Brian Dunn, president and chief executive officer of Best Buy Co. Inc., speaks during a Sprint Nextel Corp. presentation at the 2010 International Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S., on Wednesday, Jan. 6, 2010. Sprint Nextel Corp. will likely keep its stake in Clearwire Corp. at 50 percent or more, Sprint Chief Executive Officer Dan Hesse said. Photographer: Ronda Churchill/Bloomberg Brian Dunn
Ronda Churchill, Dml - Bloomberg
2008 photo of George Buckley - CEO of 3M
Steve Niedorf, Dml -
CEOs' departures show that boards still have clout
- Article by: PATRICK KENNEDY
- Star Tribune
- July 29, 2012 - 10:33 AM
Some have left with their heads held high. Some departed in disgrace. Others left reluctantly.
In the last two years, at least 18 of the 100 companies represented in our 2012 Executive Compensation report have changed CEOs -- including some of Minnesota's highest-profile companies -- Best Buy, 3M and Medtronic.
The pace of turnover on our list -- about 10 percent annually -- is generally in line with national trends. And each company has its own narrative. But collectively, the departures help illustrate the subtle but significant influence of corporate directors who make -- and occasionally break -- CEOs behind the scenes.
Brian Dunn, only the third chief executive at Richfield-based Best Buy, lasted just three years as CEO.
In 2011, the Best Buy board gave Dunn a bonus for his "maturation in the role of CEO." But a year later, Dunn resigned amid an investigation by the board into an inappropriate relationship with a female subordinate. Dunn's three-year run pales in comparison with company founder Richard Schulze, who led the company as CEO for about 37 years. Schulze, too, has left the company after the board's investigation found that Schulze had failed to alert the board when he first heard of Dunn's alleged inappropriate behavior.
Schulze initially planned to retire as chairman at the company's annual meeting June 21 and remain a director for another year. But on June 8 he stepped down from the board to "explore all available options" to reclaim control of the company. Hatim Tyabji, an outside director of Best Buy since 1998, was named to replace Schulze as chairman in June.
Meanwhile, the big-box retailer is struggling to develop a new business model under interim CEO George "Mike" Mikan.
George Buckley was chairman and CEO of 3M Co. for seven years. He was at the helm through the Great Recession, when 3M swiftly cut expenses and employees. He also embarked on a successful series of acquisitions that broadened the big manufacturer's product lines.
Buckley reportedly wanted to remain CEO of the Maplewood-based company. But he reached the company's mandatory retirement age of 65 in February. In informal discussions with analysts Buckley had expressed his desire to stay at 3M, according to Mariann Montagne, a senior investment analyst at Marks Group Wealth Management in Minnetonka.
But the 3M board stuck to its succession plan, naming longtime 3Mer Inge Thulin, 58, as CEO and chairman.
Only about 13 percent of manufacturing companies have a mandatory retirement age, according to the Conference Board, an industry group. But the larger a company is, the more likely it is to have one.
That 3M would adhere so rigidly to its mandatory retirement age shows that the board is committed to the policy, said Jason Schloetzer, assistant professor of accounting at the McDonough School of Business, Georgetown University.
Schloetzer added that it "sends a message to the incoming person that 'this is your horizon.'"
William McLaughlin stepped down as CEO at Select Comfort's annual meeting in May after more than a decade at the helm. He was succeeded by Shelly Ibach, the company's chief operating officer.
McLaughlin, 56, left on top with Select Comfort stock trading near its record highs. When McLaughlin announced on Feb. 27 that he would retire, the stock was trading at $29.07, on its way to an all-time high of $35.24 on April 14. (The stock closed Thursday at $26.32.) The company was also coming off 13 consecutive quarterly profits.
He is credited with reviving the premium mattress maker, which struggled in the Great Recession. Shares of Select Comfort traded below $1 for months. Had he been fired then, few would've been surprised.
In February 2008, McLaughlin offered to forgo his annual base salary for the balance of the year until the company recovered. He also survived a boardroom battle as the company narrowly avoided a sale to a private equity firm in 2009.
He eventually managed a turnaround and launched a new marketing initiative that focused on the Sleep Number system that helped revive the brand. The board of directors rewarded McLaughlin with a final grant of stock options and restricted stock awards and also accelerated the vesting of some previously issued options.
The mood at Select's annual meeting May 30 was jovial. Chairman Jean-Michel Valette noted that Select Comfort's market capitalization has increased at an average annual compound rate of 30 percent during McLaughlin's tenure. But it hasn't been a steady upward climb.
"We enjoyed a little more of a thrill ride than that," he said.
In 2011, 55 CEOs in the Standard & Poor's 500 left their posts, according the Conference Board's latest CEO Succession Practices report. That's fairly consistent number over the last 10 years, the report said.
But the report also showed that today's CEOs have a shorter stay at the top than their counterparts a decade ago. The average tenure of a CEOs in a S&P 500 company in 2011 was 8.4 years; in 2000 it was about 10 years.
The Conference Board's most common reasons for change were categorized as resign; retire; left because of a merger, or no reason given. Examples of all those reasons can be found at Minnesota companies. But the further you delve into a CEO succession story, the more nuances you can find.
"When you read 40 to 50 press releases in a one- or two-day period, you start to see these things essentially have a template," said Schloetzer, a co-author of the report. "And very rarely do firms deviate from the template."
The report found that of the 55 succession announcements, 44 percent were linked to "retirement" of the CEO.
A closer look suggests different reasons.
"Academics use age to classify retirement in most cases," Schloetzer said. If you define retirement as a CEO being at least 64, then the percentage of retirements drops to 10 percent. For that reason, the board's report concludes "the stated reasons for the departure ... are less than reliable."
The succession study cited Medtronic Inc. as an example of a succession announcement that was classified as a "retirement." On Dec. 20, 2010, the medical device company issued this release: "Medtronic announced today that William A. Hawkins intends to retire as Chairman and CEO of Medtronic at the conclusion of the current fiscal year ending April 29, 2011. The company's board of directors has initiated an external search for his replacement, and Mr. Hawkins plans to remain until his successor is appointed."
But Hawkins was just 56 at the time of the announcement. Medtronic did not have a replacement ready and it took several months before it announced that Omar Ishrak, an executive from GE, would replace Hawkins.
Analyst Montagne says Hawkins' successor (Ishrak) appears to be taking the company in a new direction.
"Direction may have been something the board was concerned with," Montagne said. "And investors are happy with the new direction."
Patrick Kennedy • 612-673-7926
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