February, 2007

The Day After

Bob Nardelli will be remembered as the guy who finally snatched the halo off Home Depot’s head.

By Greg Brooks

I was late writing this column and that was a good thing.

My column was due New Years’ Day—but I couldn’t use that timing as an excuse—I’m way too old to spend the night before cultivating a five-star hangover. But I know someone who did.

In a January 3rd press release, Home Depot announced that Bob Nardelli and the board of directors “mutually agreed that Nardelli would leave his position as the chairman, president, and CEO of The Home Depot, and as a director, effective Jan. 2, 2007.”

I’ve been fired before. I’ve never been fired from four jobs at once, though.

What could the man have done? Murder? Rape? Stored porn on his PC? None of the above, actually.

In six years under Nardelli, sales at Home Depot increased more than 80%; the store count doubled, and net margins jumped 226%. But Home Depot’s stock also fell 8%, and that, coupled with an outrageous pay package and an apparent failure to read Miss Manners during his youth, is what did in Bob.

A Jan. 3 story on Forbes’ magazine web site, www.forbes.com, noted, “Since Nardelli joined the company in December 2000, shares of the home improvement retail giant have fallen slightly, though Nardelli managed to pull in $123.7 million in compensation.

“At the company’s 2006 annual meeting, shareholders were looking to weigh in on the matter, but...save for Nardelli, not a single member of Home Depot’s board attended the meeting, and Nardelli refused to comment on his salary.”

Shareholders don’t like getting slapped down. While Nardelli brushed the matter off afterwards, the big ball at the top of Times Square had already started to drop.

Bob must feel terrible that everyone at work hates him, right? Maybe not. According to the Home Depot release announcing his departure, “Nardelli and the Company have agreed in principle to the terms of a separation agreement which would provide for payment of the amounts he is entitled to receive under his pre-existing employment contract, entered into in 2000.”

That’s corporate-speak for $210 million, a final slap to shareholders and enough that even CNN’s Lou Dobbs took a time-out from government-bashing to flame Nardelli as an example of out-of-control CEO pay.

What does this development mean for the world’s most feared home improvement retail giant? First, dancing in the streets.

The day of the announcement, Depot’s shares “rose about 4%,” noted Forbes. Employees in the Home Depot forums at www.retailworker.com have bashed Nardelli from the start, so the prevailing sentiment was no surprise—one comment was titled, “First Saddam, now Nardelli? 2007 is starting off just right.”

But the overall sense was that, unlike shareholders, employees are used to getting slapped. “Enjoy the good feeling while it lasts,” said another posting on the site. “Just be prepared for more of the same.”

Second, Nardelli’s departure may mean the end of Home Depot’s foray into construction supply.

Investors and analysts have been critical of that move all along, saying the money spent on construction supply should be going to renovate rundown box stores and improve the company’s abysmal service. The new kid in the corner office, a pleasant-looking lawyer named Frank Blake, has been charged with unruffling shareholders’ feathers, so that just might happen.

If so, it could have a huge impact on the channel. The scuttlebutt is that HD Supply drives away the top executives of nearly every company it acquires, and the subsequent effect might be to encourage all that talent to jump back into the fray. (Consider what you might do differently if you could cash out and then come back with a clean slate.)

But make no mistake: Bob Nardelli has had a huge impact, too. Since the 1980s, Wall Street has been saying Home Depot is an unbeatable competitor. Nardelli will be remembered as the guy who finally snatched the halo off Home Depot’s head.