Home Depot is a leader in the thriving do-it-yourself category. In May, it proved itself a leader in the less-thriving category of companies that tell shareholders to go do something unprintable to themselves.
Indeed, activities in recent weeks suggest that CEO Robert Nardelli, a former protégé of Jack Welch at General Electric, is trying his best to alienate his company’s shareholders.
Criticism of Home Depot has been mounting for months. The giant company’s stock is stuck back where it was in 1999, while smaller rival Lowe’s is gaining market share among customers and mind share among investors. On May 24, the day before Home Depot’s annual meeting, a front-page New York Times article discussed Nardelli’s massive compensation package – $245 mn over a five-year period in which the stock slid 12 percent – and highlighted cozy board relationships.
For reasons undisclosed, Home Depot chose not to hold the meeting in its home base of Atlanta but in out-ofthe-way Wilmington, Delaware.Worse, not a single director bothered to show up. Nardelli came, but he only stayed for about half an hour. He refused to take questions about his compensation and refused to give totals of shareholder votes on several proxy proposals; he simply noted that they had passed.
Now, reticence is something we could use more of in our confessional, celebrity-obsessed society, but it behooves a CEO who isn’t exactly setting the world on fire to adhere to form, if only to give disgruntled shareholders an opportunity to feel they are heard. If the marketplace already views you as a genius, being tight-lipped and standoffish can add to your mystique. If investors feel like the CEO is taking good care of their capital, they could care less about how many directors show up at the annual meeting.
But if a CEO already lacks credibility, bunkering tactics make it look as if he has something to hide – and at Home Depot, it’s hard to escape that conclusion. In May, in a lessnoticed move, Home Depot also decided to stop disclosing same-store sales every month.
The election results Nardelli refused to disclose at the meeting were poor: 30 percent of votes were withheld from ten of the eleven directors up for reelection. Proposals to allow investors to make an advisory on the compensation committee’s report and to split the roles of chairman andCEO received 40 percent of the vote. These figures were the equivalent of a 24-gun barrage across Home Depot’s bow.
Within days, Nardelli began to backpedal, issuing a conciliatory statement and promising to learn from the experience. He’s clearly learned one lesson: don’t experiment with a minimalist form of annual meeting at a time when your stock is stuck in neutral. There’s a second lesson, however, that Nardelli still appears not to have learned. Answering tough questions – especially if they’re posed by the people who own the company – is part of the CEO’s job description.
