January 4, 2007
Home Depot Board/CEO Agree He Should Leave
Bob Nardelli is now the former chairman, president and chief executive officer of Home Depot. Mr. Nardelli and the company’s board of directors mutually agreed he should resign with a parting gift of a $210 million severance package.
Mr. Nardelli has been the source of controversy on a number of issues during his tenure with the home improvement retailer. Among the many complaints against Mr. Nardelli from inside and out of Home Depot were his lack of retailing business acumen, an autocratic management style, excessive compensation, slowing sales, a dismissive approach to investors, and an underperforming stock when compared to rival Lowe’s.
When Mr. Nardelli first arrived at Home Depot, he was determined to change the “cowboy culture” of the company, according to a Wall Street Journal report. Prior to his arrival, store management had a great deal of autonomy. Company founders Bernard Marcus and Arthur Blank would visit stores and personally instruct associates on customer service. As the WSJ piece points out, Mr. Nardelli was ill at ease in interacting with front line employees.
To establish discipline, Mr. Nardelli actively recruited former military and/or GE people to join the company’s management ranks. The result is that many who had grown up with Home Depot in its rapid rise began leaving the company.
A source close to the company, told RetailWire, “Most feel that the biggest travesty is all of the 20+ year ‘stars’ that left because of conflict with Nardelli. He replaced these people with folks that appear to be very operations focused and not exactly seasoned vets in their field of responsibility.”
In an apparent cost-cutting move, Mr. Nardelli cut back on full-time employees with experience in the construction trade and moved to more part-time workers with little or no history in do-it-yourself projects. During his tenure, Home Depot was frequently taken to task for poor customer service.
To replace Mr. Nardelli, Home Depot has stayed in-house, picking Frank Blake, himself a former executive with GE, as its new CEO.
In a press release, Mr. Blake said, “The Board and I are committed to continuing on our current strategic path and remain focused on enhancing performance and delivering value for customers, shareholders and associates.”
Discussion Question: Is retail experience necessary to lead a large chain business?
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The move to bring in talent from outside retail was primarily to get past the merchant prince “this is how we’ve always done it” intransigence that prevented evolution. It made sense in some ways, because evolution is necessary.
However, there is more than a little truth to the statement that “Retail’s different”…and you can’t know how different until you’ve actually lived it.
In a manufacturing environment, you can replace people with technology, or robots, and it actually works. Retail’s different. You have to interact with something called a customer. To do that, you need in-store payroll and people who are reasonably knowledgeable and helpful. Nardelli missed that. He spent a ton of money on technology, but forgot that he needed people as both customers and employees.
It’s going to take a long time to undo the damage he’s done, and I’m not sure the company can actually do it. So, my advice: find the next generation retailer, not the last generation manufacturer to run your retail company.
The CEO’s departure at Home Depot and the recent COO dismissal at J.C. Penney may become cautionary examples that retailers should only hire retailers when filling positions at the top, but they only scratch the surface of why these two meltdowns occurred. If the reporting is credible, both cases (especially at HD) are not just about whether the hires were a “bad fit” but whether they failed to absorb the culture of the companies that hired them.
Retailers do run the risk of becoming inbred if they never look outside their ranks toward the worlds of consumer product marketing, financial services, logistics and so on. Different perspectives can bring strength to any company, not just a retailer. But trying to overturn the culture of a successful company with an arrogant attitude toward shareholders and associates alike is a recipe for failure.
It depends on the goals of the company. If the goal is to be a successful retailer then a successful retail executive needs to run the company. If the goal is simply to get the price of the stock up over a short period of time, then you need an accountant to run the company. Then, in order to sell the fantasy to Wall Street, you need a noted personality or salesman. To get all three qualities in one person is difficult. Typically successful retailers, using my definition of successful, are run by career retailers, stay out of debt, and remain privately held.
Charismatic leadership is the best possible lever in retail success. There’s nothing like a beloved founder to propel a normally mundane business into something that feels special. And you don’t have to be the founder to be charismatic (Marvin Traub of Bloomingdale’s, Allen Questrom of J.C. Penney and Federated). But it sure helps to show a lifetime commitment to retailing. Given the huge number of retailing executives available, why take the risk of hiring someone from outside the business? The standard answer: a fresh approach. But the infinite diversity of retailing experiences, skills and perspectives can give any company fresh approaches, along with the safety of deep retailing experience.
