It wasn't the bagels burning up, it was the owner.
Before work I often stop by New York Bagel & Deli (NYBD) in Santa Monica for coffee, a bagel and the word on the street. Well this morning I got an earful from my friend Brian Gruntz, the owner, about the pay and severance package Bob Nardelli received for running The Home Depot (NYSE: HD)...before bailing out after failing to increase shareholder value in terms of share price. Hundreds of millions of dollars...for what?
Even though it is almost six months later, Brian still finds it outrageous that Nardelli and other CEOs are rewarded for contributing nothing to their company's bottom line, or shareholders', and often negative results due at least in part to their failure of leadership. Brian went on to rant about a story he read somewhere linking CEO performance and the construction of personal mansions, which start to pop up, like oracles, six months before their demise.
This is not a measure I have used in my valuing company stocks but perhaps I should look at this as a new metric. I do remember reading last year about a link between companies' building fancy new headquarters and poor or negative stock performance. This all seems like support of the old adage that "Pride goes before a fall" - Wikipedia.
Certainly this would be true of Tyco International Ltd. giving (or him taking, not sure of the difference) former CEO Dennis Kozlowski more than $135 million during his tenure so he could buy a mansion, artwork, expensive vacations and other luxury furnishings. Remember the $6,000 gold laden shower curtain! Now Mr. K is not just the former CEO but he is a resident of somewhat less amiable quarters in a Federal penitentiary. He does still get free room and board, clothes and meals but the budget has been reduced dramatically. The prison board is far less congenial than the Tyco board was but he had no say in them retaining their positions.
This is not to say that many CEOs don't earn their money or at least run companies that reward shareholders. Certainly Steve Jobs of Apple Inc. (NASDAQ: AAPL), Warren Buffett of Berkshire Hathaway (NSYE: BRK.A), Fred Smith of FedEx Corp (NYSE: FDX) to name a few, are not begrudged their compensation.
Trust is a very expensive thing to lose and often costs companies millions of dollars in sales, share value and goodwill that takes years to rejuvenate, if ever. Well, Nardelli is gone, The Home Depot seems to be on the mend, albeit slowly, and the stock is up today 7%, just shy of $41 per share as I write this story. So Brian, some people get away with stealing, others have to pay for their sins eventually, and who knows? Perhaps Nardelli will have to give some back after all the shareholder lawsuits are settled.
In the meantime, Brian, thanks for feeding me this morning -- both food for my stomach and food for thought.
Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well. Disclosure: I own shares of Berkshire Hathaway and FedEx Corp as of this writing.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
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