Culture change at Home Depot

Joe Nocera’s account of the Home Depot annual general meeting in today’s New York Times is unmissable, a wholly worthy successor to the paper’s meticulous dissection of the cosy intertwined relationships on the company’s board.

Afterward, the words on people’s mouths are “appalling,” “disgraceful” and “arrogant.” I would add one more: contemptuous. I’m sure there are plenty of boards and chief executives who have contempt for their shareholders, but most of them are at least smart enough to keep it to themselves. On Thursday morning, in Wilmington, Del., Mr. Nardelli and the Home Depot board let the world know exactly how it feels about the people for whom they are supposed to work.

I’d like to think a reaction against the contemptuous and arrogant behavior of chairman and CEO Robert Nardelli will be a turning point in the outrageous rewards grabbed by so many corporate chieftains in the US. But I fear not.

Whatever shame may result from The New York Times’s flaying of Nardelli is more than balanced by a lengthy hosannah he received in the Bible of the corporate elite: Harvard Business Review. In its April issue, leading management guru Ram Charan wrote a lengthy paean to the “culture change” Nardelli has led since he took the reins at Home Depot in 2000. From the abstract:

The story of the vision, strategy, and leadership skills Nardelli used to move Home Depot to the next level has been told. But vision, strategy, and leadership alone–while necessary–are not enough. Typically, culture change is unsystematic and, when it works, is based on the charisma of the person leading the change, Ram Charan says. “But Home Depot shows–in perhaps the best example I have seen in my 30-year career–that a cultural transition can be achieved systematically.”

Funnily enough, unlike the Times, Charan doesn’t dwell on the $245 million Nardelli has reaped from his job in five years (the founders he replaced kept their salaries at $1 million). Nor does he explain why Home Depot has so badly underperformed compared to its rival Lowe’s. Since Nardelli arrived, Home Depot shares have dropped 12%, while Lowe’s have gone up 173%. As Nocera remarks, “You’ve heard of pay for performance? This is the classic definition of pay for pulse.”

Clearly Home Depot’s culture has changed. But it’s hard to see how any objective observer would see it as a change for the better.

13 thoughts on “Culture change at Home Depot

  1. Felix

    It was a very good column, and there’s no doubt that Nardelli is grossly overpaid. But that said, I think the NYT is being a bit unfair here, possibly even bordering on the disingenuous.

    The disingenuous bit comes when the paper talks about the stock price, while ignoring total shareholder returns. Home Depot has been paying out record dividends, which has been good for shareholders, but isn’t reflected in the stock price.

    The unfair bit is that the NYT consistently underplays the excellent results that Home Depot has had under Nardelli’s leadership. It makes sense, surely, for CEO pay to be tied to things under the CEO’s control — corporate performance — rather than things such as the share price which are not under the CEO’s control. Remember it wasn’t so long ago that everybody was moaning that CEOs’ obsession with share price was causing all manner of short-term thinking. If Nardelli is driving profits and margins to record levels — and he is — then that should be reflected in his pay. Should he be getting as much as he is? No. But ignoring his achievements and concentrating on the share price encourages Enron-style management where fundamentals are sacrificed for artificial boosts to the stock price. If you’re going to compare Home Depot to Lowe’s, you should look not only at the stock prices but also at profitability at the two chains.

    As for the founders’ salaries, they’re no more relevant than is the salary of Bill Gates. It’s easy to take a lower salary when your stock in the company is worth billions. The pay of a CEO who is hired from outside should be compared to other CEOs who are hired from outside, not to founders whose salaries will in any case pale in comparison to their equity stakes.

