On May 30 The Home Depot’s CEO Bob Nardelli was named chair of the Business Roundtable’s Partnership for Disaster Response Task Force, created in the aftermath of Hurricane Katrina to help coordinate a private sector response to natural disasters. Who knew that just two days later Nardelli would find himself with his finger in the dyke of a decidedly man-made disaster—the media fury surrounding Home Depot’s handling of its shareholder meeting.

The Backdrop.

Maybe it was the front page New York Times exposé the day before the annual meeting with the headline, “With Links to Home Depot Board, Chief Saw Pay Soar as Stock Fell,” that soured Nardelli’s mood. It can’t be easy to read more than 3,000 words documenting chummy connections between supposedly independent board members who set your 2005 salary at over $30 million, a level that many analysts deemed excessive. Or perhaps it was the six-foot-tall chicken parading outside the meeting venue shortly before its opening. Was Nardelli “too chicken” to let shareholders have an opportunity, in an advisory capacity, to approve the report of the Compensation Committee, as proposed in a resolution put forth by AFSCME and AFL-CIO union leadership? Clearly, Nardelli would be facing stockholders with serious concerns about governance, director independence, and executive compensation policies.

The Meeting.

It was very short. Roughly 35 minutes were consumed to elect directors, ratify the auditors, and address eight shareholder resolutions (including our own, requesting greater disclosure on equal employment opportunity). Most remarkable was what was missing: all Board members except for Nardelli who served as chair, most of senior management, any discussion about the content of the shareholder proposals, a standard business report, a Q&A session, and a preliminary vote tally for each resolution. (Nardelli announced that the proposal requesting majority votes for directors was the only shareholder resolution to pass.) And, contrary to my previous experiences with Home Depot, there weren’t many shareholders there either, most likely due to the new meeting location in Delaware. Angry investors, who were able to claim the mike for a minute or two before being unplugged, were told that this forum was for recording concerns, not responding to them. A self-described conservative Republican who previously had “loved” Home Depot called Nardelli an “automatron” whose “arrogance would kill this company.” Oz-like, Nardelli vanished behind a curtain immediately after adjourning the meeting, leaving attendees in disbelief. The Fallout. The press reaction was swift, unkind, and well deserved. Headlines such as “Home Despot” (Global Proxywatch) and “The Board Wore Chicken Suits” (New York Times) dotted the media. Morningstar’s Stewardship Grade for The Home Depot declined from a C to a D, based in large part on the conduct of the shareholder meeting that its analyst described as “surreal.” We, and we assume many others, called upon the board to publicly commit to return to open and respectful communication with shareholders.

The Company Response.

Two days later, in a June 1 press release, Home Depot acted quickly to mend its relations with investors and stem the tide of negative publicity. Nardelli stated, “…We listen, learn, and lead—we will return to our traditional format for next year’s annual shareholders meeting, which will include a business overview, the presentation of proposals, an opportunity for shareholder questions, and with the board of directors in attendance.” Additionally, Home Depot adopted a majority vote policy for directors and announced all the voting results, which demonstrated significant shareholder dissatisfaction. A record breaking 10 of 11 directors received over 30 percent “withhold” votes. Forty percent of shareholders voted for the union-sponsored resolution on approving the Compensation Committee report, and our diversity disclosure resolution garnered 36 percent support—the highest ever for its type at any company.

And Now…

Though Home Depot management has rediscovered humility, we know that many underlying issues have yet to be addressed. To fully restore confidence, Home Depot must embrace a new level of accountability to shareholders. At Walden, we plan do our part to encourage movement in that direction.

—H. Soumerai