Bob Nardelli's Leadership

Where does an organizational leader's real power and influence come from? Is it born from the formal power of title, office and position? Or is it born from the informal powers of reputation, consensus-building and verbal persuasion? As with most broad questions, it's probably a hybrid of both.

Recently, we have seen a high-profile example of what can happen when a leader relies solely on the formal powers of their office and ignores the more subtle power of consensus and suasion.

Home Depot Chairman and Chief Executive Bob Nardelli's recent and abrupt exit provides a classic example of the risks of an imperial management style. Mr. Nardelli joined Home Depot in 2000 after a long career at GE. He immediately began leaving his mark on the organization, and for the first five years, the company's financial performance suggested good leadership. Sales grew dramatically–from $46 million in 2000 to $81.5 million in 2005–and gross margins increased by 3.5 percent. But even while the numbers improved, Nardelli's imperialist leadership style quickly alienated employees, directors, Wall Street and, eventually, customers. When the post-2005 housing slowdown eroded the initial financial performance, employees, stockholders and directors became far less tolerant of his management style.

Stories of Nardelli's curt communication and dictatorial ways are legendary. At the 2006 annual meeting, shareholders were shocked to hear that the meeting would last 30 minutes, that they would be limited to one question and that after one minute their microphone would automatically turn off. Needless to say, Nardelli wasn't concerned with good communication or building consensus.

While the increase in his company's gross margins was commendable, one of Mr. Nardelli's chief strategies to achieve that performance was to replace thousands of full-time employees with part-timers. The result was the aforementioned higher gross margins due to lower employee overhead. But it also dramatically changed the Home Depot brand because store staffing was sparse, the employees were not as motivated and customers