As Best Buy Co. Inc. seeks to improve its financial performance, the company is moving quickly to get its corporate house in order.
The board of directors recently decided to no longer lease aircraft from entities owned by Best Buy founder and chairman emeritus Richard Schulze, according to proxy documents filed late Monday with the U.S. Securities and Exchange Commission. Some corporate governance experts have long suggested the arrangement was a conflict of interest, as Best Buy has paid millions of dollars to rent private jets from Schulze over the past decade.
The move is one of several changes implemented by the company over the past year to strengthen a culture badly shaken by boardroom turmoil and governance practices that have been criticized by shareholders. Among other new rules, the company now requires executives terminated with cause to give back cash, a sharp break from the past when executives only lost their stock options.
“Best Buy is working very hard to send all of the right signals,” said Billie Blair, founder of Change Strategists, an organizational management consulting firm that advises CEOs and board of directors. “They really want to rectify what went wrong in the past and make things right for the future.”
A year ago, Best Buy CEO Brian Dunn resigned amid allegations that he used company resources to carry on an affair with a female employee. The board subsequently awarded Dunn a $4 million severance package, which drew the ire of major institutional shareholders.
“Many felt that the company offered Mr. Dunn more than he was entitled to and that the payments did not accurately reflect his business performance in the previous year,” Tyabji wrote in the proxy statement. “It is fair to say that the board and I have heard these concerns and take them into full account when determining future remuneration for senior executives.”
The company declined Tuesday to make executives or directors available for interviews. A Best Buy spokeswoman also declined to comment.
In exchange for Dunn’s resignation, Best Buy last year agreed to pay him a package worth more than $4 million, presumably to compensate him for not working at a competitor for three years. Such a noncompete agreement is much longer than what’s considered standard.
In a nonbinding rebuke to the board, shareholders overwhelmingly voted to reject Best Buy’s executive compensation practices.
As a result, the board made several changes. First, departing executives will be held to a one year noncompete period, a standard practice. Second, the company said executives could lose cash and stock for “Voluntary Termination without Good Reason” or “Involuntary Termination with Cause.” In other words, in cases they quit under pressure or were fired.
Under this scenario, CEO Hubert Joly would have to forfeit $3.7 million, including $2.1 million in cash and $1.6 million in stock. Other top execs, including CFO Sharon McCollam, international chief Shari Ballard and human resources head Carol Surface, would pay back $500,000 apiece.
Hillary Sale, a professor of law and management at Washington University in St. Louis, said Best Buy did not want to lose another shareholder vote on executive compensation.
“That’s exactly what the board is worried about,” Sale said. “Even though the vote is nonbinding, shareholders are saying, ‘You have to respond to us.’ ”