The Organizational Problems (Not Financial) That Led to the 2007 Ousting of Robert Nardelli, the Former Home Depot Chairman and CEO from His Position
In 2007, Robert Nardelli, the former Chairman and CEO of Home Depot was ousted from his position by the Board of Directors, being accused of earning a very large amount of money ($ 225 million). But according to a director in the company who spoke under anonymity, the compensation issue was just a tip of the iceberg. The former CEO came under fire from the investors and shareholders of the company for his lack of performance, as well as his centralized, blunt and autocratic leadership style, which according to Matthew Fassler, an analyst at Goldman Sachs, was not embraced in the organization (Grow, 2007). This paper discusses the non-financial organizational problems that led to Nardelli’s ousting.
Under his six-year tenure, there was a significant reduction in the general performance of Home Depot. The price of the company’s stock was stagnant in an otherwise rising market i.e. in 2006, the stock price was stuck at slightly above $40; about a similar value when Nardelli took over the management of the company in 2000. The company’s shares declined to 7.9%. In the same year, there was also a 5.1% decline in same-store sales of 2, 127 Home Depot’s stores. Based on statistics from the University of Michigan's American Customer Satisfaction Index, the company’s customer service rating decreased from 75% to 67% during Nardelli’s tenure. All these happened at a time when the stock of Lowe, Home Depot’s competitor doubled, while its customer service rating rose to 78% from 75% (Grow, 2007). An anonymous director of Home Depot said that it was wrong to pay CEOs huge amounts of money if they cannot perform.
According to Clothier (2007), Nardelli’s blunt, practical, autocratic and ruthless management style provoked anger in everyone who crossed his path, from employees, customers, investors, executives, to even shareholders. He got rid of the previous decentralized management structure of the company and adopted a centralized management system that saw him eliminate and consolidate division executives. When he joined the company, he asserted that he would assess nearly everything that took place in the organization and hold executives responsible for their actions. In a company that was previously laid back, where store managers had the independence of working without close supervision, Nardelli’s management style was perceived as new and harsh. His prolonged hostility and bluntness to the executives saw a number of them resign for instance, John Costello, the former chief marketing officer resigned in late 2005, while Carl Liebert III, the executive vice-president in charge of store operations, quit in October 2006. According to a former senior executive officer in the company, Nardelli often used words like, “you are not a leadership material”, or “you are not a Home Depot material”, when addressing executives who according to him were not producing results (Clothier, 2007). Such kind of comments fueled anger and resentment among managers, and most of them preferred to resign.
He came under sharp criticism when he adopted a cost-cutting strategy that saw him cut back on thousands of knowledgeable permanent employees, and replace them with part-time workers with limited experience (Creswell & Barbaro, 2007). The move led to a 3.8% increase in gross margin between 2000 and 2005. The staffing cuts led to numerous customers and employees getting hurt. In fact, many employees were very happy upon receiving information about Nardelli’s resignation because he did not get along well with them. There were also numerous persistent complaints from the customers in Home Depot’s stores that workers were not enough, and they were forced to help themselves; this explains why the company’s customer service rating dropped. To most people in the company, he was arrogant, stubborn and domineering; something that was difficult to cope with (Creswell & Barbaro, 2007).
Despite his frayed relationship with everyone, Nardelli always enjoyed the support of the Board of Directors. However, the harsh way in which he treated everyone and his underperformance gradually destroyed this relationship. This was evident in the company’s annual meeting held in Wilmington, Delaware, in May, in which all the board members boycotted the meeting, leaving him as the only director in attendance. He conducted the meeting in approximately thirty minutes, giving shareholders only a minute each to speak. They were timed by a digital clock that cut off the microphone after one minute (Creswell & Barbaro, 2007). In addition, he refused to answer the questions asked by the shareholders, and instead, he just thanked them for their questions. Nardelli was ousted in January 2007, and succeeded by Frank Blake, the former vice chairman and executive vice president of Home Depot.