Mr. Nardelli seems to have reversed all that made Home Depot the powerhouse and growth company of the past. Undoing customer service and conflicting with those “who got you there” may have been his worst offenses. While it always helps to have experience in the field of endeavor; ALL BUSINESSES must have good people skills and good customer service. Failure in those areas generally results in overall failure.
Besides the money and the details, one of the most interesting points in their agreement is that Mr. Nardelli agrees not to compete with the company for one year or to solicit associates for four years.
Why interesting? Certainly it would seem pretty standard and any one can easily break such and agreement as they are rarely held. What’s interesting to me about it is that, yes, while standard, why would HD care?
If HD was so convinced that he must leave that they were willing to choke up $210 million, why would they be concerned that he could possibly benefit any one or more of their competitors? If you are so determined that the cost of $210 million is worth getting rid of the guy, how could you possibly be concerned that he could hurt you as a competitor? If in fact the complaints of his impact on the company are true, then why would a competitor like Lowe’s or anyone else be interested in having the same destruction to their customer service image?
While it remains perplexing as to the enormous compensation packages that are not only continuing, but are growing to amounts that could be considered as nothing less than ridiculous — do we really care? Or do we really just shake our heads?
Personally, I simply shake my head. It is impossible to think of these types of organizations as retailers. If they really were, they would keenly understand the value of $210 million and what that could do for your business. Instead, they line the pockets of one of their cohorts in crime to ensure that they themselves will be treated just the same.
In a conversation with one of their senior executives some years ago now, I became convinced that they were nothing close to a retailer. They were simply a guise for one.
If there is any lesson here it would seem that if the public were truly as incensed as much as those in the business are, they would respond by changing where they empty their wallets. While that’s not likely, I won’t give up hope. The only problem is that the consuming public actions rarely match their verbal disgust. Two weeks from now, will this really matter?
One would think that, after the high profile failures at Albertsons and Home Depot, retail experience would be a requirement. Some make the argument that with so many ex-retail executives available, why look elsewhere? Unfortunately, these ex-retail executives have proven they can not achieve the Board of Directors expectations. The real issue many executives from outside retailing miss is an understanding of the consumer. No retailer ever does well without a total consumer focus. Too many times, these are great leaders with many accomplishments. They can handle changing culture and motivating associates. Where they fail is in understanding the customer sufficiently to create a viable strategy. They visit stores, but talk with associates, not customers. It’s down hill from there on.
The question for stockholders is, why did it take so long?
And, should the Board be sued or dismantled for inappropriate actions or the declining business of Home Depot and the pay package of the past executive?
Shareholders were left out of the decision making process, and the Board should be accountable! Hmmmmmmmmmm
The direct answer to the question is, “No, it’s not necessary to have retail experience to lead a chain.” But, by the same token, somebody outside of retail may not have sufficient experience to prepare them for the job. Still, it all depends on the leader and the company. The argument has always been made in the automotive industry, for example, that car companies ought to be led by “car guys.” But, Ford Motor Co. has gone outside the industry for its new leader. I don’t know if he’ll be successful but I’m willing to bet there are a few dozen CEO level leaders outside retail that could help turn Home Depot around.
I don’t know if it was his doing, but Home Depot is in fact embarking on a new integrated channel strategy that will spell success. I’m rating the stock a definite “buy.”
Management calls the new direction the “endless aisle” strategy, an attempt to sell stuff not just for the house, but also for the home.
A subsidiary called Home Depot Direct has been established to handle the company’s e-commerce and catalog operations. It makes sense: same-store sales growth is slowing, and retailers cannot grow just by opening new stores; they need new channels, and new strategies. In this case, the new approach is a share-of-wallet strategy.
Home Depot was a latecomer to the Web, but it’s making up for lost time: homedepot.com gets up to 5 million hits a week. The company won’t say how much of its $81 billion in revenue comes from its Web site, but online sales grew 100% last year, and a lot of that came from high-end spending on large items (appliances, riding lawn mowers, refrigerators, etc.).