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  2. ANGEL

    MY RESPONSE TO NARDELLI AND HIS GREED IS WHILE HE IS GETTING GREATLY OVER PAYED THE WORKERS OF THE COMPANY THAT IS PAYING HIM CRAZY MONEY ARE GETTTING UNDER PAID FOR ALL THE WORK THEY DO. THERE ARE LITTLE ASSOCIATES TO HELP THE CUSTOMER TRAFFIC THAT GOES THROUGH OUR STORES. THE HD’S PHILOSIPHY IS MONEY HELPS EVERYTHING THE MORE MONEY THE CUSTOMERS GIVES THE MORE WORKERS. YET WE LOSE MORE ASSOCIATES FASTER THAN WE MAKE THE MONEY BECAUSE THE COMPANY DOESNT TAKE CARE OF THEIR EMPLOYEES NOT INCLUDING NARDELLIE! THEY TAKE AWAY THE TUITION REIMBURSTMENT TO PART TIME ASSOCIATES, THEY TAKE AWAY OUR MERIT BADGES WHICH WAS THE ONLY WAY WE COULD SHOW OUR EMPLOYEES HOW MUCH WE APPRECIATE THERE HARD WORK. THEY TAKE AWAY OUR CHOICE OF WANTING TO WORK ON EASTER SUNDAY WHICH YOU PAY MORE ASSOCIATES FOR THAT DAY THAN WE ACTUALY GET CUSTOMERS INTO THE STORE. ALSO FOR FUTURE EMPLOYEES THAT WANT TO JOIN THE COMPANY THEY PAY THEM JUST A LITTLE MORE THAN MINIMUM WAGE. I AM AN EMPLOYEE AND I WORK AND TRY MY BEST TO GET TO EVERY CUSTOMER BUT ITS HARD TO WANT TO STAY WITH A COMPANY WHO DOESNT APPRECIATE THERE WORKERS. THE ONES THAT REALLY MATTER THE ONES THAT ARE OUT IN THE FRONT LINES ACTUALLY MAKEING THE BUSINESS WHAT IT IS.

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  3. Peter M. Levine

    Nardelli is a joke. Contempt for the people who pay his salary. I am a shareholder who has directed my money manager to sell HD stock. Also, been in a store lately?? Does it make sense. Boycott the Company until Nardelli goes.

    Reply
  4. Nathan

    I will speak only of my opinion. I am a part of the management team in a home depot store. We have a group of very talented and intelligent associates in our store and market. I am of the opinion that your performance reflects in your compensation. I also believe that your performance is a reflection of the leadership you have. So why is it that the proud, hard working associates who give so much to the company recieve so little in return? The answer is clear. The dollars that should go to the people who make the money for the company is instead filtered into the deep and already well lined pockets of Bob Nardelli. The recent actions of Bob Nardelli and the Board of Directors has me concerned. Why are you being befensive on issues that effect all of us? My message to Bob: Stop measuring customer service, and rather start inspiring it. My message to the Board of Directors: Stop supporting the executives and start doing your jobs looking out for the shareholders. One final message for 2 great men with visions and leadership: The home depot needed you to become what we are. We need you again to help save what we should be.

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  5. Sheryll Campbell

    Thought you might be interested in reading this news release the company posted today.

    The Home Depot Reports Final Votes on Company and Shareholder Proposals, and Will Implement Majority Vote Measures

    ATLANTA, June 1 /PRNewswire-FirstCall/ — The Home Depot(R), the world’s largest home improvement retailer, today released the final voting results for proposals presented at its 2006 annual meeting of shareholders.

    As stated in its first quarter fiscal 2006 form 10Q filed today with the Securities and Exchange Commission, all directors were elected to one-year terms and KPMG LLP was ratified as the Company’s public accounting firm. The shareholder proposal that requested election of directors by majority
    vote was approved by 56 percent. The Company said it has agreed to implement majority vote measures in advance of the 2007 annual meeting.

    In addition, the Company said today it would return to its previous format for its 2007 annual meeting of shareholders.

    “Consistent with the way we run our company – in which we listen, learn and lead – we will return to our traditional format for next year’s annual shareholders meeting, which will include a business overview, the
    presentation of proposals, an opportunity for shareholder questions and with the board of directors in attendance,” said Bob Nardelli, chairman, president & CEO.

