January 8, 2007

Disarming Nardelli’s Defenders: Part 3

Part 1 looked at Alan Murray’s specious partial defense of Bob (“Mr. $210 Million”) Nardelli on business grounds. Part 2 reviewed a Wall Street Journal editorial that ridiculously tried to defend his compensation.

This third part will look at the wayyyy too sympathetic treatment Business Week (Biz Weak as it’s called around here) gave Nardelli in its Jan. 15 issue cover story (free for now; HT NixGuy via e-mail) –

In the end it came down to the headstrong CEO’s refusal to accept even a symbolic reduction in his stock package. ….. Nardelli agreed to give up a guarantee that he would continue to receive a minimum $3 million bonus each year. But that’s as far as he would go. When board members asked him to more closely tie his future stock awards to shareholder gains, he refused, according to people familiar with the matter. Nardelli has complained for years that share price is the one measure of company performance that he can’t control.

“The board loved him and hates the way this ended up,” says a person familiar with the matter. But in a season of growing antipathy toward extravagantly paid executives, the directors felt they had no choice.

Substitute “control” in the first para of the excerpt with “manipulate.” Nardelli and his minions played every accounting, acquisition, and quick-fix angle they could to keep the numbers looking good, while letting the business deteriorate. The market is not stupid; HD’s poor share-price performance shows that investors have known for quite a while that the HD-Nardelli “success” story has not been genuine. The manipulation can make the numbers look good, and it takes some time for the chickens to come home to roost. In a company that is expanding like Home Depot has been, sometimes it can take quite a while. But the roosting is taking place now, with a vengeance:

During the current housing slowdown, however, the financials have eroded. In the third quarter of 2006, same-store sales at Home Depot’s 2,127 retail stores declined 5.1%. (vs. +5% a year earlier — Ed.) And with the stock price recently stuck at just over 40, roughly the same as when Nardelli arrived six years ago, he could no longer rely on other sterile metrics to assuage the quivering anger his arrogance provoked within every one of his key constituencies: employees, customers, and shareholders.

Here’s one thing I didn’t know about the infamous May 28, 2006 annual meeting (fourth item at link) that made so many shareholders’ blood boil:

Nardelli (handled) the meeting on his own. He did that in an abrupt 30 minutes. Shareholders were limited to just one question each. A digital clock timed them: One minute, then the microphone cut off.

And here’s a final point that Biz Weak almost got to, but in the end missed (or deliberately omitted):

Managers who weren’t hitting their numbers — “making plan” in Home Depot parlance — were routinely culled, their posts often filled with former executives from GE. That led some bitter insiders to dub the company “Home GEpot.” In fact, since 2001, 98% of Home Depot’s top 170 executives are new to their positions; 56% of the changes involved bringing new managers in from outside the company.

The fact of the matter, as I have been told, and as Biz Weak could easily have learned (and may have, but chose not to tell us — I don’t suppose having overrated GE ex-CEO Jack Welch on with his apparat-chick wife as weekly columnists had anything to do with it?), is that the incumbent senior managers could have walked on water and cured cancer, and it wouldn’t have mattered — Nardelli was going to get his people installed, no matter what. He should have made that clear from the very beginning and gotten on with the position changes instead of playing charades. Instead, his and his imported cronies’ dismissive and often humiliating treatment of hugely successful people set the stage for what he was going to do to the rest of the workforce, and ultimately to the chain’s customers. Good, bleeping, riddance.

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UPDATE: AP’s Harry Weber has a pretty even-handed look at the post-Nardelli challenges HD faces.

UDPATE 2: Here’s part of a sidebar story from Biz Weak:

Nardelli arrived at Home Depot full of bombast, standing up at one meeting to say “you guys don’t know how to run a f—ing business,” according to a former senior executive at Home Depot.

Yeah, they’d only built the Home Depot from nothing to $40 billion (1/2 of the current $80 billion) in 22 years. What has Bob Nardelli ever built from scratch? (crickets chirping) A sane board would have fired his a** on the spot.

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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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3 Comments

  1. I’d call him a crook, but I can’t. They gave him the money. In time people will wake up and realize the real criminals are the boards that fail to look out for the shareholders. None of these CEO’s are worth the obscene amounts they are paid. I’m for less government regulation, but these platinum parachutes are screaming for oversight. Just like the consequences of SAR-BOX, whatever the government legislates regarding compensation will have unintended negative consequences that no one will recognize before the bill becomes law.

    Comment by LargeBill — January 8, 2007 @ 6:13 pm

  2. #1, The Japanese don’t do this. They fall on their swords, figuratively, when they fail. There is no sense of shame.

    But I don’t disagree that it falls back on the bards and the institutional shareholders that let the boards blow off their duties to hold CEOs financially accountable.

    Comment by TBlumer — January 9, 2007 @ 2:31 am

  3. [...] Do not miss Bizzy’s 3 part take down of the Bob Nardelli looting defenders. Given the stakes involved in this war and how little is known, even now, about what is at the core of this conflict, it is worth reviewing in some detail the nature of our enemy – including disaggregating who they are (Shia and Sunni extremists), what they believe and why they believe it, and the implications of that for America and the West. [...]

    Pingback by NixGuy.com » Tuesday Clips — January 9, 2007 @ 8:03 am

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