From: The Death of the American Corporation: The Psychology of Greed and Destructiveness among CEOs and Bankers by William Czander Chapter 12 Nardelli and Home Depot “While nothing is easier than to denounce the evildoer, nothing is more difficult than to understand him.” – Fyodor Dostoevsky “The customer is King” Marcus and Blank (founders) “We believe in the 3 E’s” Bob Nardelli (the replacement) This is a question those who study human behavior at work want to answer: Can a CEO be so rigid, so obstinate, so arrogant or delusional in his beliefs that he destroys the company he was hired to lead? Just as one is capable of destroying one’s marriage, health, and career, can a CEO motivated to destroy a corporation? Despite the fact that we witness many CEOs presiding over the demise of their corporations, and we have evidence that their behaviors, strategies and decisions have contributed to downfall and bankruptcy, we have no evidence that the motivations that underlie these decisions are associated with the unconscious wish to be destructive. The reason why this is a difficult question to answer is because the motivation to engage in destructiveness is a function of deeply hidden psychodynamic processes. An investigation into these processes involves an assessment of the interplay between unconscious and conscious ideations that underlie human behavior. While we cannot place a CEO who engages in such destructive behaviors “on the couch,” we can study a CEO’s personal and work history and draw inferences of motivations both conscious and unconscious that lead to destructive decisions. We will attempt to develop a psychodynamic understanding of the decisions, actions and strategies of the former CEO of Home Depot, Robert Nardelli. In particular we will investigate Nardelli’s attempts to transform Home Depot’s culture from a decentralized, entrepreneurial retail culture to a command and control bureaucratic culture with a military emphasis. In a brief period, Nardelli managed to destroy the customer-oriented culture that Home Depot’s founders Bernie Marcus and Arthur Blank built over 20 years. The question we will attempt to answer is, why did he do it? With no retail experience, Nardelli took a high-flying retailer with an impeccable reputation for customer service and moved it to a place where it became known as having the worst customer service among retailers. A year after his entry (December 2000), Home Depot was quickly removed from the top ten list of best places to work and never returned. How did Nardelli destroy the once undisputed heavyweight champion of home improvement? And, why did Wall Street, customers, and employees view Nardelli as toxic to the company they had once admired and loved? A Series of Failures In studies of CEOs, they rarely face failures in their lives. Some suggest they live charmed existences. But not Nardelli. He faced multiple failures, and he kept pushing forth picking himself up every time he failed only to fail again. Bob (as he liked to be called) grew up in the All-American town of Rockford, Ill., and as soon as he was able, he sought entry into the military world. In his freshman year of high school, while many were protesting the Vietnam War he joined ROTC, eventually becoming company commander. After high school he applied to the U.S. Military Academy at West Point. He was rejected. While this was a major disappointment, it was nothing compared to the disappointment he received when he graduated from college. He was drafted into the military, but, according to Nardelli he failed his physical (Sonnefeld, 2007). While at college he played football, and dreams of a professional football career were also dashed. Perhaps Nardelli’s most crushing defeat came while at GE. In the late 1990s, Jack Welch was planning to retire and Nardelli was in the running for the top spot, but Welch picked Jeff Immelt to succeed him as CEO. After 25 years, Nardelli was out: another major failure. He lost something he desperately wanted and thought he should have gotten. He was immediately tapped by Ken Langone to take the CEO position at Home Depot, and took the job in December 2000. This established what is perhaps Nardelli’s most infamous and well- publicized defeat. In January 2007, six years later, he was fired. While his failure at Home Depot is well documented, we do not have a psychodynamic understanding of his motivations for an array of decisions that created confusion, intimidation and later anger among his employees and led to his downfall. We will attempt to understand what led to these failures. Taking Over From the Founders According to Sellers (2002), Nardelli was the first executive without retail experience ever to become CEO of a major retailer and the first to take over from the founders. According to Sellers (2002), minutes after Welch told him he lost the succession race at GE, he received a phone call and was offered the CEO position at Home Depot by Ken Langone. It is questionable whether Nardelli had time to think about what he was getting into. It is clear that he did not take the time to fully assess and digest the meaning of his loss at GE. Instead he jumped at the Home Depot job, as a jilted lover who quickly starts a new relationship “on the rebound.” Many professional managers would never step into the founder’s shoes, especially those of two founders who were idealized and had a powerful winning record. In sports history it is impossible for a new coach to succeed or replace a so-called mythical coach. Consider John Wooden at UCLA or Bear Bryant at Alabama. Their replacements could have a good season but they were fired, no one could fill their shoes. It often takes several years and firings before a new coach can settle in, and in the meantime coaches who enter too soon are destroyed. Wooden is a prime example. His heir Gene Bartow had 28 wins and 5 losses and won 85.2 percent of his games compared to Wooden’s 80.8 percent, yet he received death threats from UCLA fans. Four coaches left UCLA in the nine years following Wooden. This is why most professional managers avoid these situations. But what can we say about those who jump in? One could say they are thoughtless or perhaps they are megalomaniacs, or in the case of failure they behave like a jilted lover and they grab onto the first thing that comes along, or they thoughtlessly grab on trying to forget or perhaps seek revenge for their failures. Witness the jilted lover who proudly shows off his or her new love, trying to give off the message, “I don’t need you,” “Now are you sorry?” or “See, I found someone better.” These games people play may be somewhat functional in the affairs of the heart but certainly not in the case of CEO succession. Nardelli failed, and he grabbed onto the first job offer. An important question was, why didn’t the board carefully investigate, hire headhunters, or conduct a careful search when hiring a replacement for Home Depot founder Arthur Blank, the CEO who preceded Nardelli? It is difficult to understand Langone’s motivation for selecting Nardelli. However, we can make some assumptions. The board was so frightened of having Blank in control that they grabbed the first executive available. They believed that Home Depot was out of control and that Blank, who was not a hands-on manager, could not rein in his managers in the stores. This was especially true for board chair Langone, located in New York City where stores could not keep their shelves stocked and chaos was prevalent especially on a Saturday. As a store manager in Yonkers, N.Y. reported, “we could have the store Opening Day ready, neat and clean, but by 11 a.m. the store would be trashed.” Langone had a biased picture of what stores needed from executives in Atlanta. He witnessed Home Depot stores that were in dire need of supply chain management. He thought that GE managers could bring about this type of change and also combat the growing threat of unionization. There is general fascination with GE executives. Written up in business magazines and attested to by celebrity business school professors, GE was considered the elite training arena for executives. Boards often sought GE alumni to lead their corporations. However, this was more myth than fact. A study of these GE alumni has found that just as many fail as succeed. Langone served on the board at GE: Welch may have told Langone to call Nardelli the evening he received the bad news and give him the Home Depot job to ease his pain. Langone was the founder of a capital investment firm. He had a reputation for stirring things up. With his choice of Nardelli, he clearly stirred things up. With Langones belief that Home Depot was “out of control” he brought Nardelli in thinking he would imposed GE discipline. This may be a real stretch, with one Italian selecting another: an Italian bias. We are only talking about Langone, here not the board. Langone was a controlling, loud, and at times intimidating man. He controlled the board. They quickly approved whatever he wished. There is even some speculation that he hired Nardelli without consulting the board. This succession problem was further compounded because Nardelli was a MBA trained, “professional manager,” replacing not one, but two founders who were classic entrepreneurs. Research on founding entrepreneurs who make or cannot make the transition to lead their company into maturity is dubious.