    The Home Depot has a long-standing commitment to the highest standards of corporate governance and transparency. Details of the Company’s corporate governance program can be found at
    http://ir.homedepot.com/governance/home.cfm.

    In fiscal 2005, the Company produced a number of records, including record diluted earnings per share of $2.72, up 20.4 percent over the previous year, and record sales of $81.5 billion, up 11.5 percent over the
    previous year. In addition, the Company returned approximately 67 percent of its earnings to shareholders in the form of dividends and share repurchases in 2005. The Company, which has grown from $45.7 billion in sales in 2000 to $81.5 billion in 2005, is only one of two companies in the Dow Jones industrial average to have exceeded 20 percent EPS growth for each of the past four years. Since 2002, the Company has returned in excess of $15 billion to its shareholders in the form of share repurchases and dividends.

    The vote results for each of the Company and shareholder proposals up for consideration last week are attached.

    The Home Depot(R) is the world’s largest home improvement specialty retailer, with 2,065 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces and
    Mexico. Through its HD Supply(SM) businesses, The Home Depot is also one of the largest diversified wholesale distributors in the United States, with more than 900 locations in the United States and Canada offering products and services for building, improving and maintaining homes, businesses and municipal infrastructures. In fiscal 2005, The Home Depot had sales of $81.5 billion and earnings of $5.8 billion. The Company employs approximately 355,000 associates and has been recognized by FORTUNE magazine as the No. 1 Most Admired Specialty Retailer and the No. 13 Most Admired Corporation in America for 2006. The Home Depot’s stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor’s 500 index.

    THE HOME DEPOT, INC. AND SUBSIDIARIES
    At the Company’s Annual Meeting of Shareholders held on May 25, 2006, shareholders of the Company elected the following nominees to the Board of Directors to serve a one-year term. Votes cast were as follows:

    Gregory D. Brenneman
    For: 1,289,068,180 69%
    Withheld: 572,556,479 31%

    Lawrence R. Johnston
    For: 1,272,409,714 68%
    Withheld: 589,214,945 32%

    John L. Clendenin
    For: 1,279,570,255 69%
    Withheld: 582,054,404 31%

    Kenneth G. Langone
    For: 1,264,971,624 68%
    Withheld: 596,653,035 32%

    Claudio X. Gonzalez
    For: 1,193,403,910 64%
    Withheld: 668,220,750 36%

    Angelo R. Mozilo
    For: 1,715,993,958 92%
    Withheld: 145,630,701 8%

    Milledge A. Hart, III
    For: 1,280,074,303 69%
    Withheld: 581,550,356 31%

    Robert L. Nardelli
    For: 1,269,267,985 68%
    Withheld: 592,356,674 32%

    Bonnie G. Hill
    For: 1,263,578,383 68%
    Withheld: 598,046,276 32%

    Thomas J. Ridge
    For: 1,278,218,326 69%
    Withheld: 583,406,334 31%

    Laban P. Jackson, Jr.
    For: 1,294,205,910 70%
    Withheld: 567,418,749 30%

    THE HOME DEPOT, INC. AND SUBSIDIARIES
    Shareholders ratified the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal 2006. Votes cast were as follows:
    For: 1,815,052,235 98%
    Against: 27,983,600 2%
    Abstention: 18,588,824

    Shareholders rejected a shareholder proposal regarding committee report. Votes cast were as follows:
    For: 551,110,720 40%
    Against: 817,773,414 60%
    Abstention: 99,574,488
    Non-votes: 393,166,038

    Shareholders rejected a shareholder proposal regarding employment diversity report disclosure. Votes cast were as follows:
    For: 482,060,084 36%
    Against: 860,111,212 64%
    Abstention: 126,287,325
    Non-votes: 393,166,038

    Shareholders rejected a shareholder proposal regarding chairman and CEO. Votes cast were as follows:
    For: 588,608,576 41%
    Against: 856,864,957 59%
    Abstention: 22,985,088
    Non-votes: 393,166,038

