Our stock research has come up with an interesting play. As you know, Home Depot through its Board of Directors forced the resignation of General Electric trained CEO, Robert Nardelli, who had only been with Home Depot a couple of years. Somehow, Nardelli managed to get the Board to give him a $200 million severance package, which has Home Depot shareholders up in arms. How did a long-time General Electric guy like Nardelli screw up so bad that he was forced to resign, and not because he didn’t deliver the numbers? Our stock research we believe has provided the answer.
Many CEO’s have what is called the cult of personality. They make the corporation about them. Sumner Redstone of Viacom is like this, as was Harold Geneen of ITT in the 1960’s. Certainly Charles Revson, creator of Revlon was this way also. Nobody expected Nardelli to be the imperial CEO that he became very quickly once he was given the reins to Home Depot.
There’s an expression that people like to use. It’s called, “If it ain’t broke, don’t fix it” concept. Nardelli violated this cardinal rule of management. He came in, basically said I know how to run things, imposed his will, and then blew it. In the end, he may have blown much more than his own career. Our stock research shows that this company may need much more than Nardelli’s resignation, to effectuate the change that is now needed to reestablish Home Depot as the undisputed heavyweight champion of home improvement.
You might be aware that Lowe’s is breathing down Home Depot’s back as we speak. Wall Street loves Lowe’s, and for the moment dislikes Home Depot big time. Why is Home Depot in trouble? It’s because our work shows that Nardelli may have wiped out much of the original corporate culture that founders Bernie Marcus, and Arthur Blank instilled in the corporation over a 20-year run.
Home Depot is one of the truly great success stories of late 20th century corporate America. It is a classic roll-up (home improvement) of a multi-billion dollar fragmented industry. It was also a vertical roll-up. Prior to Home Depot, you went to one store for plumbing, another for paint supplies, and another for lumber. HD was the first mega store that carried it all.
What you have to keep in mind is that Home Depot was founded on a number of ethical principles, and values. As verbalized by founder Bernie Marcus, they included: