulze stumbled badly when he tried to clean up a mess at the highest echelon of Best Buy, the electronics giant he founded.

An investigation conducted for the Best Buy board revealed that Schulze failed to inform fellow board members in December after he was notified about personal misconduct allegations made against then-CEO Brian Dunn.

The stain of Dunn’s recklessness rubbed off on Schulze. The chairman may have engaged in misplaced loyalty by remaining silent after Dunn denied that he was involved in an inappropriate relationship with a Best Buy female employee in her 20s.

In a Monday statement,  Schulze said that in December “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.”

But Schulze also stated that he accepted the findings of the Best Buy Audit Committee of the Board of Directors. A new chairman was elected Saturday and Schulze will step down from the powerful chairman’s position after the annual meeting ends on June 21.

The University of St. Thomas, where business majors abound, could be the perfect venue for learning business ethics and corporate governance lessons from the sorry saga that has unfolded at Best Buy.

The Schulze brand

The Schulze brand is strong at St. Thomas. In 2000, Schulze and his late first wife donated $50 million to the university. Schulze Hall is a prominent building on the university’s Minneapolis campus, and Schulze has served as a St. Thomas trustee since 1995.

The Schulze School of Entrepreneurship  is part of the business college, and St. Thomas publicly states the values of a St. Thomas entrepreneur on its Web site.

Included among the values are pledges to “learn from mistakes” and “respect the dignity of all workers.”

Richard Schulze
REUTERSRichard Schulze

Students will be more likely to understand some of the corporate land mines that await them in the business world if they scrutinize all of Dunn’s mistakes as well as Schulze’s failure to report the high-level conduct problem.

The Best Buy case will have a much more profound impact on students than other case studies because the company is based in the Twin Cities and Schulze has been a highly successful businessman and St. Thomas benefactor.

Business undergraduate and MBA students at St. Thomas should study what went awry at Best Buy.

The rapid unraveling of Dunn’s tenure as CEO demonstrates that no chief executive is all powerful and there cannot be two codes of business ethics in a workplace.

The public report  of Best Buy’s Audit Committee revealed that Dunn, 51, “violated Company policy by engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment.”

The investigation found that Dunn’s behavior damaged employee morale, created distractions in the workplace and that “some employees said that they felt that the [company’s] rules appeared to apply to every employee except the CEO.”

Mid-life crisis

The case study also shows that the job of a CEO can be severed in an instant if the chief executive decides to go through a mid-life crisis on company time. During nine days of foreign trips in 2011, the investigation found that Dunn “contacted the female employee by cell phone at least 224 times, including 33 phone calls, 149 text messages, and 42 picture or video messages.”

If Dunn had channeled that type of energy into revamping the company’s business model, perhaps Best Buy would be in a stronger competitive position today.

When Schulze didn’t speak up in December about the allegations against the CEO, he may have been thinking about giving Dunn a chance to remedy the situation.

Schulze had received a written statement from a company executive that detailed the allegations against Dunn, and that statement was signed by a Best Buy employee who thought it was important to raise the concerns. The Audit Committee concluded that Schulze exercised poor judgment by showing the statement to Dunn and “exposed the employees to potential retaliation and exposed the Company to potential liability for such retaliation.”

There are other lessons to be learned about how a general counsel, key human resources manager and other executives should handle cases of potential misconduct.

Schulze has committed millions of dollars to help educate the business leaders of tomorrow at St. Thomas. While Schulze has been bruised by the Audit Committee’s report and the loss of his chairmanship, he should welcome discussions about this unfortunate chapter in Best Buy’s history.

To avoid repeating the mistakes that occurred at Best Buy, St. Thomas faculty and students should use the safety of their classrooms to dissect every aspect of this disturbing case.

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Comments (8)

  1. Submitted by Michael Rothman on 05/17/2012 - 10:48 am.

    Best Buy

    I gave up on Best Buy when they sold me a damaged boombox as new. Former CEO Dunn was always a dog, I’m told by a former BB employee. Schulze has many family members on the payroll–nepotism. As Balzac said:”behing every great fortune is a crime.”

  2. Submitted by Mark Stromseth on 05/17/2012 - 12:54 pm.

    The Ugly Truth

    “The rapid unraveling of Dunn’s tenure as CEO demonstrates that no chief executive is all powerful and there cannot be two codes of business ethics in a workplace.”

    That statement is transparently false. There are indeed two codes of conduct in the workplace—one for the executives who like to make up rules for everyone else (the so-called “little people”),and one for the executives. It has always been this way, which is why executives are rarely, if ever, held accountable for their transgressions. But everyone else is thrown under the bus as fast as possible.

