The company became a world-class symbol of bloated CEO pay and disengaged directors —none even bothered to show up at the 2006 annual meeting. But indignation over ex-Home Depot CEO Bob Nardelli’s $200 million plus retirement package, combined with a profit slump of 30 percent in Q1 of this year, were evidently not enough to prompt a majority of Home Depot’s shareholders to support resolutions that would give them even a consultative say on CEO pay and split the positions of CEO and board chair. In both cases, management and the board opposed the moves, which goes a long way toward explaining why the proxy measures were voted down at this week’s annual meeting. For all the changes in corporate governance and SEC rules in recent years that purport to empower investors, management and directors still maintain a strong grip on the proxy process and on the outcome of any proposals. The resolution regarding CEO compensation was only intended to create an advisory mechanism and would have been non-binding on the board, but even this was viewed as too threatening to entrenched interests by the company’s Atlanta-based Politburo, otherwise known as the Home Depot board of directors.
To his credit, the company’s new CEO, Frank Blake, apologized to shareholders for the excesses and arrogance of the Nardelli era. That was nice. And most directors actually attended the 2007 AGM. But a better demonstration of the importance of investors in the Home Depot equation would have been to actually treat them like (a) adults and (b) the real owners of the company by giving them a say on CEO pay. The fact is, however, any company whose board still does not understand the concept that real accountability means a CEO should report to the board —period— and not head the board he reports to, is unlikely to understand the indispensable role that sound governance plays in improving performance and avoiding the kinds of mishaps that were synonymous with Mr. Nardelli’s leadership.
As we have observed on these pages previously, Home Depot has many problems. Undervaluing investors, employees and customers has been consistently among them. We think that needs to change if the company’s financial performance and reputation are to avoid further setback, which is why the actions of Home Depot’s board in launching a campaign to defeat shareholder empowering measures, like say on pay and improved corporate governance, are the Outrage of the Week.