Relational Investors and Home Depot

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Professor Jay W. Lorsch and Research Associate Kaitlyn A. Simpson prepared this case. HBS cases are developed solely as the basis for class
discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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JAY W. LORSCH
KAITLYN A. S IMPSON
Relational Investors and Home Depot (A)
We see ourselves as stewards of our clients’ shareholdings. Proper stewardship requires active engagement
of corporate leadership to spur improved performance.
— Ralph V. Whitworth, Principal, Relational Investors, LLC, San Diego, CA
In the summer of 2006, Ralph Whitworth, principal of Relational Investors, was considering
investing in Home Depot. The stock price hovered around $35. Whitworth had been watching
Home Depot for a while because he felt it was underperforming and had potential for improvement.
Moreover, the recent activities of the American Federation of Labor and Congress of Industrial
Organizations (AFL-CIO) Office of Investment related to Home Depot really focused his attention on
the company.
The AFL-CIO Office of Investment had decided to concentrate its resources on several companies
who seemed to have excess CEO pay, and chose to focus on Home Depot as a case study in
compensation abuse. Those in the Office of Investment believed that CEO Bob Nardelli had received
exorbitant pay—total compensation of $245 million from 2001 to 2006—especially... [continues]

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