Home Depot's Surprising Choice for CEO

Wall Street isn't convinced that new CEO Frank Blake has the job for the long haul. But his skills may surprise his detractors

by Pallavi Gogoi

When Frank Blake was named to the top job at Home Depot (HD) on Jan. 3, as Chief Executive Officer Robert Nardelli resigned, the immediate reaction from many on Wall Street was disbelief. They scoured the company's announcement for "interim" or "temporary," convinced that Blake is simply a caretaker while the real replacement for Nardelli was being recruited. Home Depot, however, stressed that Blake is indeed the board of directors' choice as the long-term replacement for Nardelli. "Blake is the CEO, period," says Jerry Shields, senior public relations manager at Home Depot.

That's clarity that Wall Street could live without. Investors' reservations are numerous: Blake is a lawyer by training, he's never had the top job at a company, and he has little retail experience. While many investors and analysts think that Home Depot needs a steady, experienced chief at the helm these days, Blake's profile bears a strong resemblance to Nardelli's. He's a former General Electric (GE) executive with strong strategic skills but limited retail experience. "This is the second-largest retailer in the nation, and [Blake] has never run a company, or one of Home Depot's major operating businesses. As a result, further changes are possible at Home Depot," says a skeptical Matthew Fassler, an analyst at Goldman Sachs (GS).

Home Depot's shares did rise on the news, although most experts interpreted that as investor relief that Nardelli was leaving, rather than as a vote of confidence in Blake (see BusinessWeek.com, 1/3/07, "How Nardelli Finally Helped the Stock"). Home Depot's shares gained 2.3% on Jan. 3, to $41.07. The shares had fallen 22% (before dividends) during Nardelli's six-year tenure, while rival Lowe's (LOW) soared 172% in the same period.

Is Blake Prepared?

Blake's background is similar to his predecessor's in several ways. Like Nardelli, Blake worked at the GE Power Systems division—Nardelli as CEO and Blake as general counsel. He also has had very little experience in the retail business, which has some experts wondering whether he'll have some of the same struggles as Nardelli. "Retail is not just about getting the right product on the shelves at the right price, but you have to have that merchandising touch and sensitivity to serving what customers want," says Wendy Liebmann, president at New York retail consultant WSL Strategic Retail. "That's something you gain only with experience, and running a major retail corporation is going to be hugely complex." Liebmann points to the problems of another GE alum, Larry Johnston, who as CEO of grocer Albertsons struggled for returns and finally sold the company to Supervalu (SVU).

But people who have worked with Blake say he may very well surprise his detractors. Even though Blake hasn't been CEO of a company, many of his previous jobs were in leadership roles. He was general counsel for the Environmental Protection Agency and, as deputy secretary for the Dept. of Energy, he is said to have managed a budget of $19 billion. At GE, he made the unusual leap from the general counsel's office into a purely business role and secured a top executive's job of heading corporate business development at the conglomerate.

His job there was to lead business development efforts, including worldwide mergers and acquisitions.