New Home Depot CEO Gets Praise for Statements
Moreover, he cleared his agenda, for now, of a potentially explosive proxy battle that would have gotten in the way of addressing the brass tacks of selling power tools and floor coverings in the orange box.
Now, he must get back to rallying to troops for what is surely his biggest challenge: getting customers back in the stores and creating shareholder value.
"While Blake still has a formidable challenge ahead of him, we think he is making some pretty impressive moves," said Sanford Bernstein analyst Colin McGranahan in a research note.
In a joint announcement late Monday, Blake and Relational Investors announced that David Batchelder will sit on the Home Depot's (HD : Home Depot, Inc HD41.27, +0.24, +0.6%) board of directors for three years, beginning February 22, as long as Relational remains a significant shareholder.
The stockholder activist group owns about 1% of Home Depot's outstanding shares and began its campaign to push the board to rethink its growth strategies and even consider a sale of the company in December. After Robert Nardelli was ousted as chief executive and chairman of Home Depot January 3, Relational Investors' co-founder Ralph Whitmore said he would not back down from his organization's stance.
Batchelder will be appointed to the leadership development and compensation committee and to the audit committee, the company said.
In return, Relation Investors, which owns about 1% of Home Depot's outstanding shares, will drop its proxy resolution. "Naming Batchelder to the board eliminates a potential distraction that would have made Blake's job more difficult," Deutsche Bank analyst Mike Baker said in a research note.
And though the rapport between Home Depot and Relational Investors began on a rocky course, Baker thinks Batchelder at the table "could act as a good internal voice for strategic changes that could pay off for shareholders," he said.
Maybe, but Blake and the board appear to be engendering monumental changes to build shareholder support--and even trust--at a rapid pace. In barely more than a month, Blake has reached out to customers, investors, employees and analysts to mend the fences that Nardelli left badly broken.
He's also invoked an inverted pyramid style of operations in which the CEO sits on the bottom and the customers on the top. In between the two is the store support group, field support divisions and the front-line associates, the so-called "orange aprons.
He's reopening the lines of communications between the upper ranks and the store employees in an effort to reignite Home Depot's long-vaunted entrepreneurial spirit. He even added an extra $3,000 to each store's "fun fund" as part of the company's Orange Juice incentive plan for store employees.
"We believe Home Depot is in the process of operating its company for the benefit of customers, associates and shareholders, in that order," said J.P. Morgan analyst Stephen Chick, reasoning that shareholder value should follow with the "effective execution" of the other two.
"This is different than how the company was managed under former CEO Bob Nardelli," he added. "It is a less tangible yet integral change."
Chick expects there will be more changes ahead, which he views as favorable. "The wall of worry surrounding the stock--regarding the 'newfound religion' of the board and management to return to basics--is healthy, making Home Depot a good stock from here."
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