To promote its Web site, Home Depot has joined a stampede of advertisers who pay to have their Web sites appear among the top results when consumers search for products on the Internet. So far it has been a cost-effective way of getting the word out: return on advertising dollars spent on search words is running about 2-to-1 compared with its catalog. In addition the company is boosting awareness with new mini-showrooms for some of its catalog furnishings at selected Home Depot stores, where customers can order items using in-store kiosks connected to the Web site.
Nardelli took the home out of Home Depot! His style seemed to discount the fact that the only function of retail is to please the consumer. How can this be accomplished by consolidating suppliers (Can you buy a water heater there that isn’t made by GE?) and focusing on the spec builders?
There is no real selection at Home Depot. They have become a lumber yard with ceiling fans. Of the 30 or so trips I have made to Home Depot in the last year, 25 of the trips have resulted in no sale. My problem is that there is currently no alternative. However, a Lowe’s is under construction in my area and it is two blocks closer than Home Dept. Hope it’s not too late for Home Depot to turn things around.
Businesses (including retail) are led by the CEO and run by the team of people in place across the various functions of the organization. The CEO’s highest priority should be to establish a team of qualified function leaders, hold them accountable to performance and leadership standards then let them run the business plan.
The CEO has to have vision, inspire people to work together toward common goals, be able to articulate the vision to investors, shareholders, customers and employees and of course, live by strong personal ethical and performance standards that inspire and reassure everyone.
As Ryan states, there are many examples of great CEO’s outside of the industry segment they charged to lead that do an outstanding job.
Given the apparent abrupt nature of the departure, it is perhaps too easy to read “failure” into the equation. However, over the past 5 years, Home Depot stock has dropped by approximately 20%. The S&P 500 index has increased approximately 20% over the same period, while Lowe’s stock has increased almost 50%. These are gross figures, but are indicative of overall performance where it counts for a CEO…shareholder value.
Many of the initiatives implemented over the Nardelli era in merchandising, operations, logistics and marketing have appeared to be excellent ideas, many of them well implemented. As CEO, he can be praised for these, even if he had no direct impact on any of them. Did it take a “retailer” to implement these? Evidently not. SKU rationalization, supply chain efficiencies, multi-channel retail execution…these have occurred during Mr. Nardelli’s watch.
However, as Bob Eckert at Mattel told me once, his job as CEO of a mega company is not to manage the details. It is to serve his constituents. And in Mr. Nardelli’s case, he may have forgotten that his employees, his customers, his suppliers and his investors are all his constituents…those he was hired to serve. It doesn’t take a “retailer” to perform that function.
What has the turnover been like among retail executives who took over retail chains? Not that great. Therefore, retail experience in and of itself is not a criterion for success. Prior experience demonstrating excellence in a particular area which is critical for your chain could be an important criterion for success.
However, in an industry that is rapidly changing and adapting to a dynamic market that is extremely competitive, those executives who have experience from the past are not necessarily the successful leaders of tomorrow. Identifying criteria for hiring successful leaders of tomorrow is a difficult task and would take me too long to explain here but relying on success in an old marketplace is not one of them.
And what do Larry Johnston and Bob Nardelli have in common? If learning nothing else from GE and/or Six Sigma, they certainly learned how to structure an employment contract!
Retailing is full of traps and opportunities only an industry pro would recognize. Poor retailing is exactly Home Depot’s problem. On the other hand, PR pro’s are the ultimate generalists so I’d consider handicapping the results of this poll given the audience.
In the the discussion above, Mark Lilien mentions Marvin Traub. I had the pleasure of working at Bloomingdale’s during many of Traub’s years as CEO. He had an endless passion about the business. I believe that “passion” is what is critically important to lead a company, it may not matter as much what businesses you operated in the past, as long as you can be fully committed to the company you were hired to run. However, in his book, “Like No Other Store”, Traub does speak about 19 Retailing Principles that provide the core for leading a well managed retail business. Of these, two in particular are critically important; #15: “Great stores are built by people: Attracting, retaining, and developing an outstanding and talented management team (and I’d like to add, sales team, operations teams, etc.)that can enthusiastically work together to achieve the goals of a company are essential.” Cutting back on the full timers as Nardelli did was certainly not in keeping with this principle. Then there is #19: “Stores are built on two important foundations: carefully thought through strategies combined with good execution. Execution will be the key word of the nineties.” (And of course the future in general!) The right CEO will be the one who strategizes and executes very well. That does not mean he has to be an expert in the home improvement field or hired from within but instead must find and carefully execute the right strategies relying on the right team to listen to. Marcus and Blank got out to the stores to listen those people who made first-line contact with the customer. This was something Traub always did as well. Listening to your people is certainly important!
