Saturday, January 06, 2007

The Tragedie of Home Depot

Is execution done on Cawdor? Are not
Those in commission yet return'd?

My liege,
They are not yet come back.
But I have spoke
With one that saw him die; who did report
That very frankly he confess'd his treasons,
Implored your highness' pardon and set forth
A deep repentance: nothing in his life
Became him like the leaving it...

—William Shakespeare

So Shakespeare describes the death of Cawdor in The Tragedie of Macbeth, a play whose title character engaged in what some might regard as only a slightly more aggressive form of corporate ladder-climbing than modern investors have seen from the likes of Dennis Kozlowski, Jeff Skilling and Bob Nardelli.


Which is to say Macbeth actually physically murdered his enemies, with knives and stuff, instead of killing them off through other, bloodless means.

What Malcom famously says of Cawdor—that “nothing in his life became him like the leaving it”—cannot, however, be said of Bob Nardelli, if the Wall Street Journal’s excellent account of his recent leaving of Home Depot is even halfway accurate:

Mr. Nardelli submitted a one-page list of perks he was willing to drop, including personal use of the six corporate jets, according to one person involved in the matter. But he dug in his heels about his guaranteed $3 million annual bonus and his hefty supplemental pension arrangement.

Were Shakespeare alive to rework Macbeth in a more modern corporate setting, where the price of utter failure is no longer death by sword but rather, using Ovitz, Grasso and Nardelli as the new benchmark, a $200 million severance package, that key scene might look a little different than Shakespeare wrote it...

DUNCAN, Board Chairman
Did we fire his sorry you-know-what yet?

MALCOLM, Lead Director
Well, sir,
Not exactly.
The lawyers say he has us by the you-know-whats.

But he’s an idiot!
He almost destroyed our franchise
With that stupid Six Sigma crap…
(Pouring a scotch although it is only 10 a.m.)
I’d like to Six Sigma his sorry you-know-what…

Sir, there’s no time for that.
We need a decision.

What is it this time?

He wants the corporate jets.

He wants to use the jets???
Son of a…
(Downing the scotch and exhaling slowly.)
What for—he can’t fly home to Nantucket on Delta?

I think he actually lives on St. John’s Island, sir.

(Pouring another scotch.)
You want one?

No thank you, sir.
We need a decision, sir.

(Stirs ice with fingers reflecting on something.)
He looked so good on paper.
Number two at GE!
Football player!
What the hell went wrong?

Sir, our lawyers need an answer.

About what?

About the jets.

Oh, right.
(Tasting the scotch.)
Well, we have three freaking jets, right?

Six, sir.

Six? Jesus. Well, see if one of 'em is free.

Tell the pilot to take that S.O.B.'s sorry Six Sigma you-know-what wherever it has to go.
And good riddance.

Sir, you don’t understand.
He wants the jets.

He wants the freaking jets????

Yes Sir. All six of them.

Tell him to go pound sand!
Tell him to go pound Six Sigma sand!
Tell him I’m sure a Six Sigma guy like him
Can pound sand better than anybody else ever pounded sand!
Tell him I said that!!!!

Sir, it’s in the contract.

What contract?

The one you signed when we hired him.
If he gets fired for cause, he gets the corporate jets.

(Pouring another scotch.)
I hate this job.

End of Act I

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

In memory of Jack Woodward.


Continental Drift said...


You've outdone yourself!

MyDailySlice said...

Nice post Jeff.

I'm beginning to think six sigma is more about getting a golden parachute for ones-self, rather than creating shareholder wealth for others.
Mr Blank was in the firin'-mode last weekend. He canned Falcon's coach Jim (I wanna coach U-Dub) Mora...liked it so much that he gave a ringy-dingy to the Nardelli mansion, and had a "talk".
Mr. Blank might not wield the big stick at Home Depot anymore, but he is not afraid to show his influence if he sees his and Mr.Marcus's "store" getting abused by a man of little passion for anybody but himself.

One thing six sigma can't teach is passion

Matthew M said...

Thank you for giving the management fad Six Sigma the attention it deserves.

Is GE an example of Six Sigma's effectiveness or do GE's various businesses eke out some of their success by focusing on product?

