Soon to be former CEO of Home Depot (HD) Robert Nardelli has been heavily criticized for his excessive compensation. My voice has certainly been in the chorus of critics. However, as much as I believed the shareholders needed to reign in his compensation, I wish that we had not triggered his resignation.
Today, HD announced that Nardelli would be leaving and taking his $210 million package with him. That number, while sounding high, may in fact be low when his other benefits including corporate jet use and gross-ups are included. Such is the sad state of CEO compensation.
But, as my parents repeated, "two wrongs don't make a right" and the loss of Nardelli is, to me, a greater wrong than his excessive compensation. Nardelli has reengineered HD from a simple "big box" retailer to a complex building solutions company. However, the result has been mixed. While HD has posted much higher earnings, the lower P/E assigned to a more complex company has netted out for flat stock performance for the past six years. If Nardelli had not come along, I believe that HD's results would be much inferior to those posted.
But this is where "activist" shareholders err when they focus exclusively on the price of the stock. I believe that shareholders serve their interests most intelligently when they focus on long-term corporate operating performance, rather than stock performance. Excessive focus on the price of the stock only tends to create short-term gimmicks, while focus on operating issues builds a strong company with a sound culture and quality employment.
But now that HD's board has lost Nardelli, what's their answer? Surprisingly, Frank Blake. He has no retail experience and has never run a company. He is a lawyer who's worked in legal at GE and been deputy secretary to the Department of Energy. These are strange credentials for running the third largest retailer in the world. If the price of HD weren't so low, I'd be tempted to watch rather than participate in this saga.
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