Same as Larry Johnston at Albertsons, only Mr. Johnston had changed his board in his favor to minimize any internal noise makers. Mr. Johnston’s severance package was as big as Nardelli’s but remained under the mainstream radar.
I don’t think that one needs to have retail experience to lead a retail company. One has to be smart enough to recognize that consumer focus and good strategy and flawless execution based on input from those that know retail, namely the “seasoned veterans” is the key.
One of the cost-saving measures that Nardelli implemented was to get rid of the expensive seasoned veterans by saying that one needed a college degree to work at HD. Replacing the high priced talent with low-priced college grads, he lost a lot of the knowledge that had historically helped make HD successful.
I agree with many of his strategies but feel that it was his inability to recognize the value in his people that ultimately affected the success of the company NOT his lack of retail experience.
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The move to bring in talent from outside retail was primarily to get past the merchant prince “this is how we’ve always done it” intransigence that prevented evolution. It made sense in some ways, because evolution is necessary.
However, there is more than a little truth to the statement that “Retail’s different”…and you can’t know how different until you’ve actually lived it.
In a manufacturing environment, you can replace people with technology, or robots, and it actually works. Retail’s different. You have to interact with something called a customer. To do that, you need in-store payroll and people who are reasonably knowledgeable and helpful. Nardelli missed that. He spent a ton of money on technology, but forgot that he needed people as both customers and employees.
It’s going to take a long time to undo the damage he’s done, and I’m not sure the company can actually do it. So, my advice: find the next generation retailer, not the last generation manufacturer to run your retail company.
The CEO’s departure at Home Depot and the recent COO dismissal at J.C. Penney may become cautionary examples that retailers should only hire retailers when filling positions at the top, but they only scratch the surface of why these two meltdowns occurred. If the reporting is credible, both cases (especially at HD) are not just about whether the hires were a “bad fit” but whether they failed to absorb the culture of the companies that hired them.
Retailers do run the risk of becoming inbred if they never look outside their ranks toward the worlds of consumer product marketing, financial services, logistics and so on. Different perspectives can bring strength to any company, not just a retailer. But trying to overturn the culture of a successful company with an arrogant attitude toward shareholders and associates alike is a recipe for failure.
It depends on the goals of the company. If the goal is to be a successful retailer then a successful retail executive needs to run the company. If the goal is simply to get the price of the stock up over a short period of time, then you need an accountant to run the company. Then, in order to sell the fantasy to Wall Street, you need a noted personality or salesman. To get all three qualities in one person is difficult. Typically successful retailers, using my definition of successful, are run by career retailers, stay out of debt, and remain privately held.
Charismatic leadership is the best possible lever in retail success. There’s nothing like a beloved founder to propel a normally mundane business into something that feels special. And you don’t have to be the founder to be charismatic (Marvin Traub of Bloomingdale’s, Allen Questrom of J.C. Penney and Federated). But it sure helps to show a lifetime commitment to retailing. Given the huge number of retailing executives available, why take the risk of hiring someone from outside the business? The standard answer: a fresh approach. But the infinite diversity of retailing experiences, skills and perspectives can give any company fresh approaches, along with the safety of deep retailing experience.
Mr. Nardelli seems to have reversed all that made Home Depot the powerhouse and growth company of the past. Undoing customer service and conflicting with those “who got you there” may have been his worst offenses. While it always helps to have experience in the field of endeavor; ALL BUSINESSES must have good people skills and good customer service. Failure in those areas generally results in overall failure.
Besides the money and the details, one of the most interesting points in their agreement is that Mr. Nardelli agrees not to compete with the company for one year or to solicit associates for four years.
Why interesting? Certainly it would seem pretty standard and any one can easily break such and agreement as they are rarely held. What’s interesting to me about it is that, yes, while standard, why would HD care?
If HD was so convinced that he must leave that they were willing to choke up $210 million, why would they be concerned that he could possibly benefit any one or more of their competitors? If you are so determined that the cost of $210 million is worth getting rid of the guy, how could you possibly be concerned that he could hurt you as a competitor? If in fact the complaints of his impact on the company are true, then why would a competitor like Lowe’s or anyone else be interested in having the same destruction to their customer service image?
