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Anatomy of a CEO Departure: Best Buy Edition

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By Brian Sozzi
April 11, 2012 at 3:12 pm



The buzzy news in the Google-sphere yesterday not involving Rick Santorum suspending his presidential bid was the resignation of Best Buy CEO Brian Dunn. To see a company that most of us has purchased an electronic device from in the last ten years have its CEO wave goodbye should be of interest.

Unfortunately, all that was discussed on the Street was that the CEO didn’t respond quickly enough to how consumers were purchasing electronics, the continued operation of retail shrines that not many frequented on the weekends, and by the way, the VIP with the mustache was the subject of a personal conduct probe by the company’s audit committee. None of that commentary is wrong, with the personal conduct probe being a particular black eye, but the fact is Best Buy failed in so many departments and it was only natural the CEO would be eventually pay the piper so to speak.

Hence, we are here to shed light on the anatomy of a CEO departure.

Anatomical Breakdown

The Head: Compensation

Ever watch the CBS show “Undercover Boss” where the CEO is often videotaped sitting in a cushy office signing papers or talking with team members? That’s pretty much the role of a CEO at a publicly traded company, to be a big strategic thinker and then translate those visions to the underlings. For this all supposed forecasting acumen, a CEO rakes in the loot. When strategy fails to drive strong profits (or any profits), consequently, that large compensation becomes an albatross. Best Buy’s CEO got paid quite well for sub-par financial performance of the company.

According to data from Thomson Reuters:

May 2011 ended fiscal year

• Salary: $1.1 million
• Other compensation: $3.9 million

May 2010 ended fiscal year

• Salary: $961,541
• Other compensation: $9.3 million

May 2009 ended fiscal year

• Salary: $876,926
• Other compensation: $1.5 million

The Shoulders on Down: Strategy and Results

Brian Dunn took over as CEO on June 24, 2009. Instead of thinking more like a visionary and positioning the company for battle versus online rivals, the following actions were assumed.

Start of 2010

• Opening of 50 to 55 new Best Buy large format stores.
• Intention to repurchase $2.5 billion in stock.

End of 2010

• Spent $1.2 billion to buyback stock at $36.62 average price (stock is currently at $22 and change).
• Announced a restructuring of the international business.
• Same-store sales declined 3%.

End of 2011

• Spent $1.5 billion to buyback stock at $27.47 average price.
• Announced a $800 million cost reduction plan.
• Announced the closing of 50 Best Buy large format stores.
• Same-store sales declined 1.7%.

Yes, Best Buy being a publicly traded company leaves it susceptible to having to cater to the unrelenting demand of Wall Street analysts and money managers. Dunn got caught in a vortex of having to ponder the future and deliver results in the present, and who knows what else regarding possibly inappropriate conduct.

Decoding Wall St.: Based on the book co-authored by Nicole Lapin and Brian Sozzi, Decoding Wall St., the daily Decoding Wall St. newsletter is a lifeline to unlocking, and acting upon, an endless array of hidden financial and world news clues. On Facebook and Twitter, Decoding Wall St. releases unique streaming content daily to help get you through interviews right on down to after-work cocktail parties. To receive the entire newsletter for today, including the “Decoding the Wall Street Expert” component, please visit decodingwallst.com.

 

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