One attorney's SEC background signals that the investigation is about more than former CEO Brian Dunn's alleged misconduct, observers say.
An elite legal team, including a former U.S. attorney and a former top official with the Securities and Exchange Commission (SEC), is investigating the personal conduct of Brian Dunn, who resigned as CEO this week.
Tom Strickland, who served as U.S. attorney for Colorado, and William McLucas, the SEC's former director of enforcement, have been hired to examine Dunn's actions, a source close to the company said. Collectively, the pair has handled several high-profile cases, including the Columbine school shootings in Colorado and the accounting scandals at Enron, WorldCom and UnitedHealth Group.
On Thursday, the company announced that it will make public the results of the Dunn investigation in a matter of weeks. After he resigned Tuesday, allegations emerged that Dunn, who is married, was having a relationship with a 29-year-old woman who worked at Best Buy's leadership training institute at its headquarters in Richfield. She could not be reached for comment.
The lawyers' prominent background suggests that Best Buy's inquiry extends beyond Dunn's relationship with a subordinate, said Angela Rud, a principal attorney with Gray Plant Mooty in Minneapolis. If the case were as simple as an inappropriate relationship, the company would turn to a firm with experience in employment law, she said.
"You wouldn't hire a former U.S. attorney and [an] SEC official," Rud said. "This investigation may be the tip of the iceberg."
Strickland and McLucas, both partners with the law firm WilmerHale in Washington, D.C., did not return messages seeking comment. Best Buy declined to comment as well.
For Best Buy, the decision to release its findings to the public was a turnaround from Tuesday, when the company didn't acknowledge the investigation's existence as it announced Dunn resigned by "mutual agreement." Later in the day, Best Buy issued a statement that the board of directors' audit committee was investigating Dunn's conduct.
Sharing inquiry has dual goals
The company's promise to disclose the results of the inquiry had two purposes: to repair its relationship with investors and the public, and to protect the board of directors from legal action, said David Gebler, president of the Skout Group, a consulting firm in Massachusetts that advises large Fortune 500 companies on corporate ethics and organizational culture.
For example, the board could face legal problems if directors had known for a long time that Dunn's actions were hurting the company, but failed to do anything about it. "When you pay [a CEO] seven figures, you should be getting a Boy Scout," said Gebler, who is a lawyer.
At the same time, a complete, transparent investigation can help Best Buy remove the stain of Dunn's alleged misdeeds, Gebler said. Best Buy "wants to get Brian Dunn off their hands as fast as possible."
In a memo to company employees Wednesday, interim CEO G. "Mike" Mikan acknowledged that Dunn's departure was a distraction. He promised that the company would be open and transparent.
"This is a time of transition for Best Buy, and I know that means you'll continue to have questions along the way," he wrote. "You have my commitment that your senior team and I will keep the lines of communication open as we move forward."
In addition to his time as the top federal prosecutor for Colorado, Strickland was chief of staff to U.S. Interior Secretary Ken Salazar and a candidate for U.S. Senate. He also boasts a connection to Minnesota, having served as executive vice president and chief legal officer for UnitedHealth, based in Minnetonka.
McLucas was the SEC's director of enforcement for eight years, the longest tenure of any enforcement chief in the agency's history. He has represented boards of directors' special committees investigating accounting scandals at Enron and WorldCom. He also advised UnitedHealth's board during its review of the company's practice of backdating stock options, a scandal that cost then-CEO William McGuire his job.
Noting the experience of the outside legal team, it's clear that the gravity of the investigation isn't lost on Best Buy's leadership, Gebler said. "The audit committee seems to be taking [its] responsibilities seriously," he said.
Search for a new CEO
For now, Best Buy investors and outside observers said they are more interested in who will replace Dunn. Last month, the company announced what would be the deepest restructuring in its history -- a plan that includes store closings, layoffs, and the elimination of $800 million in costs over the next three years. The company boasts 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.
"Best Buy should bring in someone with their own vision," said Carol Spieckerman, president of consulting firm newmarketbuilders. "The company could very well bring in someone from the outside. If they don't do it, nothing will change."
Best Buy said Thursday that it will take six to nine months to hire a new CEO.
The board of directors has formed a special committee headed by director Kathy Victor to identify candidates, which will include Mikan, the current interim CEO. Victor is president and founder of Centera Corp., which offers executive coaching. Best Buy said it will hire an executive search firm over the next few weeks to assist the process.
Over the next several weeks, the company must demonstrate that it is in control of the situation by acting with clarity and decisiveness, Spieckerman said.
"Otherwise, the company leaves a void that will be filled with speculation," she said.
Thomas Lee • 612-673-4113