business news in context, analysis with attitude

The Wall Street Journal reports this morning that while Robert Nardelli’s tenure at Home Depot resulted in a doubling of both sales and earnings, the now-deposed CEO missed “that in the post-Enron world, CEOs have been forced to respond to a widening array of shareholder advocates, hedge funds, private-equity deal makers, legislators, regulators, attorneys general, nongovernmental organizations and countless others who want a say in how public companies manage their affairs. Today's CEO, in effect, has to play the role of a politician, answering to varied constituents. And it's in that role that Mr. Nardelli failed most spectacularly.”

The Journal - and virtually every other newspaper in the country – writes that Nardelli also was handicapped by perceived arrogance and a pay package that many felt was excessive. Indeed, his severance package was estimated yesterday to be $210 million in cash, benefits and stock – and it actually got richer when Home Depot’s stock price went up on the news of his departure from the company.

Nardelli once told a reporter, “I used to play football. In football, you always know the score. Now, it's like we are ice-skating, and you've got a bunch of judges on the sideline shouting out the scores.” He believed that it was enough to take care of sales and profits, and that the stock price would take care of itself. It ended up that he was wrong.

The Journal also writes that Nardelli was angered by the fact that when GE’s then-CEO Jack Welch was choosing a successor, he turned to Ivy Leaguer Jeffrey Immelt instead of the blue-collar-bred Nardelli. “Subsequent events have confirmed the wisdom of Mr. Welch's choice. Like Mr. Nardelli, Mr. Immelt has struggled with a languishing stock price. But in addition to generating good operating results, Mr. Immelt has played the CEO's political role with great skill. He has tied his own pay closely to performance. He has eschewed the kind of employment contract that is now rewarding Mr. Nardelli. He has reached out to a wide range of constituent groups. And he has adopted a number of popular initiatives, such as his ‘eco imagination’ program which, among other things, includes an effort to reduce GE's emissions of greenhouse gases.

“As a result, Mr. Immelt wins awards, graces magazine covers, and is widely praised as one of America's best CEOs.” And Nardelli is out of a job.
KC's View:
The extent of the outrage at Nardelli’s severance package was amazing yesterday – and you can see some of the vituperation in ‘Your Views,” below.

While we agree that Nardelli’s pay package was excessive, we think there are a couple of points that need to be made.

1. We actually think that CEOs who worry about sales and profits, as opposed to the stock price, are to be applauded. Nardelli’s bigger problem, we think, is that he had no retail experience to speak of…and that he didn’t understand the nature of Home Depot’s business.

2. Nardelli doesn’t get all the blame for his compensation package. There is, after all, a board of directors that authorized his package…and they’re the ones who ought to be castigated for the excess. Just bringing in a new CEO may not be enough – perhaps the whole place ought to be cleaned out.

It is worth mentioning, by the way, that one of the members of Home Depot’s board of directors and a member of the compensation committee is Larry Johnston, the former CEO of Albertsons and a crony of Nardelli from the GE days. Big surprise there.