Home Depot Takes Heat for Pay and Board
By George Anderson
Shareholders at Home Depot’s stock meeting were quick to criticize Chairman and CEO Robert Nardelli for his compensation package as well as a the perceived lack of independence of the company’s board.
Yesterday’s shareholders’ meeting was seen as being out of the ordinary for a number of reasons.
Mr. Nardelli’s compensation package was brought up a number of times, but discussion of the issue was quickly quashed by the Home Depot CEO as not being applicable to the business of the meeting.
One investor, reports Reuters, upset over Mr. Nardelli’s refusal to answer questions said, “Arrogance will kill you. If you aren’t humble and decent, you will destroy this company.”
Richard Ferlauto, director of pension and benefit policy for the American Federation of State, County and Municipal Employees, also criticized the Home Depot CEO.
“While you have been handsomely compensated, the stock price has languished,” he said.
Since Mr. Nardelli took over the reigns at the home improvement chain in 2000, the company’s stock price has fallen 15 percent. According to public filings, Home Depot’s CEO has earned nearly $120 million over that period, not including stock options and other miscellaneous compensation.
Many others questioned why no members of the company’s board of directors were at the meeting. A number of institutional investors supported a no vote against reelecting members of the board over their apparent lack of independence.
Richard Metcalf, corporate affairs director for Laborers International Union of North America, told Reuters, “One would have thought that (directors) would have wanted to bend over backward and answer questions and convey a sense of being open. The attitude of the CEO toward the board tends to match the reporting that this is a clubby board, out of touch with its stakeholders.”
Moderator’s Comment: Are Robert Nardelli and the Home Depot Board of Directors in serious danger of losing the confidence of the company’s stakeholders?
Will Mr. Nardelli’s apparent lack of responsiveness at yesterday’s annual shareholders’ meeting have any effect on the company’s rank and file or its suppliers? –
George Anderson – Moderator
Though not well known, our Founding Fathers considered an amendment to control CEO pay/behaviour…… or not, but maybe they should have; anyway, this is one of those issues that never goes away. Two-score-and-one years ago, when I was in college, a competition was held addressing this exact same issue, and even the most erudite of the papers – i.e. those that didn’t simply spell out D-I-S-G-U-S-T-I-N-G 1500 different ways – could come up with nothing better than the nostrum that “pay should be related to performance.” If there’s been any movement on the issue since then, it appears to be backwards.
I think the height of corporate conceit and arrogance just reached me in the mail. While only a small stockholder in the Canadian Corp apparently controlled by family members, I received the annual report and notice of a meeting a month AFTER it was held! It was forwarded from my broker!
Common sense is in short supply these days, but nowhere did I see comments about Enron’s jury decision that pointed to a lack of responsibility on the part of its two top executives whose job was “running” the company. They pleaded ignorance. They didn’t know bad things were going on. But they were the top executives, and that was their job. PLAIN AND SIMPLE! Letting everyone down (except themselves) because they didn’t know about the fraud going on just plain was not an excuse. I for one, hope they get the maximum. And arrogant executives that line their boards with cronies who “go along” with whatever the top people say should be outlawed. If the stockholders could not get any answers to their questions, and not even have the board members present, then I think the SEC should have the power to step in and investigate. One way or another, it should be against the law and the law should have some teeth in it.
Right, so if we look at who else is doing what to whom, we have:
1. McDonald’s shareholders voting to restrict big payments and the board saying “we’ll think about it.”
2. The company that owns all the train tracks over here giving bigger than ever payouts to the top execs while smaller than usual payouts to employees AND increasing their losses by 5 times what they were last year.
3. Enron’s top execs getting found guilty then sent home until sentencing in Sept – what is that all about?
4. Certain other high level execs deciding that checks and balances, the laws passed by Congress and international agreements don’t really apply to them.
Any wonder Home Depot and other boards of directors behave the way they do? Anybody got any good suggestions as to why we lower level folks should buy stocks and shares? Not what I see as a good investment. This stuff just makes me see red.
Will it have an effect? How could it not?
Will it have repercussions throughout the rank and file, Wall Street, etc? You betcha!
Interestingly, Jack Welch tried to throw some support to Nardelli’s “tough-minded” leadership in an article he wrote for BusinessWeek – came off as self serving in my opinion, but perhaps others saw it differently.
We have bred top Executives to think of short term results, and instant financial gratification. The Corporation is supposed to be eternal and perpetual, and we expect the leadership to think in those terms. I think the mentality is “just get me through this year,” and how can I bullsh** Wall Street.