While it remains perplexing as to the enormous compensation packages that are not only continuing, but are growing to amounts that could be considered as nothing less than ridiculous — do we really care? Or do we really just shake our heads?
Personally, I simply shake my head. It is impossible to think of these types of organizations as retailers. If they really were, they would keenly understand the value of $210 million and what that could do for your business. Instead, they line the pockets of one of their cohorts in crime to ensure that they themselves will be treated just the same.
In a conversation with one of their senior executives some years ago now, I became convinced that they were nothing close to a retailer. They were simply a guise for one.
If there is any lesson here it would seem that if the public were truly as incensed as much as those in the business are, they would respond by changing where they empty their wallets. While that’s not likely, I won’t give up hope. The only problem is that the consuming public actions rarely match their verbal disgust. Two weeks from now, will this really matter?
One would think that, after the high profile failures at Albertsons and Home Depot, retail experience would be a requirement. Some make the argument that with so many ex-retail executives available, why look elsewhere? Unfortunately, these ex-retail executives have proven they can not achieve the Board of Directors expectations. The real issue many executives from outside retailing miss is an understanding of the consumer. No retailer ever does well without a total consumer focus. Too many times, these are great leaders with many accomplishments. They can handle changing culture and motivating associates. Where they fail is in understanding the customer sufficiently to create a viable strategy. They visit stores, but talk with associates, not customers. It’s down hill from there on.
The question for stockholders is, why did it take so long?
And, should the Board be sued or dismantled for inappropriate actions or the declining business of Home Depot and the pay package of the past executive?
Shareholders were left out of the decision making process, and the Board should be accountable! Hmmmmmmmmmm
The direct answer to the question is, “No, it’s not necessary to have retail experience to lead a chain.” But, by the same token, somebody outside of retail may not have sufficient experience to prepare them for the job. Still, it all depends on the leader and the company. The argument has always been made in the automotive industry, for example, that car companies ought to be led by “car guys.” But, Ford Motor Co. has gone outside the industry for its new leader. I don’t know if he’ll be successful but I’m willing to bet there are a few dozen CEO level leaders outside retail that could help turn Home Depot around.
I don’t know if it was his doing, but Home Depot is in fact embarking on a new integrated channel strategy that will spell success. I’m rating the stock a definite “buy.”
Management calls the new direction the “endless aisle” strategy, an attempt to sell stuff not just for the house, but also for the home.
A subsidiary called Home Depot Direct has been established to handle the company’s e-commerce and catalog operations. It makes sense: same-store sales growth is slowing, and retailers cannot grow just by opening new stores; they need new channels, and new strategies. In this case, the new approach is a share-of-wallet strategy.
Home Depot was a latecomer to the Web, but it’s making up for lost time: homedepot.com gets up to 5 million hits a week. The company won’t say how much of its $81 billion in revenue comes from its Web site, but online sales grew 100% last year, and a lot of that came from high-end spending on large items (appliances, riding lawn mowers, refrigerators, etc.).
To promote its Web site, Home Depot has joined a stampede of advertisers who pay to have their Web sites appear among the top results when consumers search for products on the Internet. So far it has been a cost-effective way of getting the word out: return on advertising dollars spent on search words is running about 2-to-1 compared with its catalog. In addition the company is boosting awareness with new mini-showrooms for some of its catalog furnishings at selected Home Depot stores, where customers can order items using in-store kiosks connected to the Web site.
Nardelli took the home out of Home Depot! His style seemed to discount the fact that the only function of retail is to please the consumer. How can this be accomplished by consolidating suppliers (Can you buy a water heater there that isn’t made by GE?) and focusing on the spec builders?
There is no real selection at Home Depot. They have become a lumber yard with ceiling fans. Of the 30 or so trips I have made to Home Depot in the last year, 25 of the trips have resulted in no sale. My problem is that there is currently no alternative. However, a Lowe’s is under construction in my area and it is two blocks closer than Home Dept. Hope it’s not too late for Home Depot to turn things around.
Businesses (including retail) are led by the CEO and run by the team of people in place across the various functions of the organization. The CEO’s highest priority should be to establish a team of qualified function leaders, hold them accountable to performance and leadership standards then let them run the business plan.
