A retread in Motown?

I was mildly surprised to learn earlier this week that Robert Nardelli was chosen to lead Chrysler by Cerberus Capital. Nardelli, perhaps best known as a destroyer of corporate value during his stint as CEO of Home Depot, was tapped by the buyout firm to lead the beleaguered auto company, despite its stating earlier that it had no intention of changing the current leadership of the company.

In the abstract, the change is not so surprising. These take-privates are very fluid, and both Cerberus and current Chrysler CEO Tom LaSorda might have mutually recognized that a new hand was required on the wheel. But the choice of Nardelli is very interesting.

The move represents a second chance for Nardelli (and a fourth chance for Chrysler) to redeem himself after a terrible run at Home Depot. During his stay (December 2000 to January 2007), Home Depot saw its stock sputter, barely registering a gain at all during what was otherwise a very strong run in the public equity markets. In addition, the stock price languished despite frequent stock buybacks. You do the math: fewer outstanding shares should boost the value of the stock, but in Home Depot’s case, investors penalized Home Depot, not so much for bad performance but a lack of future growth prospects and its sub-par performance versus main competitor Lowes.

Nardelli probably could have survived at Home Depot if his temperament and personality were more likeable. He had a ridiculously expensive pay package, although, as I’ve always maintained, this is something that Boards of Directors should be held accountable for more so than the CEO (after all, they are the ones who lend their assent). What Nardelli can be blamed for, however, is his tin ear and inflated sense of his own value. When you collect one of the largest compensation packages in corporate America and your stock is on a seven-year decline, you probably should rein in hubris and, maybe, just maybe, give some of the money back. But that’s not Nardelli’s style, schooled as he was in the Jack Welch Academy of Imperial Executives.

In defense of Nardelli, he was not incompetent, although in retrospect, I’m sure HD Directors probably wish they had chosen someone with retailing experience. In sum, Nardelli as the CEO of a large retailer was merely mediocre.

What does this mean for Chrysler? It would be too easy to paint this picture using Nardelli’s performance at HD as the only color on the palette, but it would also be inaccurate. I think the likelihood of Nardelli tasting some success at Chrysler is pretty high (as long as they keep him far away from union negotiations). If anything is clear from Nardelli’s HD tenure, it is that he simply never understood retailing and never understood how to create value within the home-improvement segment of the business. He did, however, prove to be fairly adept at cash management and cutting costs, and at Chrysler, those skills will be sorely tested.

Over at the Motley Fool website, Nathan Parmelee published yesterday a short article that sums up my thoughts pretty well. Check it out.