    The same mentality now dominates our justice system, which has been warped under the last 3 presidential administrations to shield the wealthy and political elite from the rule of law, while the 99% are prosecuted harshly for even the most minor offenses.

    If Schulze was not viewed as all-powerful, the Board would not have abdicated their responsibility to act in the best interests of the company. Instead, they let Schulze continue with conflict of interest relationships with his own independent company; steering all business for lighting fixtures to his relative in Wisconsin; as well as hiring and promoting people based on his like or dislike, rather than actual qualifications and skills.

    It takes no effort to look the other way while these things happen; it does take the courage of your stated responsibilities to put a stop to them before they blow up into the nightmare this has become. The Board failed in every way, so they should not be collecting any money for serving and they should all be dismissed. If possible, they should also be sued for willfully ignoring their material responsibilities.

    When they face criminal prosecution and civil liability for their actions or lack of actions, only then will corporate ethics start to clean up their act.

  3. Submitted by Robert Langford on 05/17/2012 - 12:56 pm.

    Judgmental accusations not appropriate

    There is a lot of supposition in this commentary that simply is not appropriate at this time. Isn’t it a bit difficult to be so sure of what happened between the Chairman and the CEO. If in fact the CEO said he was not doing what was claimed, why should the Chair doubt him? I do not know whether Dunn was a dog, and I really have not been poorly treated by Best Buy, so I have no bias, but I do think we owe a lot more to the business that Schulze built, and to Schulze himself than to make judgments based upon partial information. All business schools with ethics programs have lots to learn from lots of different sources, but I hope most of them do not rely on instant judgment of partial information like the writer suggests.

  4. Submitted by Paul Udstrand on 05/17/2012 - 03:06 pm.

    Two things

    The first thing any students anywhere need to learn is that “corporate ethics” is a contradiction in terms. Corporations are inherently sociopathic entities. The second thing they should know is that if BBs stock prices weren’t taking a hit, Dunn would still be flying high. Let’s stop pretending that his “ethics” brought him down. Twas the stock price, not the ethics killed the beast. Look, on Sunday a Dunn announces in a big Strib article that despite falling market share and stock values he’s going to ignore his critics. Withing two days he’s announcing his resignation. Coincidence?

  5. Submitted by Ray Schoch on 05/17/2012 - 09:31 pm.

    Also two things

    Thanks, Paul.

    “Corporate ethics” is an oxymoronic term. The SCOTUS may delude itself that a corporation is a person, but the rest of us know that corporations are not people, no matter what Mitt Romney might say. They are, as Paul said, essentially sociopathic, with a primary goal of bringing wealth to shareholders, regardless of the effects of corporate activity on the larger society, on employees, or on individuals.

    Whatever morality corporations have comes NOT from the corporation, which is merely a legal construct, but from the people who run the corporation. Corporations don’t take courses in ethics, people do, and that’s why it’s of some importance that people being paid big bucks to run a corporation actually have some ethics of their own – the kind that will not embarrass them when trotted out in public.

    When push comes to shove, entrepreneurs are inclined to let their oversized egos take control, and to tell the larger society – as a Facebook founder just did by renouncing his American citizenship to avoid tax liabilities – “I don’t owe you a thing because I did it all on my own.” Ignoring the sheer hubris dripping from such an attitude, I’ll just say that, as a culture, we’d be a lot better off in the long run if we applied that same mind set to entrepreneurs, and to corporations in general. There’s nothing particularly noble or admirable about commerce. It’s necessary, it’s important, but industrial capitalism is primarily noted historically for NOT displaying something that might qualify as moral behavior. We should learn and remember that lesson.

  6. Submitted by Dennis Tester on 05/18/2012 - 08:10 am.

    This anti-corporatism is pathetic

    Look, a corporation is nothing more than a collection of people who have come together for the purpose of making money. Their success or failure in that endeavor is based solely on their ability to satisfy their customers by selling a good product at a fair price. If, for whatever reason, they fail to do that the company fails.

    In general, they provide products and services we need, they provide jobs, they pay taxes, and their stock price fuels our retirement plans, even the retirement plans of people who’ve never worked a day for a profit-making organization in their life and who have no idea how they work.

    If you don’t like their product or service, don’t shop there. Shop at their competitors. That’s the beauty of the free market … consumer choice. But any good citizen would be rooting for them to succeed, not to fail.

  7. Submitted by Logan Foreman on 05/18/2012 - 02:37 pm.

    Ah the smell

    Of corporate rot in America. Stockholders are getting tired of it too, Dennis.

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