The CEO has to have vision, inspire people to work together toward common goals, be able to articulate the vision to investors, shareholders, customers and employees and of course, live by strong personal ethical and performance standards that inspire and reassure everyone.
As Ryan states, there are many examples of great CEO’s outside of the industry segment they charged to lead that do an outstanding job.
Given the apparent abrupt nature of the departure, it is perhaps too easy to read “failure” into the equation. However, over the past 5 years, Home Depot stock has dropped by approximately 20%. The S&P 500 index has increased approximately 20% over the same period, while Lowe’s stock has increased almost 50%. These are gross figures, but are indicative of overall performance where it counts for a CEO…shareholder value.
Many of the initiatives implemented over the Nardelli era in merchandising, operations, logistics and marketing have appeared to be excellent ideas, many of them well implemented. As CEO, he can be praised for these, even if he had no direct impact on any of them. Did it take a “retailer” to implement these? Evidently not. SKU rationalization, supply chain efficiencies, multi-channel retail execution…these have occurred during Mr. Nardelli’s watch.
However, as Bob Eckert at Mattel told me once, his job as CEO of a mega company is not to manage the details. It is to serve his constituents. And in Mr. Nardelli’s case, he may have forgotten that his employees, his customers, his suppliers and his investors are all his constituents…those he was hired to serve. It doesn’t take a “retailer” to perform that function.
What has the turnover been like among retail executives who took over retail chains? Not that great. Therefore, retail experience in and of itself is not a criterion for success. Prior experience demonstrating excellence in a particular area which is critical for your chain could be an important criterion for success.
However, in an industry that is rapidly changing and adapting to a dynamic market that is extremely competitive, those executives who have experience from the past are not necessarily the successful leaders of tomorrow. Identifying criteria for hiring successful leaders of tomorrow is a difficult task and would take me too long to explain here but relying on success in an old marketplace is not one of them.
And what do Larry Johnston and Bob Nardelli have in common? If learning nothing else from GE and/or Six Sigma, they certainly learned how to structure an employment contract!
Retailing is full of traps and opportunities only an industry pro would recognize. Poor retailing is exactly Home Depot’s problem. On the other hand, PR pro’s are the ultimate generalists so I’d consider handicapping the results of this poll given the audience.
In the the discussion above, Mark Lilien mentions Marvin Traub. I had the pleasure of working at Bloomingdale’s during many of Traub’s years as CEO. He had an endless passion about the business. I believe that “passion” is what is critically important to lead a company, it may not matter as much what businesses you operated in the past, as long as you can be fully committed to the company you were hired to run. However, in his book, “Like No Other Store”, Traub does speak about 19 Retailing Principles that provide the core for leading a well managed retail business. Of these, two in particular are critically important; #15: “Great stores are built by people: Attracting, retaining, and developing an outstanding and talented management team (and I’d like to add, sales team, operations teams, etc.)that can enthusiastically work together to achieve the goals of a company are essential.” Cutting back on the full timers as Nardelli did was certainly not in keeping with this principle. Then there is #19: “Stores are built on two important foundations: carefully thought through strategies combined with good execution. Execution will be the key word of the nineties.” (And of course the future in general!) The right CEO will be the one who strategizes and executes very well. That does not mean he has to be an expert in the home improvement field or hired from within but instead must find and carefully execute the right strategies relying on the right team to listen to. Marcus and Blank got out to the stores to listen those people who made first-line contact with the customer. This was something Traub always did as well. Listening to your people is certainly important!
Same as Larry Johnston at Albertsons, only Mr. Johnston had changed his board in his favor to minimize any internal noise makers. Mr. Johnston’s severance package was as big as Nardelli’s but remained under the mainstream radar.
I don’t think that one needs to have retail experience to lead a retail company. One has to be smart enough to recognize that consumer focus and good strategy and flawless execution based on input from those that know retail, namely the “seasoned veterans” is the key.
One of the cost-saving measures that Nardelli implemented was to get rid of the expensive seasoned veterans by saying that one needed a college degree to work at HD. Replacing the high priced talent with low-priced college grads, he lost a lot of the knowledge that had historically helped make HD successful.
I agree with many of his strategies but feel that it was his inability to recognize the value in his people that ultimately affected the success of the company NOT his lack of retail experience.