Atlanta, GA, June 2, 2006--In the wake of Home Depot Inc.'s annual meeting flap, observers say the home improvement giant's board may have created some unintended consequences.
On Thursday, the company said next year's annual meeting would include the board and feature discussion on proxy issues up for a vote.
The pledge follows the past week's annual meeting, which none of the directors attended, except for Chairman and Chief Executive Bob Nardelli, who has been derided for reluctance to respond to shareholder comments.
"The first reaction is that this is too little too late," said Richard Ferlauto, director of pension and benefit policy at the American Federation of State, County and Municipal Employees. "They're trying to cut their losses in the face of mounting shareholder outrage."
Ferlauto noted the "outrage" among AFSCME's 1.5 million members, who control about 4% of Home Depot shares. There's also discontent about Nardelli's pay package, estimated at $245 million, as shareholders fume that the stock has declined since the CEO took over the company's leadership.
"People want to take action against the board," he said. "This is about how do you make the board more accountable."
However, Ferlauto noted, that action won't necessarily involve actually selling Home Depot shares. "We want to increase the long-term value; we are not looking to buy and sell," he said.
Patrick McGurn, special counsel with Institutional Shareholder Services Inc., which provides institutional investors with corporate governance advice, said the Home Depot incident has created a new focus on directors.
"For the first time, we're hearing a lot of clients saying when we look at corporate governance practices, to add whether boards have policies to attend meetings," he said.
McGurn noted that Home Depot's shareholders have already declared discontent with the current board of the Atlanta-based company, which has a market capitalization approaching $82 billion.
For all but one of 11 directors, at least 30% of shareholders withheld votes to elect them to a 1-year term, according to Home Depot's Thursday filing with the Securities and Exchange Commission. (Only about 8% of voting shareholders withheld casting in favor of Home Depot director Angelo Mozilo, chairman and chief executive of Countrywide Financial Corp. "[The directors] must have made an ill-fated decision to duck and cover and not to attend the meeting," McGurn said, "The aftermath was pretty clear: They took more heat for not attending than they ever would have taken for attending."
He expects that there could be added pressure to create a policy that directors are strongly encouraged to attend meetings in the future.
"So, I don't think they're off the hook completely," McGurn said.
Richard Buxbaum, associate dean at the University of California at Berkeley's law school, said Home Depot's meeting flap could also focus increased analyst scrutiny on the company, particularly in light of Nardelli's controversial compensation.
"The absence of the board isn't a vote of confidence in the future of the company," he said. "The inability or refusal of the board at an annual meeting to defend its compensation decision could weigh with analysts. I doubt anybody is going to change to a 'buy' in this situation."
