Robert Nardelli will ultimately leave a job under duress because of
hedge funds. Where have we heard that before? With President Obama blaming hedge
funds for Chrysler LLC's need to file for Chapter 11 bankruptcy
protection, Nardelli must be experiencing deja vu. First, it
was Home Depot Inc. (NYSE:HD). Now it's Chrysler. The companies and the situation
may be different, but in both cases Nardelli faced off against the
dreaded hedge funds.
Prior to joining Chrysler in 2007, after Cerberus Capital
Management LP took over the automaker from Daimler AG, Nardelli had run
Home Depot after a long career at General Electric Co. (NYSE:GE), where he
was one of CEO Jack Welch's chief lieutenants. After losing a three-way
battle to replace Welch, he received an offer to become Home Depot's
CEO from chairman Ken Langone, who was a GE director.
Nardelli wasted no time making changes at Home Depot. Although he
lacked retail experience, Langone, who funded Home Depot as a startup,
brought him in to wrestle with growth issues; Home Depot seemed to have
reached its limits in the U.S. Nardelli dramatically overhauled the
retailer's management, employing the Six Sigma management strategy he
learned at GE. For a time, the changes seemed to work and sales
doubled. Revenue increased from $40.57 billion in 2000 to $85.15
billion in 2005, while profit rose from $12.6 billion to $25.8 billion.
Despite Nardelli's success in wringing out inefficiencies, he had
critics -- namely Ralph Whitworth's activist hedge fund Relational
Investors LLC -- who were unhappy because the share price didn't
necessarily reflect his success. During Nardelli's tenure, Home Depot
stock held essentially steady while the stock price of rival Lowe's Cos. (NYSE:LOW),
which was still expanding quickly, doubled. Meanwhile, Nardelli took
home a huge pay package, which further irritated disgruntled
shareholders. And Nardelli didn't take many steps to smooth relations
with shareholders, angering them at shareholder meetings with a sort of
high-handed disdain.
While the board stood by him for most of his tenure, Relational
began a campaign in 2006 questioning his leadership. With the heat on,
Nardelli was the only board member at the annual meeting, where he made
matters worse by only allowing shareholders a minute each to speak,
timing them on a big clock straight out of George Orwell. By the end of
the year, Relational began a formal campaign to oust Nardelli; the board dismissed Nardelli in January 2007. At the time, Nardelli's severance package was estimated at $210 million.
His return to a corner office in August 2007 surprised
some at the time. However, his skills at cutting costs and improving
efficiencies wasn't lost on Cerberus, which had promised to turn around
Chrysler. Additionally, Cerberus was seeking someone from outside the
industry to inject new ideas. Meanwhile, Nardelli's prior run-in with
shareholders over his autocratic style was thought to be a nonissue
since the company wasn't public. In the end, however, Chrysler's
problems turned out to be too big for Nardelli, Cerberus and even
those pesky hedge funds. - Matthew Wurtzel
Nardelli's next flip: Chrysler
Relational ousts another CEO
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