Critics may not think Best Buy CEO Hubert Joly is worth the $20 million in upfront cash and stock the company paid him last fall. But if investors judged Joly solely by temperament and verbal dexterity, they might think Joly is worth every figurative penny.
Consider Joly’s first annual shareholders meeting at Best Buy’s headquarters in Richfield on Thursday. A shareholder asked Joly about his strategy for Best Buy to be price competitive, a rather broad question.
“Our strategy to be price competitive is to be price competitive,” said Joly to laughter in the room. “Just look at the name on the outside of this building: Best Buy.”
It was the type of response that Joly has offered countless times in his 10-month tenure as CEO: a concise, simple answer that manages to convey both urgency and practical wisdom. In other words, Best Buy may have serious problems, but the solutions to fix them aren’t that complicated.
His back-to-basics approach has ultimately won over shareholders, as they voted to approve his compensation in a nonbinding “Say on Pay.” The retailer said Thursday that a preliminary count of ballots showed that 83 percent of shareholders said “yes” on Joly’s compensation.
The approval comes despite the objection of Institutional Shareholders Services (ISS). The prominent firm, which advises shareholders on proxy matters, recommended a “no” vote, partly due to its argument that Joly’s $20 million in stock and cash wasn’t linked to any future performance goals. Best Buy officials, however, say they needed to pay Joly the package to compensate him for the money he lost when he left Carlson to join the retailer.
Joly’s appeal has been his Renew Blue strategy: Best Buy doesn’t necessarily need to re-invent the wheel so much as it needs the wheel to roll more smoothly. The retailer needs to devote more space in stores to higher-growth products and its website needs to convert more visitors to paying customers. The company’s distribution centers need to supply merchandise to both stores and online customers.
“It sounds like common sense, but is meaningful,” Joly said.
So far, so good: Sales have stabilized, expenses are down, and the stock price has more than doubled since last December.
“Joly deserves a lot of credit for the plan they have put into place,” said Brian Yarbrough, a retail analyst with Edward Jones Investment in St. Louis. “He has done a good job training the employees and trying to understand the customer better. He has been open to shareholders, doing a good job at communicating with them.”
When Marty Kirsch, a former mayor of Richfield, took to the microphone to thank Best Buy for its support of the city’s fireworks display, Joly seized the opportunity to urge people to lobby Congress to pass the Marketplace Fairness Act.
At first glance, a piece of legislation that requires states to collect Internet sales taxes doesn’t appear to have much in common with local pyrotechnics. But Joly said such a law would not only level the playing field between Amazon and Best Buy but also provide state and local officials with crucial tax revenue to support such things as fireworks.
The proposed law “is vital to our well-being, not only to our company but also to our communities,” Joly said.
Too early for conclusions
Still, it’s too early to render a complete verdict on Joly, Yarbrough said. Best Buy needs to increase sales without sacrificing profits and the company has yet to prove it can do so on a consistent basis, he said.
Of course, it helps when the company’s largest investor, who owns 20 percent of the stock, or 70 million shares, supports the CEO. But Joly can also rightly take credit for that, too.
A year ago, founder Richard Schulze was mounting a contentious bid to acquire Best Buy after the board forced him to resign as chairman. An investigation concluded that Schulze withheld information about the conduct of former CEO Brian Dunn, who had resigned amid allegations of an affair with a female employee.
Thanks to Joly’s diplomacy — not to mention a rising stock price that ultimately made a private buyout too expensive — Schulze dropped his bid and rejoined Best Buy as chairman emeritus.
The cease-fire helped reunite a company that struggled badly last year, a point that Joly and Chairman Hatim Tyabji made during the annual meeting as Schulze looked on in the front row.
“A year later, everything is different and happily everything has changed,” Tyabji said. “Our largest shareholder, Dick Schulze, has returned to the company. On a personal level, we welcome you back.”
Schulze then stood and waved as the audience erupted in applause.
“I’m incredibly grateful [Schulze] is supporting our transformation strategy with his insights,” Joly said.