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Another Misbehaved CEO at Best Buy?

April 14, 2012 | About:

I'm not sure what's up with some of these big corporate CEOs keep making the news headline for having "inappropriate relationship" with a female employee. The latest episode of high-profile executive resignation (read: fired) came from Best Buy (NYSE:BBY), the electronic retail giant.

Best Buy announced in the morning of Tuesday, April 10 that CEO Brian Dunn's resignation was the result of a "mutual agreement that it was time for new leadership to address the challenges that face the company." The real story behind Dunns' abrupt departure was only revealed two days later by Best Buy’s hometown newspaper, the Minneapolis Star Tribune--Best Buy's board of directors is investigating allegations that Dunn's misused company resources in the course of an inappropriate relationship with a female employee.

If this sounds familiar, it is because Mark Hurd, the former CEO of Hewlett Packard (NYSE:HPQ), was ousted under somewhat similar circumstances just last August. Mark Hurd was dubbed as one of the best CEOs in the country that had turned HP around into one of the world's biggest technology companies. However, Hurd's drastic cost cutting measures, including 15,200 job cuts, also had alienated many employees as well as board members, which is likely one of the contributing factors to his eventual dismissal.

Brian Dunn, on the other hand, is supposedly well-liked within the company. Never graduated from college, he has worked his way up from the sales floor to the C-Suite during his 28 years with Best Buy. However, the company stocks have declined almost 43% since Dunn took over as the Director and CEO in June of 2009, and has been struggling with losing sales to online rivals like Amazon and NewEgg. Dunn and Best Buy's board have been criticized for not doing enough to cut costs, and increase its online presence. Not even Dunn's plan to close 50 of its 1,100 large U.S. stores and to expand its smaller Best Buy Mobile has managed to inspire investors.

So it looks like Dunn's days of CEO were already numbered, and this incident was just the last straw for the company board to move up the CEO replacement timeline.

Some believe Best Buy's outdated big box store model is the culprit of the company's inability to compete with online retailers like Amazon. However, big box stores do serve a different target audience from online shopping sites. Big stores like Walmart (NYSE:WMT) may still compete effectively with the likes of Amazon with proper store location, space utilization, good supply chain management and customer service. Ultimately, as noted in our previous analysis, Best Buy fails miserably compared even to big box peers including Home Depot (HD), and the main problem has to do with its poor corporate and store management, terrible customer service and lack of a focused leadership and strategy.

Chart Source: Yahoo Finance, April 14, 2012

The difference between HP and Best Buy is that Hurd was a successful CEO leaving HP at a much stronger position to deal with an executive turnover than Dunn had with Best Buy. But even so, HP stocks have not regained the lost ground after Hurd's exit eight months ago (see chart above). Right now, Wall Street analysts are focusing on the search for Dunn's replacement. Needless to say, it will be a monumental uphill battle to even halt the current downward spiral of Best buy no matter who takes the helm.
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About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 2.8/5 (4 votes)


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