commentary Brian Dunn gave Best Buy's board of directors plenty of reason to doubt that he was the man to engineer the company's comeback.
Dunn, 52, who resigned as CEO of the struggling electronics chain last month while the company was investigating his "alleged misconduct," was taken down by an "inappropriate relationship" with a 29-year-old female employee. That was the finding of investigators who were hired to look into the relationship and Best Buy released their report today.
The four-page audit included details about Dunn loaning the woman money, giving her use of a hotel room and sending her text messages in which he "expressed affection" for the employee (more on this later). According to Best Buy's report, Dunn and the woman deny their relationship was sexual or romantic.
Even if it was romantic, is that a big deal? Plenty of executives from powerful companies are married to former employees. But Best Buy's board claims a line was crossed, a threshold of credibility and honesty. That's the same line Hewlett-Packard's board of directors claimed Mark Hurd, its former CEO, also crossed two years ago.
In 2010, Hurd was pushed out at HP after he was accused of making unwelcome sexual advances towards a public-relations contractor, who was also a former actress and reality television star. Hurd was never accused of flaunting the relationship, but his other, more important relationship with HP's board of directors had soured so badly, he was forced to step down.
That brings us to Dunn. Even if Dunn's relationship with the Best Buy employee was -- like he and the woman say -- innocent and platonic, Dunn didn't use much common sense in the way he behaved. On the contrary, Best Buy's board concluded that Dunn showed a remarkable lack of good judgment.
Dunn loaned the woman $600 of his own money and gave her tickets to at least seven concerts and sporting events. At one event in Las Vegas, Dunn "solicited a vendor for a complimentary ticket" for the woman, according to the report.
Dunn and the employee acknowledged meeting numerous times for lunch and after-work drinks, as well as on weekends. Best Buy staff told investigators that they saw the pair meet alone on numerous occasions in Dunn's office and in conference rooms. On two trips Dunn took abroad last year, one for four days and another for five days, he contacted the employee a total of 224 times. They included 42 texts messages with photographs or video, as well as messages "expressing affection."
The company did not say what the videos contained.
Best Buy, which has more than 150,000 employees, suggested there wasn't much of a business reason for the CEO to meet with the woman "due to the disparity in position, power, and age."
Best Buy made it clear that Dunn violated company policy.
For starters, the relationship between Dunn and the female employee created a negative working environment for other Best Buy employees, the company said in the report. Some workers told investigators that the relationship lowered morale because they wondered if the CEO thought himself above the rules.
The woman spoke openly about her relationship with Dunn and the favors he did for her. That created the perception she was a favored employee. That perception, according to the report, made it harder for the woman's supervisor to manage her.
The most clear-cut violation was when Dunn asked a vendor to give his employee a concert ticket. Best Buy forbids employees to accept gifts of value from vendors.
Conceivably, Dunn's conduct could have put Best Buy at risk of a sexual harassment lawsuit, either by the female employee or a co-worker who might argue he or she was negatively affected by the relationship. Were Best Buy's directors worried about that? You bet.
When they noted Richard Schulze, the company's founder and chairman, had learned about the relationship in December and did not report it to the rest of the board, they criticized him saying: "the chairman failed to act in a manner consistent with the audit committee's mandate and good governance practices and he created serious risks of employee retaliation and company liability."
Schulze announced today that he is stepping down as chairman.
The good news for investors is that the board of directors at Best Buy and HP acted to protect investors. They should serve as an example.
Boards that see CEOs make questionable ethical choices shouldn't wait until there is an accounting scandal to make changes.