It seems every time there’s a problem in the business world, America is subjected to the asinine accusations of control-happy elected officials, harangues about the shortcomings of American capitalism, and misguided interpretations of what “equality” means, usually delivered by people who have never read, much less understood, Adam Smith’s The Wealth of Nations.
The target this week is Bob Nardelli, the former CEO of Home Depot who received a severance package worth an estimated $210 million. For that sum, plus the multiple millions of dollars Nardelli received in wages over his six-year tenure, Home Depot received … well, not much, actually. Nardelli was perceived as an autocratic CEO with control issues who stifled any sort of entrepreneurial atmosphere. Home Depot stock actually increased in value upon investors hearing the news that Nardelli was quitting, but not nearly as much as competitor Lowe’s stock had risen in the six years of Nardelli’s management. According to the Atlanta Journal-Constitution, “executives and directors” of Home Depot said Nardelli’s decision to leave was “mutual.”
Home Depot’s mistake was understandable enough. Jack Welch, the iconic former CEO of General Electric, was retiring and needed someone to succeed him. He had three obvious choices for his successor: Jeff Immelt, Bob Nardelli and James McNerney. Immelt was chosen, leaving Nardelli and Mcnerney to go to Home Depot and Boeing, respectively. After working under Welch, who was once – and still is, in many ways – considered the best manager in America, the price Nardelli and McNerney could demand was extreme. Very little of Nardelli’s pay package had to do with performance.
“All but $20 million of the exec’s $190 million goodbye package was already guaranteed by his employment contract signed in December 2000,” according to the New York Post.
So when Rep. Barney Frank, D-Mass., took Nardelli’s severance package as an excuse to talk about corporate greed, it didn’t make much sense, since Nardelli’s pay package was in place well before his sub-par performance. It’s difficult to understand who was being greedy. Nardelli built a reputation so impressive that he could demand an extravagant compensation, and he found someone to give it to him. That would qualify as smart, not greedy. If Home Depot stockholders didn’t like it, they could sell the stock. If Home Depot employees – who are already paid far more than the minimum wage that Frank so eagerly wants to raise – didn’t like it, they could quit. As for Home Depot itself, it’s hard to understand how an agreement to pay a relatively mediocre CEO more than $200 million could be considered greedy. It seems more unwise than greedy. It seems like a mistake, which is exactly what it was.
One wonders how much Frank wants Home Depot to suffer for its mistake. It has already experienced six years under a CEO who, by all reports, was far too controlling to foster creativity. It has suffered in terms of its stock price, as well as in terms of how people feel about it as a company. A decade ago, Home Depot was known as a pleasant place to shop. Now, it’s known for not having enough salespeople and being a crowded store. That’s how Nardelli caused Home Depot’s profits to soar without raising the stock price: He liquidated his customer service arm and put managers up against so much financial reporting that, according to The Wall Street Journal, some employees had taken to calling the company “Home Despot.”
One can imagine how despotic Frank’s solutions would be. He said the Nardelli case was “further confirmation of the need to deal with a pattern of CEO pay that appears to be out of control.” He went on to say, “They (corporations) don’t understand the extent to which they make the American public angry.”
Corporations do not make Americans angry nearly as much as, say, unemployment. They don’t make Americans nearly as angry as they would be if America failed to be the wealthiest nation in the history of the world. They don’t make Americans angry when they provide the goods and services Americans love to go into debt to acquire.
Frank’s strategy is enviably backward. Since government has proven totally incapable of protecting the public welfare, Frank wants to assign the blame to business, while at the same time raking in his $162,500 per year, not to mention his pension and benefits. Maybe that’s why Frank is so angry about Nardelli – they are the same more than they are different, but Nardelli gets paid a heck of a lot more.
Jordan Capobianco is a senior majoring in English Literature.