Raymond Micaletti

CEOs Must Bring Investors Along for the Ride (WSJ)

Fair points. Imagine, then, how much vitriol Nardelli would have received if he hadn't taken measures to goose EPS while the stock was falling from 50 to 20 in the first few years of his tenure (subsequently closing at 40 as he departed)....

Moreover, is replacing retiree types with college kids a horrible decision, if a) it does goose EPS and therefore increases shareholder value now and b) it's easily reversible if it turns out to be a horrible idea? Granted, you could lose market share in the interim, but is there really that much difference between HD and LOW (i.e., would LOW have always been a distant second even if Nardelli had been super-CEO)? Maybe there is, I don't know (or care), but if the college kids had turned out to be competent, Nardelli would have been hailed as a genius (I presume). That seems like it was a risk worth taking, no?

That being said, I'm not sure his $100mm+ pay package upon departure was justified (I suspect not--understatement, perhaps?), and you make a great point about the cronyism running rampant on corporate boards.


On May 03 08:35 PM TraderMark wrote:

> Ah yes, because making decisions such as letting go of all the experienced,
> retiree types who actually knew what they were talking about - and
> replacing them with low wage college kids and early 20s set, was
> a bona fide strike of genius. Even though once they "booted" him
> they had to reserve that decision. And over that time Lowe's went
> from distant second to "first" in the mind of many.
>
> Yes he did not run it into the ground - it would be nearly impossible
> (although Circuit City by doing a very similar policy suceeded) in
> destroying a duopoly in half a decade. But he took a good swing
> at it.
>
> And you are falling into the trap of short term EPS growth - ANYONE
> can grow EPS in the near term by slashing compensation expense.
> I think the main thing he learned from Chainsaw Jack Welch is how
> to cut people to goose shorter term earnings.
>

CEOs Must Bring Investors Along for the Ride (WSJ)

One note about Bob Nardelli: He actually didn't run Home Depot into the ground. Under his watch earnings increased dramatically (going from $1.11 the quarter before he became CEO to $2.63 in the quarter when he left, a 15% CAGR). The problem was that when he became CEO, Home Depot's stock was egregiously overvalued and over time it naturally drifted down to a more reasonable valuation despite the fact that earnings were increasing. Thus, shareholders of HD, if they bought the top during the Internet bubble, should really be upset with themselves for buying an overvalued stock, not with Bob Nardelli.