Sunday, January 07, 2007

Big Bucks for Failure

The big news here in Atlanta is the resignation/firing of Bob Nardelli as the Chairman and CEO of Home Depot. In the 6 years that he was in charge the company’s stock price fell 8% while the stock market as a whole went up nearly 18%. He was a failure not only with respect to share holder value but also trashed the once great reputation Home Depot had for customer service. (I won’t mention the millions he funneled to Bush’s campaigns.) If you have shopped there in the last few years you know how bad the customer service has become. Nobody on the floor knows anything if you can even find someone to help you.

In order to get rid of him share holders had to give him a $210 million severance package. This giant pile of money was for failing. In other words, there was absolutely no accountability built into his compensation package. You see this scenario repeated over and over again at company after company in the U.S.

What has happened over the last 15 to 20 years in the United States in the rarified air of the corporate board rooms is that all the CEOs and Directors have formed a giant club. Everybody is on someone else’s board of directors and they vote on each other’s compensation. Just a giant case of incestuous greed that gets worse and worse. Nardelli is a perfect example of this greed run wild as there is no economic justification for this kind of compensation.

Adam Smith, the 18th century Scottish philosopher explained it quite well in the “Wealth of Nations” when he wrote “All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”

Now that I think about it, it makes sense that he was a staunch Republican and big time Bush supporter. One can hope that some of this kind of crap will change with the new guard.

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