    Shareholders supported a shareholder proposal regarding method of voting for directors. Votes cast were as follows:
    For: 805,803,485 56%
    Against: 632,823,840 44%
    Abstention: 29,831,297
    Non-votes: 393,166,038

    Shareholders rejected a shareholder proposal regarding retirement benefits. Votes cast were as follows:
    For: 632,096,084 45%
    Against: 762,704,947 55%
    Abstention: 73,657,591
    Non-votes: 393,166,038

    Shareholders rejected a shareholder proposal regarding political contributions. Votes cast were as follows:
    For: 453,568,417 34%
    Against: 880,812,521 66%
    Abstention: 134,077,683
    Non-votes: 393,166,038

    Shareholders rejected a shareholder proposal regarding governing documents. Votes cast were as follows:
    For: 608,669,882 44%
    Against: 767,365,255 56%
    Abstention: 92,423,484
    Non-votes: 393,166,038

    Shareholders rejected a shareholder proposal regarding politicalnonpartisanship. Votes cast were as follows:
    For: 160,096,666 12%
    Against: 1,170,768,180 88%
    Abstention: 137,593,775
    Non-votes: 393,166,038

    SOURCE The Home Depot

    Reply
  6. Pingback: Davos Newbies » Blog Archive » Home Depot response – a sign of positive culture change

  7. Pingback: Davos Newbies » Blog Archive » Home Depot response: positive culture change

  8. Elizabeth

    I am a graduate student working on a team paper about Home Depot and how Nardelli and the HD executive team were able to win the hearts and minds of its employees.
    I am conflicted; on the one hand, Nardelli appears to have been the right man at the right time to improve the business functions of the company. However, he is not what one thinks of as a warm and fuzzy leader, inspiring a positive culture and maintaining it. Compensation matters aside, has a positive cultural change occured or is it just a robotic response to a dictatorial leadership style?

    Reply
  9. Don Wenzel

    The Home Depot still has a lot of customer service problems they need to correct. They have now installed 3 new roofs on my house in eight months. I still have problems that need corrected. I have email addresses to 5 key Home Depot employees, like branch manager, installation manager,project manager and it takes the several weeks to respond to letter. They make appointment to come out and don’t show up or call. I have waited an entire Saturday, came home from work and they did not show up. Please visit my web site and read my journal. http://www.freewebs.com/myroof

    Thank you
    Don Wenzel
    Oxford, Michigan

    Reply
  10. Gary from Oregon

    Well, the bad customer service problems continue.

    We ordered a door and they lost the order. We ordered a bathtub, and they couldn’t find it AFTER it was received. We ordered carpet, and two days AFTER it was suppose to be delivered they called to tell me it had been back ordered. It took 5 phone calls to get them to cancel the order. And they still billed me for the stuff. Then it took another 10 phone calls to get a credit. And we are still not done…they charged me a re-stocking fee even though they promised they wouldn’t!

    I’ve called President’s [Nardelli’s] office, no return call. I’ve called The Dalles branch manager [Robert Tilton], no return call.

    So, until they give a damn, I’m taking my business elsewhere.

    Buyer beware. Home Depot has gone from a good company to one that just doesn’t care!!!!!

    Gary Rains
    Hood River, Oregon

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  11. Pingback: Davos Newbies » Blog Archive » The rewards of failure

  12. garry hailey

    I have finally turned my complaints over to consumer affairs. Due to misleading information; bait and switch tactics. I will never buy anything from Home Depot.com and a few of it’s affiliants that will tell you a lie in a minute. QCA Spas; Your Other Warehouse, and who knows what other vendors they use. They know they are wrong; but if it gets bucks in there pocket, who cares. I do a lot of business with Home Depot; no problems. But the internet stores, forget it. The first thing they tell you when they answer the phone is “no returns”. If you deal with them, you need your head exaimined. My ocassion with them has put me under so much mental stress that it has made me physically sick!

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  13. garry hailey

    Explain moderation? I’m not a lawyer who uses big words, just someone that has learned a valuable lesson to the tune of a couple of thousand dollars.

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