Toxic Secrecy

Usually it’s a good idea to keep your mouth shut. But not always.

Last year, Brian Dunn, the newly installed CEO of Best Buy, developed a close personal relationship with a junior female worker. This kind of thing is bad for company morale. Among other things, it’s hard to oversee someone who is chummy with the new Chief. The Chairman and founder, Richard Schulze, was informed about it and confronted Mr. Dunn. When Dunn denied the allegations, Schulze let the matter drop.

That was a problem. If Best Buy were still Richard Schulze’s baby, it would have been his decision to let it go—maybe the wrong decision, but still his. But as Chairman of the Board, his role is different. It’s the Board’s role to look out for shareholders, but Schulze never told anyone else about this issue—not the Audit Committee, not the Board’s lawyer—no one. That was a mistake, because there’s a fundamental difference between leading an oversight committee and leading a company.

Leading a company is difficult and lonely. You face hard choices about hiring and firing, about opening and closing new markets, about strategic direction. Confiding in others can compromise your leadership. That’s one reason I think, for the most part, corporate CEOs earn their pay: it’s not an easy job.

But leading a Board of Directors requires different skills. It’s not up to individual Board members to investigate or oversee an issue; the Board as a whole speaks—or at least it’s representative committees. In this matter Schulze should have told the Audit Committee what he had heard and then decided together what to do. Keeping secrets—even on personal issues—gives the impression that there is a buddy-buddy system in place.

Fiduciaries are responsible for more than themselves and their friends. They have to let others know what they need to know to do their jobs. It’s too bad Schulze messed this way. Best Buy is now deprived of his leadership and insight. But the Board did the right thing. While it is crucial to keep internal issues confidential, sometimes confidence requires a quiet word.

By | 2017-07-17T12:34:54+00:00 May 18th, 2012|Global Market Update, Investing|0 Comments

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