The “model” manager is intrinsically motivated with only a socialized need for power. That is not what I see, not only with Home Depot, but a seeming majority of large corporations. Ego driven executives, highly compensated beyond their contributions, motivated and managed by exception rather than a grand plan to get the company, the stockholders and the employees into the next century.
In terms of my financial investment, I would rather see a “Pete Rose” (notwithstanding the gambling thing) who made a fabulous career out of base hits, as opposed to a “Barry Bonds” with an asterisk after his records. Or a Ken Lay who will have a Number instead of a name.
It is odd that David points to Albertsons deja vu. After all, the CEO from Albertsons, Larry Johnston, is one of the board members.
This sounds like a potential chance to brand these Corporate “Robber Barons” for what they are and run them out of the business of running business.
It may not make a huge impact to the individual share holders and employees to distribute ill gotten earnings back through the company, but it would make a statement of the values the company embraces not to mention set an example that thieves should not prosper under the guise of compensation.
I am reminded of stories of the great “robber barons” of old. The purpose of a Board of Directors is to ensure management is focused on the stockholders, period. If I am a stockholder, I expect that the aggregate wishes of my group will be heeded and that employees will be treated well as they are key components of the success of any company.
Unfortunately, in the current age of the Imperial CEO with the Boards comprised of former, current, and CEO wannabe’s the oversight function has been lost. There is zero justification for the salary disparity between CEO’s and other Senior management.
The Board candidates are not nominated by shareholders, they are nominated by executives and other Board members. Unfortunately, what is often needed are true independent candidates willing to stand up and say “The emperor is naked.”
The practice of paying outrageous salaries has to be stopped by the board.
I just listened to the meeting, which I believe is still posted on the company’s website: http://ir.homedepot.com/MediaRegister2.cfm?MediaID=20451
It appears as if HD management is going to hunker down and try to ride out the storm.
Sounds like a serious case of a senior team that’s not engaged in meaningful issues anticipation. I doubt that the questions that surfaced in the meeting were the first time that Mr. Nardelli had a whiff of something brewing.
Today’s New York Times ran a news analysis about a corporate high flyer that a few years ago was “poisoned by hubris.”
Let’s hope that we’re not witnessing a reprise.
This is like Albertsons deja vu. Home Depot hired a “name” and not a leader. The purpose is to put on a big show for Wall Street but it never seems to work out as planned. Recently, Home Depot announced they did not want to disclose certain sales information. This is nothing new. The board of directors of many large companies are allowing their CEOs and staff to raid the company treasury when they see the future is dim. As long as they become zillionaires they really don’t care about stock price, the shareholders, or what others think of them. One of the best ways to avoid these issues is to become a private rather than a public company. If Home Depot was privately held, we would not be having this discussion.
Shareholders who don’t like Home Depot’s governance policies or its transparency issue (comp sales disclosure) will simply sell the stock. There’s a definite market for green stocks and a definite market for socially responsible stocks. There’s also a market for stocks whose managements are shareholder-driven. Ultimately, the stocks whose managements aren’t shareholder driven will have lower price to earnings ratios. Let’s see whether Home Depot shareholders will vote for proxy initiatives in favor of more appropriate behavior.
Anytime there are no board members at a board of directors meeting, there are some serious issues with the company. Add to this poor performance, upset investors, and a company president who gets paid on poor performance, and you have a mixture ripe for change. Home Depot needs to change, reflect their customer’s concerns and address their issues. Not acknowledging these and ignoring their presence will only cause greater harm to the organization. This will only negatively impact the stock price, as investors flee an organization which continues to underperform expectations, while decrease in the face of competition. It is clear that investors need to vote for new seats on the board and do it rapidly if they want to protect their shares.
All anger and logic aside, the real question is; does it really matter? In the end, Mr. Nardelli’s compensation is what it is and he’ll get it regardless of what the shareholders and public think. The is no quotient relationship to performance here or in most other instances. There is certainly not a matter of conscience or moral outrage to the extent to change things either. The company or its stock really isn’t at issue here simply because it doesn’t matter.
So when will it matter? In the short term it won’t. In the long term it’s a matter of underwhelming outrage. Thus, leading to the likelihood that the more things change, the more they stay the same. Sound pessimistic? Yes, it could. However, greed has existed for all the ages – it’s nothing new. Will good win in the end? I still have faith.