Integrity Matters
January 25, 2007
Some corporate boards fail leadership category
Question: (E-275)
Dear Jim:
Jack Welch placed three individuals from inside General Electric Corp. on his short list of potential successors. He convinced GE's board to award these three individuals large amounts of stock options, indicating that the company would have to make good on one of the offers since only his successor would likely stay. He apparently suggested that the two also-rans could use the generous stock option awards to negotiate larger compensation packages with future employers. Sure enough, each runner up parlayed these "artificial-incentives" - securing incredible contracts.
Interestingly, one of the GE awardees was the now infamous Bob Nardelli, ousted CEO of Home Depot. Seems he crafted his "package" on the front end, cleverly leveraging GE "pretend" options. When Home Depot's board "made him whole" they made him really rich. Even so, Home Depot's shares sank under his brutal leadership. How does this outlandish compensation scheme fit with integrity in leadership on the part of Welch and his board, to say nothing of the ineptitude of Home Depot's board?
Response:
Bob Nardelli flamed out after his self-serving greed, callousness and heavy-handedness caught up with him, but not before he collected an exit package worth $210 million. Home Depot employees and stockholders cannot be happy. And, while some "concerned" political leaders wring their hands, pointing accusatory fingers at Home Depot's board, these same public servants - really career politicians - continue to feather their own "private club" nests with non-contributory, taxpayer-funded generous retirement programs. Who is watching out for John Q. Public?
U.S. Rep. Barney Frank of Massachusetts weighed in, saying, "It's a sign of being totally out of touch. They (Home Depot directors) don't understand the extent to which they make the American public angry." Grand-sounding thoughts from another congressional insider, elected repeatedly, while being a willing participant in the often-immobilized House of Representatives!
Even after Sarbanes-Oxley and the sins of Enron, Worldcom and HealthSouth - now, Home Depot's board behaves irresponsibly!
Home Depot investors should strongly consider a change in a board that negotiates ridiculous and one-sided CEO compensation deals. Nardelli was passed over by GE, yet Home Depot's board believed he would be their star worth lots of money. Was that possible? Yes. Likely? No. Who is watching out for investors?
Nardelli's golden (make it platinum) parachute of $210 million is seven times the total of the $30 million that Home Depot's board authorized in June for customer-service excellence, to motivate their 355,000 employees. Who is watching out for the rank-and-file?
Board integrity at Home Depot relates directly to fiduciary responsibilities, which seem to have been ignored or misunderstood. This is totally unacceptable. Should stockholders - at GE and Home Depot - demand board member changes? Yes!
