Home Depot Not Fixed

Home Depot (HD Quote) still has a long way to go in making repairs.

Shares of the leading home improvement retailer jumped 3% Wednesday on news that embattled CEO Robert Nardelli left the company. The market's initial enthusiasm over Nardelli's departure, however, could prove to be short-lived as broader issues come to light.

Declining profits, a slowing economy and heightened competition likely will keep the stock price languishing. And Home Depot's board of directors, which failed to show up at the company's annual shareholders' meeting and was ultimately responsible for Nardelli's exorbitant compensation, remains in place.

Nardelli was criticized for being paid $245 million over his five years with the company even as the stock lost ground. Now he's leaving the scene with a severance package worth $210 million.

"The $210 million is really the icing on the cake here and the ultimate insult to shareholders," says Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates. "This only exacerbates the problem because the board is completely accountable for this tragedy of corporate governance. Who gave Nardelli this deal? Who signed off on everything? It was the board of directors."

Paul Hodgson, an executive compensation expert with corporate governance watchdog The Corporate Library, says Nardelli was not the problem at Home Depot.

"Nardelli can't be blamed for this situation, necessarily," says Hodgson. "This seems to be the board's problem. They're the ones who agreed to the employment agreement in the first place, which is where all this compensation came from.

"They said yes to all the requests that came their way and neglected to tie even the majority of his compensation to performance. So they're left with this bill that they're paying with shareholders' money, and it seems to me that their reaction to criticism is one of making Nardelli take the fall and while they avoid accountability," he adds.