Home Depot: On Governance and Investors’ Interests

On the eve of Home Depot’s [HD] annual shareholders’ meeting, a front-page article in the New York Times estimated CEO Bob Nardelli’s compensation at $245 million since 2001. The article presented ties among board members and pointed to most of the compensation committee being active/former chief executives. Investors had been increasingly upset about Bob’s and other executives’ compensation vis-à-vis the poor performance of the company’s stock.

Media outlets reported that none of the directors of the company except for Bob Nardelli attended the shareholders’ meeting and that Bob did not allow for detailed comments: microphones were shut off after the one-minute restriction for investors’ comments! A follow-up article [$] in the New York Times quoted frustrated investors describing their experience as “appalling,” “disgraceful” and “arrogant.”

The company later stated that most of the company’s directors were in Atlanta (where Home Depot is headquartered) on other company business. In my opinion, the Board is essentially a group of trustees who represent shareholders’ interests and interface with the management. Given these responsibilities, what other than attending the annual shareholders’ meeting could constitute important business? As expected, the entire Board had attended last year’s shareholders’ meeting.

The company can do a better job with respect to governance. I hope Home Depot takes appropriate steps to connect executive compensation with stock performance and financial performance, better representation of investors’ concerns and requiring that the entire Board attend shareholders’ meetings.

In March, Fortune magazine ranked Home Depot 13th among America’s most admired companies; it will be interesting to see if Home Depot drops in next year’s ranking.

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