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Culture Shock at Home Depot

Afatal flaw led to Nardelli’s departure

Portraits of Robert Nardelli over the last month as arrogant have not been flattering, but his alleged character flaw did not lead to his departure as head of The Home Depot. After all, arrogance—the feeling of superiority manifested in an overbearing manner or presumptuous claims, as the dictionary defines the term—is a trait shared by many a leader, in retailing and in the world at large. Any arrogance Nardelli displayed was a visual demonstration of a much more troubling defect, an inability to respond to public sentiment on myriad levels and constituencies.

Nardelli didn’t understand that The Home Depot stood for service, for educating the average Joe and Jane to take on complicated, even daunting projects, because they knew the orange-aproned staff patrolling the aisles of Home Depot were there to assist them. It looked good on the expense ledger to purge full-timers in favor of part-timers. But doing so undermined the customer-service foundation of the enterprise.

Nardelli didn’t realize quickly enough the power of the female shopper. He didn’t overhaul the stores soon enough to compete against Lowe’s, which did.

The Home Depot experience Nardelli inherited reflected store personnel, from the manager on down, as well as those in central and regional headquarters. Nardelli changed many of their work rules. Dizzying turnover resulted, with more than half of the top 170 executives coming from outside the company. Culture change was inevitable.

Nardelli didn’t understand shareholder wrath at a stagnant stock price even as his compensation soared to a reported $245 million since late 2000. Nardelli’s insensitivity to shareholder complaints manifested itself in an autocratic annual meeting last May. He excluded all other members of the board of directors and restricted each stockholder to one question and one minute.

He failed to comprehend how the board sought to recoup its reputation and spine by asking him to reduce his compensation. He is said to have felt “unappreciated” about the impressive sales and earnings gains registered under his watch. He failed to understand that Wall Street wanted more. It wanted a higher stock price. In this crucial area, he did not deliver.

In fairness to Nardelli, he alone is not to blame for the bad press The Home Depot has received. Nardelli reported to a board that only recently has flexed its muscle. In negotiating first his employment contract and then his severance (a reported $210 million package), the board acted just like major-league baseball owners who lament escalating player salaries but are quick to dangle multiyear, multimillion dollar contracts for athletes of dubious distinction.

Nardelli was not an executive with no pedigree of success. But his achievements came in a manufacturing setting, as part of the General Electric culture. Rare is the executive who has been able to adapt a non-retailing background to a retail company. I can think of no one who has made an effective, immediate transition to retail company CEO during my 30 years of covering retail.

Nardelli made The Home Depot a more buttoned-down organization. He diversified its business globally. He relied less on serving the consumer. He changed the company’s internal and external dynamic. Nardelli did not engender deep loyalty among his stakeholders. In the end his failure to understand them all proved fatal.

© 2014