Home Depot was the place to shop if you wanted to ask which paint would work best in a bathroom. The employee, who likely had 15 years experience as a painter, would ask if the room had windows or southern exposure. This expertise made Home Depot a better choice than X-Mart, where the response to your question would be a blank stare as the "associate" tried to remember seeing a can of paint in the store.

Home Depot was the place to invest if you liked a company commited to growing without going into hock up to their eyeballs and allowed store managers to think and customize stores for the local market.

Along comes a Six Sigma guru with his fetish for numbers but apparently not for the experience customers will have as a result of the automatonic and Machieavellian pursuit of those numbers.

Remember the Twilight Zone episode with the effiency expert whose computer makes all the workers obsolete, including himself? Developing such a computer and using it to pick the numbers everyone must slavishly meet could not possibly cost more than Nardelli. And it might be more pleasant to work with.

Aaron Koral said...

Jeff: Since it is the board's job to select, evaluate, and approve appropriate compensation for a company's chief executive officer (CEO), the real tragedy is that institutional investors such as pension and mutual funds elected the men and women who comprise HD's board of directors. My only question is where were the shareholder activists when the stock price went nowhere after Nardelli took the helm? Just wondering...

BTW, here's a link from CFO Magazine which discusses the SEC's proposal to increase disclosure about executive perks like the ones Nardelli negotiated for himself.

Happy New Year, everyone! Here's hoping your trades this year are profitable ones with minimal investment risk, of course.

Sam E. Antar said...


I am always amused by stories of travel perks. Government investigators love them too, so I have learned. First let’s get to the issue at hand at Home Depot.

Look at the Board’s own travel perks as quoted in Home Depot’s proxy statement:

“The Company also pays the travel and accommodation expenses of directors and, when requested by the Company, their spouses to attend Board meetings, conduct store visits and participate in other corporate functions, together with any taxes related to such payments.”

Now you may wonder why do the spouses have to tag along to and why should the company pay for it?

In my day no one brought spouses on business trips if we could help it. Once in a deposition (before I began cooperating with the government) after I left Crazy Eddie an SEC investigator asked me if I ever got an external auditor “laid” on a business trip. I answered no. Later after I began my “cooperation” with the government I was asked the same question again and I did not change my answer. I think they never believed me about that issue.

Anyway, Eddie Antar, his father, and his brothers hardly ever brought their wives on business trips (except vendor sponsored junkets). The root of the downfall of the Crazy Eddie Empire was Eddie Antar’s unfaithfulness to his wife. It’s a story as old as the Bible itself.

Back to Home Depot’s travel policies.

Is it an improvement when they encourage spouses to accompany directors to company functions and pay for it too? Maybe it helps the Directors stay faithful? Like my cousin Eddie, a scorned woman can be the downfall of a "great" or rather “pathetic” man.

Or are these directors who have perks themselves being hypocritical?


Sam E. Antar (former Crazy Eddie CFO & ex-felon)

PS: While I used to make things up when I wrote financial fairy tales as CFO of Crazy Eddie, I am not making this up

tahoe kid said...

Perhaps if Bob Nardelli spent more time walking the aisles of Home Depot instead of the aisles of Home Depot's corporate jets he might still be around. To be fair, not everything that is hurting HD is their fault (i.e. housing slowdown), but much can be done to improve the customer experience in the stores. That can't be done if you don't stay close to the consumer. Great blog.

Lee_D said...

That was a tremendous satire-in-brief, Jeff. Thank you.

Six Sigmites and other Process Junkies always remind me of the Dilbert cartoon in which the Pointy-Haired Boss exclaims "I don't need to know what we manufacture! A GREAT Manager can manage ANYTHING!'

BelowTheCrowd said...

Nothing wrong with Six Sigma and other process tools when applied in the places where they matter. All the big retailers use them in their supply chains and warehouse operations for good reason.

The problem with the dogmatics of Six Sigma, Project Management, or any other process-focused field is that often they fail to see the limitations of their specialty.

Sam E. Antar said...

Aaron Koral:

You left me a question in from a prior post which I missed:

"One question for Sam Antar: Why are high accruals a not-so-good thing for earnings quality? Just wondering...and thanks!:

Look up my blogger profile linked here and e-mail me for answer.

Sam E. Antar

The Epicurean Dealmaker said...

Well done, Jeff. If you find any more of the Lost Folio of Shakespeare, please let all of us know.

We are in your debt.