Case Study

Collision course: Bob Nardelli and the Home Depot shareholders

22 pages
September 2008
Reference: IMD-3-1908

The case covers Bob Nardelli’s 6-year tenure at Home Depot from 2000-2006. During this time, he posted impressive numbers as well as changed Home Depot’s strategic orientation. He failed however to improve the company’s share price. This difficulty, allied to Nardelli’s pay package (negotiated at a time of economic euphoria when he was one of the two most wanted executives in America), severely strained his relationship with the company’s shareholders. The case traces their deteriorating relationship through the lens of the annual general meetings. These were transformed from “lovefests” under his predecessor into increasingly fractious occasions – culminating with a disastrous meeting in May 2006 that indirectly led to Nardelli’s resignation at the beginning of 2007. The case considers Nardelli’s relationship with two key stakeholders – the board and the shareholders – as well as issues of self-management. At first view, this case can be read as a story of greed and weak corporate governance – an excessively greedy CEO/Chairman who manipulates the board into giving him high compensation and reducing performance pressures. While acknowledging some of these aspects, we are proposing a different take on the situation, focusing instead on the self-fulfilling and self-reinforcing nature of the dysfunctional dynamic between the CEO and the shareholders – and on the inability of the board to offset it. We concentrate on the psychological and behavioral processes that drove the parties toward a perfectly avoidable collision.

Learning Objective

The core issue is Bob Nardelli’s growing difficulties in dealing constructively with the company’s shareholders – and their misunderstanding of his role (as a change agent) and motivation (assuming it is only about money). It is also a case about a board that does not understand how to help a CEO that it rates very highly. The case allows discussion of the role of the board in helping the CEO to overcome such problems.

Keywords
Corporate Governance, Board, Compensation, Label, Derailment, Self-management, Set-up-to-fail Syndrome
Settings
Northern America
Home Depot
2000-2006
Type
Published Sources
Copyright
© 2008
Available Languages
English
Related material
Teaching note
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