Home Depot ( HD) 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.

Taking Nardelli's place at the company's helm is one those directors, Vice Chairman and Executive Vice President Frank Blake. Meanwhile, the company said its board voted to waive the retirement age of 72 for its directors, clearing the way for three of them -- John Clendenin, Claudio Gonzales and Milledge Hart -- to stand for re-election at this year's shareholder meeting.

"This action was taken to retain these directors' experience, and deep knowledge of the company's business and key personnel to help ensure a smooth management transition," said Home Depot in a statement. "This action is temporary and effective for one year."

It's unclear whether the change will affect the tenure of investment banker and Home Depot director Kenneth Langone, who is over 70 and has been widely blamed for pushing through a huge pay package for former New York Stock Exchange ( NYX) Chairman Dick Grasso. The company couldn't be reached for further comment.

In addition to his compensation, Nardelli was criticized for being unresponsive to shareholder concerns expressed at Home Depot's investor meeting in June, where none of the board members were present. Ultimately, the company apologized for the way the meeting was conducted, but it defended its track record by pointing to its fundamental performance.

While its shares declined over the previous five years, Home Depot nearly doubled its sales to $81.5 billion from $47.5 billion. During that time, its annual earnings climbed from $1.10 a share to $2.72 a share in 2005. It returned nearly $13 billion, or approximately 59% of its cumulative earnings, to shareholders in the form of dividends and share repurchases.

But recently, its sales have lagged as the weakness in the U.S. housing market spread to the home improvement retail business. In November, it reported a 3% drop in third-quarter profits, missing Wall Street estimates. The company also lowered its forecast for the all-important fourth quarter, citing continued weakness due to a housing slowdown that Nardelli said "came faster and deeper" than he had expected.

Its revenue also missed expectations for the quarter, while its same-store sales fell 5.1%.

The company has been roundly criticized for cutting back on service in its stores in an attempt to cut costs, allowing Lowe's ( LOW), its closest competitor, to gain market share.

With top-line weakness coinciding with all the public criticism about corporate governance issues, the company has become the subject of leveraged buyout rumors and shareholder activism.

Sanford C. Bernstein & Co. analyst Colin McGranahan said in a note to clients Wednesday that Nardelli's ouster was "likely tied to a move to defend the company from activist shareholders."

Relational Investors, a San Diego-based investment fund with a history of agitating for better corporate governance, has gone public demanding changes at the retailer and threatening a proxy fight.

On Tuesday, New York City Comptroller William C. Thompson Jr., who makes investment decisions for the pensions of the public workers of the city, called on Home Depot to allow shareholders to ratify compensation packages for senior executives through a nonbinding vote.

"Institutional investors are fed up with the unbridled excesses of executive compensation in the U.S.," said Thompson in a release. A spokesman for his office said Wednesday that Nardelli's departure from Home Depot doesn't change the comptroller's position. Collectively, New York City workers own over 6 million shares of Home Depot.

Richard Ferlauto, director of pension and benefits policy with the American Federation of State, County and Municipal Employees says that "there are probably some larger financial institutions that have sold off Home Depot shares or are threatening to, and that's what might have pushed Nardelli out."

Ferlauto says his organization, which manages pension investments for government employees, owns 23,000 shares of Home Depot. He led public protests against Nardelli and the retailer's board at the controversial meeting last June, and he says Wednesday's announcement does little to respond to his criticism.

"Nardelli's departure is a step in the right direction, but to really finish the job, we have to put in place a board of directors that is much more accountable to shareholders," says Ferlauto. "Our fight will continue until that happens."

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