The Imperial Management Style of Home Depot’s Bob Nardelli
Where does an organizational leader’s real power and influence come from?
Is it born from the formal power of title, office and position? Or is it born from
the informal powers of reputation, consensus-building and verbal persuasion? As with
most broad questions, it’s probably a hybrid of both.
Recently, we have seen a high-profile example of what can happen when a leader relies
solely on the formal powers of their office and ignores the more subtle power of
consensus and suasion.
Home Depot Chairman and Chief Executive Bob Nardelli’s recent and abrupt exit
provides a classic example of the risks of an imperial management style. Mr. Nardelli
joined Home Depot in 2000 after a long career at GE. He immediately began leaving
his mark on the organization, and for the first five years, the company’s financial
performance suggested good leadership. Sales grew dramatically–from $46 million
in 2000 to $81.5 million in 2005–and gross margins increased by 3.5 percent.
But even while the numbers improved, Nardelli’s imperialist leadership style
quickly alienated employees, directors, Wall Street and, eventually, customers. When
the post-2005 housing slowdown eroded the initial financial performance, employees,
stockholders and directors became far less tolerant of his management style.
Stories of Nardelli’s curt communication and dictatorial ways are legendary.
At the 2006 annual meeting, shareholders were shocked to hear that the meeting would
last 30 minutes, that they would be limited to one question and that after one minute
their microphone would automatically turn off. Needless to say, Nardelli wasn’t
concerned with good communication or building consensus.
While the increase in his company’s gross margins was commendable, one of
Mr. Nardelli’s chief strategies to achieve that performance was to replace
thousands of full-time employees with part-timers. The result was the aforementioned
higher gross margins due to lower employee overhead. But it also dramatically changed
the Home Depot brand because store staffing was sparse, the
employees were not as motivated and customers struggled to find what they needed
in the do-it-yourself stores.
How else can we grade Mr. Nardelli’s leadership
style? Consider the fact that since 2001, 98 percent of the top 170 executives are
in new positions and 56 percent are new to Home Depot. Is Mr. Nardelli the first
executive to clean house and install his own people? Of course not. But this seems
more than a bit extreme.
Mr. Nardelli’s reign is a business case that certainly deserves more than
500 words. There are stories to tell and lessons to learn from the way he alienated
Wall Street and his board of directors, and the way he handled the dispute over his
executive compensation that eventually led to his departure in January 2007.
But even a quick look at the tenure and the exit of Mr. Nardelli provides clear
leadership lessons. There are times in the business life cycle when an imperial,
centralized and autocratic leadership style is called for. But leaders who rely solely
on the formal powers of their office to make decisions while ignoring the importance
of building consensus with the multiple constituencies around them do so at their
own peril. A grating leadership style can work when a company is in turn-around mode
and is tolerated when financial performance is strong. But once the protection of
strong fiscal performance erodes, the imperial executive may wish he or she had used
other means of exercising power.
• Dean M. Brenner
 Beacon Issue -
March 2007
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