Passing tougher legal tests
Best Buy’s legal team played a critical part in the turnaround that has occurred at the company in the past year. Led by general counsel Keith Nelsen and deputy general counsel Todd Hartman, the team steered the company through a governance obstacle course and was able to regain shareholder confidence and emerge with an even stronger corporate governance profile than before the crisis.
Managing disclosure issues throughout a series of leadership changes and transitions was one of the company’s biggest challenges. Equally difficult was assisting with broker discussions among the board, management, the founder and the largest shareholder to avert an unnecessary proxy battle. Putting in place a declassified board structure, bringing on board an independent chair and two directors appointed by the largest shareholder, and managing two CEO transitions required comparable finesse. The legal team also spearheaded the proxy drafting process and discussions with shareholders to ensure constructive communication of a complex series of events over the prior year.
In addition, Best Buy’s legal team deserves praise for its role in negotiating a stealth exit from a European joint venture with Carphone Warehouse Group, which operated stores in eight countries. This was difficult because ‘the legal analysis was not very promising in terms of our options,’ says Hartman. ‘For good or bad, the legal team, and our general counsel Keith Nelsen and I had more experience with our European joint venture partners than anybody [else] in the company by the point at which it was time to exit.
‘It essentially fell to us to help the new leadership team understand the dynamic and negotiate our way to a successful exit in a way that was consistent with our governance rights and our board rights, in what was more or less a 50/50 joint venture where you can’t do anything without the other party agreeing to it.’
In the end, Best Buy agreed to a sale price of £500 million ($xxx million), comprising £420 million in cash and £80 million in Carphone Warehouse stock, subject to a 12-month lock-up restriction. The transaction was completed on June 26, 2013.
‘We like to think we had a pretty gold-standard [governance] program before this crisis arrived, so this was more about passing the test,’ says Hartman. ‘We feel that with the leadership of our general counsel – and I’d like to think our compliance team played a part as well – we did pass the test, and we ended up with a board that was very smart and sensitive to governance issues, and which made the right decisions.’
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