January 8, 2007

Disarming Nardelli’s Defenders: Part 1

Alan Murray of the Wall Street Journal is the first of three somewhat-defenders of Home Depot’s recently-departed CEO Bob “$210 millon” Nardelli.

Murray missed the boat (requires subscription) on what Nardelli did and didn’t do while he was in charge:

Mr. Nardelli was old school. In an interview last fall, as his public-relations problems were compounding, he acknowledged he had gotten “too focused on the idea that you do your job, you take care of your numbers, and the rest will take care of itself.” Some of Mr. Nardelli’s numbers were hard to argue with. In six years on the job, he doubled Home Depot’s sales and more than doubled its earnings.

STOP, right there. It’s HOW Nardelli doubled HD’s earnings that kept the stock from going up. The market isn’t stupid, and has given the back of its hand to many of Nardelli’s actions, including but not limited to these:

  • His consolidation of purchasing and many other functions to Atlanta from several regions caused buyers to lose touch with their vendors.
  • The company’s insistence on using non-union facilities and holding “the China price” over every US vendor’s head (never mind that the Chinese heavily subsidize prices and “somehow” manage to ship goods over here for almost nothing) kept costs down, but also hurt quality and availability, which is really starting to show now that residential construction has slowed.
  • Firing knowledgeable and experienced people in favor of uninformed newbies and part-timers greatly reduced payroll and benefits costs, but has eventually driven customers away, and given the company a richly-deserved reputation for mediocre service.

The fact of the matter is that HD may still be the biggest, but almost everybody in America knows they’re not the best — not, even, close. Stock market valuations are based on the estimated present value of future earnings, and the market came to see that as long as Nardelli stuck around, those earnings were not going to continue to go up just because of more muscle-cutting.

But Murray isn’t alone. Two other writers got the inexplicable urge to defend Nardelli. Part 2, which follows immediately below if you are on the home page, will cover what the Wall Street Journal’s Editorial Board said.
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Previous Posts:
- Jan. 3, 2007 — Bleep You, Bob Nardelli. Bleeeeeeeeep You.
- July 11, 2006 — Home Depot wants to own a bank (1st item at link)
- June 14 — Three Months from Hero to Goat? (first item at link)
- June 12 — Home Depot’s Arrogant Annual Meeting (fourth item at link)

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