CEO Gaffe of the Week: Best Buy
Apr 13th 2012 11:13AM
Updated Apr 13th 2012 4:12PM
This year I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week I want to highlight the now former CEO of Best Buy (NYS: BBY) , Brian Dunn.
You'll often hear me use the line, "Some days, CEOs would be better off staying in bed." Right now that seems the opposite advice I would offer former Best Buy CEO Brian Dunn, who last week resigned amid personal conduct allegations that he had inappropriate relations with a 29-year-old leadership intern.
The allegations probably would have earned Mr. Dunn "Gaffe of the Week" honors regardless of the situation, but the details emerging from this story point to growing errors from top to bottom.
First off, shareholders weren't immediately given the correct reason for Brian Dunn's departure. According to a statement released by the Best Buy board Tuesday morning, Dunn's resignation was a "mutual agreement that it was time for new leadership to address the challenges that face the company." However, the story changed later that afternoon when the board announced that "certain issues were brought to the board's attention regarding Mr. Dunn's personal conduct ... [that are] unrelated to the company's operations or financial controls."
Whether or not Mr. Dunn's actions are of consequence to the financials of Best Buy, the board had no right to piecemeal incorrect information to shareholders.
But wait -- there's more!
Dunn's resignation comes less than two weeks after he detailed a bottom-up approach for turning the company around. If you recall, I am one of the very few people who have stood up in the face of overwhelming negativity toward the company and Dunn's turnaround plan -- and this is how I am repaid for my bullishness?
Dunn's plan will now be carried out by an interim CEO (as it will take the Best Buy board, by its own admission, six to nine months to find a replacement). The plan involves shutting down 50 of its bigger retail locations in favor of opening 100 of its smaller, more mobile-focused stores. In addition, the company will offer sales incentives to its employees for the first time ever, which should add to bottom-line sales.
Best Buy has been struggling to adapt to the growing trend of online shopping. The company expects online sales to rise 15% in 2013 and hit $4 billion by 2016, but even then (presuming sales remain stagnant), that's only about 8% of total revenue.
What Best Buy has really struggled with is competition from Amazon.com (NAS: AMZN) , which can often undercut the big-box retailer's in-store pricing, and Apple (NAS: AAPL) , whose retail stores are one of the few electronic hotspots staying busy in this economic environment.
Best Buy's reliance on televisions has also been a sour point. Prices in the television segment continue to fall, and television makers are being forced to take drastic action, as was signaled by Sony's (NYS: SNE) commitment to shed 10,000 jobs this week.
Despite these shortfalls, I believe Best Buy can turn itself around if it focuses on smaller stores that cater to higher-margin products like smartphones and tablets. Now if I could only get Best Buy to stop putting its foot in its mouth at the worst possible times, then maybe people would actually believe what I have to say.
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.
If you'd like a surefire way to avoid investing in companies with questionable leadership practices, I invite you to download a copy of our latest special report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." This report contains a wide array of companies and sectors that are likely to keep your best interests in mind, regardless of whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!
At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is merciless when it comes to poking fun at CEO antics. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Best Buy, Amazon.com, and Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com and Apple, as well as creating a bull call spread position on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.