But among many of Home Depot's 355,000 employees, especially rank-and-file workers in its orange big-box stores, there was little sympathy as Nardelli dug himself into a deeper and deeper hole. They resented the replacement of many thousands of full-time store workers with legions of part-timers, one aspect of a relentless cost-cutting program Nardelli used to drive gross margins from 30% in 2000 to 33.8% in 2005. As the news of his resignation on Jan. 3 shot through Home Depot's white-walled Atlanta headquarters and reached stores, some employees text-messaged each other with happy faces and exclamation points. "I think that it is being received well. Most people believed that Bob was autocratic and stubborn," says an assistant manager in an Atlanta store who asked not to be named.

Possibly more devastating to his chances of a longer reign at Home Depot, Nardelli alienated customers just as thoroughly as he did employees. Staffing cuts led to persistent complaints that there weren't enough workers in Home Depot's cavernous stores to help do-it-yourself customers. That was a marked change from the era when Blank and Marcus, who started the company in 1978, preached that employees should "make love to the customer." In 2005, Home Depot slipped to last among major U.S. retailers in the University of Michigan's annual American Consumer Satisfaction Index. To try to make amends, Nardelli announced a plan in August to add 5.5 million man-hours back to stores and invest $350 million to spruce up aging outlets. "Bob Nardelli is a smart man, but he doesn't need to be in a high-profile business like retail," says a former top Home Depot executive. "He needs to be in manufacturing, a business that does not have such consumer attention."

Indeed, Nardelli's data-driven, in-your-face management style grated on many seasoned executives, resulting in massive turnover in Home Depot's upper ranks. Former chief marketing officer John Costello, a retailing veteran from Sears Holding Corp., quit in late 2005, and Carl Liebert III, the executive vice-president who oversaw store operations, resigned last October. "He would say that you're just not leadership material, you're just not Home Depot material, you're just not the type of person we need," says a former senior executive. Managers who weren't hitting their numbers—"making plan" in Home Depot parlance—were routinely culled, their posts often filled with former executives from GE. That led some bitter insiders to dub the company "Home Gepot." In fact, since 2001, 98% of Home Depot's top 170 executives are new to their positions; 56% of the changes involved bringing new managers in from outside the company.

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New Blood
Nardelli's relationship with Wall Street analysts was often just as frayed. He chafed at their constant focus on "same-store sales," a standard retail measurement that tracks sales at stores open at least a year. In Nardelli's view, same-store sales was an out-of-date metric because Home Depot was diversifying away from being strictly a retail operation. Under his leadership, the company has invested more than $7.6 billion to build Home Depot Supply, which provides services to professional contractors. With $3.5 billion in revenue in the third quarter of 2006, up 159%, HDS accounted for 15% of total Home Depot sales. In Nardelli's view, this successful new arm can't be accurately measured on the basis of same-store sales.

Credit Suisse First Boston analyst Gary Balter says Nardelli didn't get along well with Wall Street because he was unhappy with analysts' skepticism of the move away from consumer retailing and into servicing professional contractors. "He blamed a lot of his problems on Wall Street," says Balter. "But Wall Street wanted to see results, and they just weren't there."

The lack of results, at least in terms of an improving stock price, gradually stirred anger among shareholders. Speculation mounted late last year that Home Depot could be a prime target for private equity firms hungry for retail assets. While the company spent $20.3 billion to buy back shares and issue dividends under Nardelli, investors saw almost no gains in their share value. Their frustration was exacerbated by Nardelli's eye-popping pay package: more than $200 million in salary, bonuses, stock options, restricted stock, and other perks over the last six years.

Last month, activist investor Relational Investors sharply criticized Home Depot management and called on the board to form a special committee to review the company's direction and even the possibility of a sale. Relational attributed Home Depot's difficulties to "deficient strategy, operations, capital allocation and governance." After the announcement of Nardelli's leaving, a source familiar with Relational called the departure "a positive" but added that "the major strategy, capital, and management issues remain. Fresh new blood remains an objective."

"Happy Hour at Noon"
It wasn't only activist investors like Relational that had grown tired of Nardelli's leadership. He irritated Atlanta locals, too. In a Nov. 25 letter to Nardelli, reviewed by BusinessWeek, A. Leigh Baier, an Atlanta attorney and Home Depot shareholder, requested that the company's board include a "nonbinding" resolution in Home Depot's proxy statement allowing shareholders to vote on whether "they are in favor, or opposed to, the board of directors of Home Depot terminating your contract." Explaining his now-moot proposal, Baier says, "You can't s--t on your employees and deliver" results.

Others remain outraged, even with Nardelli gone. A group of unions whose pension funds own shares in Home Depot plans to challenge his $210 million payout at the annual meeting in May. Meanwhile, in Washington, Representative Barney Frank (D–Mass.), the incoming chairman of the House Financial Services Committee, said in a statement on Jan. 3: "The actions of Home Depot's Board of Directors to simultaneously dismiss Robert Nardelli and provide him with $210 million in severance is further confirmation of the need to deal with the pattern of CEO pay that appears to be out of control."

It's unlikely Home Depot's new chief executive, Frank Blake, will change the Nardelli-driven demand for data and centralized control. A former Deputy Energy Secretary and GE veteran, Blake played a key role in executing Nardelli's strategy at the retail chain. But company executives say he lacks Nardelli's sharp edges and prefers to build consensus rather than dictate orders. While Blake is an unknown to many Home Depot employees, the Nardelli departure was already brightening the mood at some company stores. "It's amazing the reaction of people on my floor. People are openly ecstatic. High-fiving," said an Atlanta store operations manager only hours after the Jan. 3 announcement. "There's a group talking about going to happy hour at noon."

Corporate America hasn't seen the last of Bob Nardelli, however. According to people familiar with the situation, while store workers were celebrating, the former CEO was already fielding calls from private equity firms interested in his formidable operational talents. The bright side for Nardelli in the world of privately owned corporations, of course, is that he won't have to deal with any annual meetings or shareholder questions.

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