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Humble Depot?

Home Depot's CFO says a "miserable" week of shareholder complaints convinced the company to promise to revert to its traditional annual meeting format. Critics say that's not enough.
Roy Harris, CFO.com | US
June 5, 2006

Home Depot Inc. CFO Carol Tomé said the week since its contentious May 25 annual meeting had "been really miserable," and that negative shareholder reactions had led the company to reject the minimalist meeting format it had installed. The company said on Thursday that it would return to its previous format for next year's meeting.

"Media coverage, good, bad or indifferent, impacts a lot of people," Tomé said in a telephone interview with CFO.com, but "the main issue is internal rather than external. We have to make sure our associates [employees] know that these things will pass."

At last month's meeting, only one of Home Depot's 11 directors — CEO Bob Nardelli, management's sole board member — attended the session in Wilmington, Del., at which eight shareholder proposals were considered. The meeting, just over a half-hour long, contained no management presentation on operations and sharply restricted shareholder comment before votes were taken to elect directors, ratify the auditor's appointment, and consider the shareholder measures.

Press coverage before the meeting had predicted a "showdown" over stockholder objections to Nardelli's rich pay package, which provided him with more than $115 million in salary, bonus and stock during his five years as CEO. Press accounts noted that over the same period Home Depot's stock price has slipped 12 percent, compared to sharp gains at rival Lowe's Cos. At the meeting, the CEO refused to answer questions about his pay.

The Home Depot plan was "simply to address the shareholder proposals," said Tomé, who told CFO.com that for an annual meeting "that's the only legal requirement."

While generally known among board members and outsiders as outspoken in her opinions, Tomé hewed close to the company press-release language in explaining why the Atlanta-based home-improvement retailer has since announced it will restore its "traditional format" meeting for 2007. As company managers "we are courageous leaders," she said. "We are a company that listens, learns and leads."

Calling Home Depot's treatment of shareholders at the May 25 meeting "appallingly contemptuous," governance expert Nell Minow of The Corporate Library in Portland, Me., told CFO.com she was "not mollified by their apology and promise to do better in the future."

"The use of the term 'courageous' and the use of the term 'listen' in their statement is almost Orwellian," Minow told CFO.com. "Neither term applies to the bullying technique of cutting off power to the microphone while a shareholder is speaking."

"They still managed to get what they wanted out of this year's meeting," added Minow. Instead of readopting their prior format next year, she said, "I expect an improved format with genuine exchange between shareholders and the directors who in theory represent their interests and in this case clearly need a reminder of that obligation and privilege."

An equally scathing criticism of the meeting by columnist Joe Nocera appeared in the New York Times over the Memorial Day weekend. The column by Nocera, who attended the session, ran under a headline that joked that the non-appearing directors wore "chicken suits." University of Delaware corporate governance expert Charles Elson told Nocera that not having the board present was "disgusting." Said Elson, "Your one obligation as a director is to show up at the annual meeting."

The 10 non-management directors, who make $130,000 a year, attended a two-day board session in Atlanta earlier in the week, "then stayed behind to continue their meeting," Tomé told CFO.com. "Our board is very active, and the board is as supportive as they've ever been."

In an extraordinary show of shareholder discontent, between 30 percent and 36 percent of the vote was withheld for 10 directors. (New director Angelo Mozilo, CEO of Countrywide Financial Corp., had 8 percent of his vote withheld.) Holders overwhelmed one negative management recommendation and approved a shareholder resolution to recommend a majority vote, rather than a plurality, to elect directors in the future. Other shareholder proposals also received heavy support, although they lost.

Home Depot said management had agreed to implement the majority-vote provision at its 2007 annual meeting.

Directors' dealings with Tomé had been featured in a CFO magazine cover story in January 2005, in which she said her role was "to communicate from independence and authority." In the article, she said she and Nardelli took an "open kimono" approach with the board that involved "talking about the bad stuff as well as the good stuff."

Tomé told CFO.com Friday that she had participated in planning for the 2006 annual meeting, and that the plans reflected that shareholders communicate more with management by mail, before the annual meeting, not at the session itself. Tomé, who observed the meeting from a seat next to Nardelli in Wilmington, also was involved in discusssions leading the company to reject the new format for next year, although she was restrained in her description of that review.


"We tried a new approach, and clearly, based on the feedback we got from shareholders, they prefer our prior format," she said. In 2007, Tomé said, shareholders will again hear a business presentation from management, will get management's answers to their questions, and will have directors present.

The mail communication from shareholders cited by Home Depot CFO Carol Tomé "is one-sided," Minow said. "And that one side is management, not the board." She added: "They can run, but they can't hide. If they don't make some significant changes — and I mean to the compensation plan and the board membership — next year's meeting will require more than just courage. It will require protective gear."




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