April 2000: Best Buy founder Richard Schulze

Richard Sennott, Star Tribune

May 16: Best Buy’s Schulze likely to still wield clout

  • Article by: THOMAS LEE
  • Star Tribune
  • May 16, 2012 - 1:31 PM

Richard Schulze will be giving up corporate titles when he steps aside as Best Buy Company's chairman and board director, but not the vast influence he holds over the company, analysts and former executives say.

Schulze's standing with the company was suddenly diminished when he resigned over the weekend after it was disclosed that he didn't tell the board of directors of allegations that former CEO Brian Dunn had an inappropriate relationship with a female employee.

But Schulze, 71, remains the company's dominant shareholder, and he will wield significant influence over the retail giant he founded more than 40 years ago, observers say. Schulze, who will have the title of chairman emeritus, maintains close relationships with Best Buy's board members and executives, having mentored and recruited many of them.

"He made a lot of people money. You can't just forget that," said a former top executive with close ties to the company. "You can't forget that you've known him for 10 or 15 years. I don't see Dick going away."

The investment community generally applauded after it was announced Monday that Schulze would no longer serve on the board as of June 2013, reasoning that his departure will help Best Buy attract innovative ideas that it needs to survive. The company, an economic force in Minnesota with $50 billion in annual revenue, has been struggling to boost sales as more consumers flock to the Internet.

Best Buy needs leaders who can quickly adapt to these changes, analysts say.

"You have to understand the shifts that are going on in the retail business, and new thinking is important," said Jeremy Brunelli, an analyst with Consumer Edge Research in Stamford, Conn.

But in turbulent times, the company also needs someone who understands the consumer electronics business and who knows Best Buy inside and out, Schulze's proponents say. That kind of expertise is difficult to find, especially on Best Buy's board, where almost none of the directors has any meaningful retail experience.

"Best Buy is fighting for its life," said Burt Flickinger III, managing director of Strategic Resources Group, a consulting group in New York.

"What the company needs is its founder."

For years, Schulze dominated board meetings, even handpicking his successors as CEO. Dunn, who took over as CEO in 2009, resigned last month when confronted with allegations of an inappropriate relationship with an employee. An investigation, the results of which the company released Monday, determined that the relationship violated company policy. It also revealed that Schulze knew about the allegations, but that instead of going to the board, he confronted Dunn himself.

Despite the turmoil, Best Buy leadership vows to develop an ambitious growth plan and restore stability. The company is hiring an executive search firm to conduct a months-long, global search for a new CEO, something that would have been unthinkable just a few years ago.

But analysts say they won't count Schulze out as the company makes changes.

He controls nearly 21 percent of Best Buy stock, a stake greater than the shares of the company's next five largest investors combined. That means any major changes -- selling the company, electing board directors or changing corporate governance rules -- will have to go through the founder first.

"He's going to be a voting stockholder," Brunelli said. "He obviously still has influence."

Some analysts wonder if Schulze might choose to cash out his shares and simply retire. But pride and power, not money, is what motivates him these days, former executives say.

Throughout Dunn's tenure, Schulze continued to support the beleaguered chief executive, even as Best Buy stock lost more than half of its value, effectively wiping out millions of dollars of Schulze's net worth. But rather than sell some of his stock, Schulze has boosted his stake in the retailer, acquiring another 3.15 million shares in the company in March.

Walking away from Best Buy also doesn't seem to match the forceful personality of Schulze, a man who has dominated the company for so long, observers say. "Schulze has been living and breathing [Best Buy] his entire life," said Colin McGranahan, a retail analyst with Sanford Bernstein & Co.

Fading influence?

Some investors, however, think Schulze's influence at Best Buy is starting to fade. The Dunn scandal has diluted Schulze's power to such a degree that outside activist shareholders may succeed in gaining seats on the board, said one analyst with a major institutional investor. The board also has recommended to shareholders that they approve a resolution that calls for all directors to be elected at the same time.

"I think this is his swan song," said the analyst, who declined to be identified because he was not authorized to speak to the news media. "I don't think the board would tolerate his interference."

In any case, Best Buy is preparing to proceed without its founder prominently leading the way.

Schulze "built this company with hard work and vision," board director and interim CEO G. "Mike" Mikan told employees Tuesday in a video message. "His decision to step away should not and will not obscure his many achievements and legacy he leaves behind at Best Buy."

"We must move forward and we are," Mikan said. "Given the challenges ... Best Buy does not have a day to waste."

Thomas Lee • 612-673-4113

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