Elizabeth Trotta

Best Buy CEO Investigated for Relationship With Subordinate

The Best Buy drama continues, now teetering on the possibility of a
scandal. Former CEO Brian Dunn, who abruptly resigned from the helm of the electronic retail giant earlier this week, is reportedly being investigated under allegations that he used company resources to carry out an inappropriate relationship with a female employee.

Best Buy is looking into "multiple complaints that Dunn behaved inappropriately with a female subordinate," according to the Star Tribune in Minneapolis. People close to the retailer were concerned that Dunn's behavior was threatening the company, according to Bloomberg, which cited an anonymous source.

The woman is "a 29-year old who worked in a leadership training institute at the company's Richfield, Minn., headquarters," according to the Wall Street Journal, which added that the retailer wouldn't disclose whether she was still employed by the company. The report said "a person close to her said the incidents that led to complaints to the board were 'something small that people blew out of proportion.'"

Best Buy has not challenged the reports. The allegations and resignation come as the retailer struggles with online competitors and skeptical shareholders.

Different Stories?

The online retailer has been hesitant to release the details, first
saying that Dunn resigned amid a "mutual agreement," and
then adding in a later statement that an audit committee investigation into his personal conduct had yet to be completed.

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Former CEO Brian Dunn responds to questions during media day in New York in 2009. REUTERS/Lucas Jackson

"Certain issues were brought to the board's attention regarding Mr.
Dunn's personal conduct, unrelated to the company's operations or
financial controls, and an audit committee investigation was initiated," the company said in a statement. "Prior to the completion of the investigation, Mr. Dunn chose to resign."

Earlier the company said, "There was mutual agreement that it was time for new leadership to address the challenges that face the company."

Director Mike Mikan is serving as interim CEO while the electronics giant looks for a permanent replacement for Dunn.

Best Buy's Battles

There's ever-growing speculation that Best Buy now is serving too much as a showroom for its possibly toughest competitor yet, online retailer Amazon.com. The thought is that customers are perusing
the aisles at Best Buy, trying out or considering games, cameras and
phones, then buying them cheaper online, and sometimes with less sales tax, through Amazon or some other online merchant.

The electronics retailer said in late March it's closing 50
stores
and cutting 400 employees as it wrangles with how best to proceed in an evolving market for its products.

Cost-cutting is a key part of Best Buy's reinvention as it gropes for direction and tries to distinguish its future from the past peril of its former competitors CompUSA, which liquidated and changed ownership in 2007, and Circuit City, which met its end in 2009.

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Shoppers at a Best Buy store, in Brentwood, Tenn. (AP Photo/Mark Humphrey, File)

"I think the departure is long overdue, and is natural to see
following the sweeping business overhaul announced a couple of weeks
ago," wrote Brian Sozzi, chief equities analyst at NBG Productions.
"It's almost as if Dunn stayed on post during a largely disappointing holiday selling season to lay the foundational strategy for the interim CEO and leave his mark on the business for the longer term."

A New Model?

Best Buy is pinning its hopes on a new model that includes plans to open 100 U.S. Best Buy Mobile small format stores in fiscal 2013. It expects to have a total of 600 to 800 such stores by fiscal 2016 and is testing what it refers to as Connected Stores, "remodeled big box stores that focus on connections, services and multi-channel experience through a total transformation of both the store and
the operating environment."

The operational strategy has been "way off the mark and late to
address fundamental industry upheaval (price transparency in the palm of our hands, for one)," writes Sozzi, adding "the company has tossed money down the drain in repurchasing its shares, cash that should have been stored on the balance sheet to build a defense for a future of evolution as to how people consume goods and services."

Shares were down less than 1% on Friday.

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