A key factor in Whitworth’s decision is the help he’s getting from Home Depot in the battle of public perception. I’m not talking just about the company’s firing of chief executive Bob Nardelli on Jan. 2, igniting outrage about his $210 million “severance” package. (At least $88 million of that isn’t severance, it’s bonuses, stock and retirement benefits Nardelli already owned–but $210 million is engraved in people’s minds.) Rather, I’m talking about other things the company has screwed up since Dec. 13, when Whitworth faxed it a letter saying that his Relational Investors hedge fund had bought stock and might run candidates for the board and propose that a board committee “study strategic alternatives.”
Whitworth says he sent the letter only to meet Home Depot’s Dec. 15 deadline to get proposals on the ballot at this year’s annual shareholders meeting. “The letter was a placeholder,” he said. “We hadn’t decided if we wanted to do anything.”
Whitworth didn’t publicize his letter, but Home Depot disclosed it in a filing on Dec. 18. Now, watch: in that filing, Home Depot said its “board of directors unanimously supports the management team.” A mere two weeks later, the board fired Nardelli “without cause,” triggering his severance package. Hello? How can Home Depot issue a statement supporting Nardelli on Dec. 18 and fire him on Jan. 2? “Both Bob and the company’s board of directors felt that it was in the company’s best interest that he step down at this time,” the company told me as part of a written statement. Talk about a lame-o answer.
Home Depot has also helped Whitworth by waiving its retirement rules for three directors. Usually, you can’t run for Home Depot’s board after you’ve turned 72. But when the board fired Nardelli, it said it would let directors Milledge Hart III, John Clendenin and Claudio Gonzalez run this year, even though they’ll be over the age limit.
This is handing a hammer to Whitworth. If he does the obvious, he’ll run only three candidates for the 12-seat board and campaign against Hart, Clendenin and Gonzalez, who were involved in hiring Nardelli six years ago and are hugely vulnerable. I think proxy advisory services, whose recommendations carry heavy weight with many large investors, are likely to side with Whitworth in the name of good governance.
Given all this, I asked the company why it’s running these vulnerable candidates instead of picking new ones or shrinking the board. The written response, in part: “so that the new CEO would have greater continuity and institutional knowledge to rely upon during the transition in leadership.” It’s hard to read that without laughing. (I suspect the real reason is that it would be hard to find suitable candidates willing to get involved in a contested election.)
I’ve got no dog in this fight. I like and respect Whitworth, but his fund owns $1 billion of Home Depot stock, and he’s in this for the money. I’m no fan of Nardelli, whom the board signed to an excessive contract on Dec. 4, 2000, after he’d lost the three-way competition to succeed the legendary Jack Welch as CEO of General Electric and was a hot property. Nardelli showed a tin ear in various ways: by running retail-savvy executives out of the company; engaging in a highly questionable diversification into wholesale distribution; cutting store staff, and telling directors not to show up at last year’s shareholders meeting, where angry investors awaited. But despite what you’ve heard, Home Depot stock rose during Nardelli’s tenure, to $40.16 last Dec. 29 from $38.94 on Dec. 1, 2000, the last trading day before his hiring was announced. During this same period, GE stock (adjusted for special dividends) fell about 15 percent. Does this make Jeff Immelt, who bested Nardelli in the Jack Welch succession sweepstakes, a failure? I think not. My point: stock prices aren’t an infallible tool to measure management success.
I won’t be shocked if Whitworth and the company compromise on board seats. Or if Home Depot sells itself to a leveraged-buyout house in a $100 billion deal. One thing would shock me, though: getting as much help from Home Depot in one of its stores as it’s giving Whitworth in the looming boardroom battle.
