Best Buy CEO Brian Dunn resigned Tuesday and the company confirmed that it is investigating allegations that he engaged in personal misconduct.
The news stunned investors and industry analysts, who called the accusations a major distraction at a time when Best Buy is trying to fix its ailing stores. Less than two weeks ago, Dunn said that Best Buy, the nation's largest consumer electronics retailer, will close 50 stores nationwide and lay off thousands of workers.
"It's unfortunate that a case of [Dunn's] poor judgment got in the way of Best Buy making progress," said Carol Spieckerman, president of newmarketbuilders, a retail consulting firm. The allegations "are going to be a real hit to the company's credibility."
Best Buy said the board of directors audit committee, normally responsible for overseeing Best Buy's finances, is investigating Dunn's "personal conduct."
"Certain issues were brought to the board's attention regarding Mr. Dunn's personal conduct, unrelated to the company's operations or financial controls, and an audit committee investigation was initiated," the company said in a statement. "Prior to the completion of the investigation, Mr. Dunn chose to resign."
The company disclosed no details about the investigation.
When Best Buy released a statement Tuesday morning announcing Dunn's departure, it made no mention of the investigation, saying only that the company and Dunn parted ways by "mutual agreement." The company later acknowledged the investigation of Dunn in response to a Star Tribune inquiry.
For most of his three years, Dunn has faced criticism from investors over the sinking stock price and sales. The Richfield-based retailer started as a single store in St. Paul in the 1960s and has since grown to about 1,100 U.S. stores with $50 billion in annual sales. But in recent years it has been losing market share to Wal-Mart and online competitors such as Amazon.com.
The company's core market, big-ticket consumer electronics items such as PCs and flat-panel televisions, has been rapidly shrinking as more consumers migrate to the Internet.
Best Buy's struggles have led to speculation that Dunn would lose his job. Yet Dunn continued to call the shots and announced the company's restructuring plan, which aims to slash $800 million in costs over three years, expand more aggressively overseas and open smaller format stores.
"All of the sudden, 13 days later, they can the guy," said Jeremy Brunelli, a retail analyst with Consumer Edge Research. "Something else must have happened."
Best Buy stock fell 6 percent Tuesday, or $1.33, to close at $21.32. Analysts say investors were driving down the price out of fear that Dunn's departure meant company sales were worse than expected. But it turned out, Dunn's personal behavior, not the company's sagging fortunes, led to his exit.
A fairy-tale rise
Until now, Dunn's rise had a fairy-tale quality to it -- a hardworking, 28-year Best Buy veteran who rose from the store floor to the executive suite.
Recalling his first days as a store employee, Dunn recently told a leadership conference that he was not impressed with the retailer. "My first day was dreadful," Dunn said. "I hated it. The store manager asked me, 'How do you like what you're doing?' I said, 'I think this place stinks.'"
But Dunn said he grew to love the company, a devotion that eventually caught the eye of founder Richard Schulze.
When former CEO Brad Anderson retired in 2009, Dunn was the only serious candidate, former top executives said.
But Dunn's appointment raised eyebrows among employees and analysts, who said he lacked vision and strategy.
During the next three years, Schulze stuck by his protégé, even as Best Buy's declining stock price eroded the value of Schulze's 19 percent stake.
Despite the criticism, Dunn expressed confidence that he would ultimately succeed by staying the course. "The farther away you get away from being who you are, the more trouble you will get into," Dunn told the leadership conference.
"You have to reward people for being honest and forthright," he said of his leadership style. "Do you understand who you are and what you're good at?"
For investors, the key question is who replaces Dunn. The company named board director G. "Mike" Mikan as interim CEO.
Analysts threw out some outside possibilities, including former Best Buy executive and current Advance Auto Parts CEO Darren Jackson and Charles Dunstone, chairman of British retailer Carphone Warehouse, who helped develop the highly successful Best Buy Mobile format.
But Best Buy has a history of hiring from within. The company's three CEOs to date, Schulze, Anderson, and Dunn, were all longtime employees.
Spieckerman of newmarketbuilders said the company needs new blood. Dunn's resignation "gives Best Buy permission to move a different way," Spieckerman said. An outside CEO can restore confidence among investors and customers.
"This is absolutely the turning point for the company," she said. "The window of opportunity [to revive the company] is starting to close. This is a make-or-break moment."
Thomas Lee • 612-673-4113