Thoughts On the Home Depot Situation
We should have known better. We knew that Nardelli, who took over the firm as the first non-founder CEO in December 2000, oversaw a HD share price that went precisely nowhere, from $42/share in 2000 to $42/share 2006. But we also knew from the 2006 proxy statement that Nardelli earned a total of $12 million in cash compensation from the company – that is, excluding option and restricted stock grants, which were sizable. But $7 million of this compensation was in the form of a bonus. A bonus for what, you may ask. Well, admittedly, earnings and revenues did grow nicely over this time but come on, what is the CEO’s job really?
The proxy gets yet more suspect the further you read. The company even admits that Nardelli’s “annual bonus shall be not less than $3,000,000.” So is it a bonus or is it salary? You tell me. Regardless, it later came to light that Nardelli’s total compensation in 2005 was worth somewhere around $38 million, and nearly $250 million over his five-year tenure through December 2005. To me, notwithstanding that I am merely an outsider with no management experience of my own, this just looks categorically egregious.
If the pay of the CEO wasn’t enough to make one question the direction of the company, then surely the CEO’s outright contempt towards shareholders should have been. At the shareholders meeting last May, which lasted all of 30 minutes and which the entire board of directors (save for Nardelli, the Chairman) boycotted, Nardelli refused to take shareholder questions. I am not even a Home Depot shareholder, and this made me livid. But it also caused me to avoid HD stock like the plague.
I am glad I did avoid it, because $250 million in severance for someone who effectively failed at his job is just a slap in the face.
The Business Week story concluded by citing a survey that suggested the anti-touchy-feely, threatening demeanor that Nardelli uses to manage may surface in the interaction store employees have with customers. Today I read articles like the one on MSN from earlier this week that seem to echo my own personal feelings about the company – that by mistreating employees the customer experience has suffered, and Home Depot is no longer a pleasant place to visit. With an alternative like Lowes, I feel, there is really no reason to shop at or to invest in Home Depot.
Hopefully, after Nardelli’s January ouster, things may be able to change. But how quickly a new CEO can change the culture of a 350,000-person firm remains to be seen. I hope, for the sake of the corporate financial system, that the Bob Nardelli type of behavior continues to outrage investors.
FD: I have no position in any firm mentioned in this post.
3 Comments:
You might be interested in my old post, Home Depot Inc Investor Shopping Experiences. I too avoid Home Depot, but sadly I don't have a Lowes nearby. Though I have discovered that local hardware stores can be very helpful.
By George, at 09 March, 2007 16:19
Totally agree with your comments.
Mere "cosmetic" approaches will
not fix Home Depot's issues. Far
too late, as Lowes will continue
to take more market share away
keep slicing the pie, on Home
Depot's comp sales. They are
rapidly expanding as a growth
company into Depot's territory,
ie, Canada and Northwest.
By Unknown, at 14 March, 2007 16:51
it's not that not too late..it's never too late to fix Home Depot's woes. Changes must be made again and may take long. Getting back the customer satisfaction will be hard but should be taken as a priority in it's recovery. If the customers are again happy with HD then it wouldn't be too long before they get back their market share.
mikez
myrate.com.au
By Mikez, at 30 April, 2007 10:28
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