The barbarians are no longer at the gate -- they're in the boardroom. A growing number of companies are adding activist shareholders to their boards of directors, often times as a means of avoiding a nasty public fight. Now Home Depot appears to be embracing the trend. Consequently, investors can’t help but wonder if the the home builder is caving in or making a smart move.
Home Depot said Monday it is giving a seat on its board to an investment group that wants the company to consider, among other things, a leveraged buyout as a way to generate shareholder value.
The group, Relational Investors, had threatened a proxy fight over the home-improvement company's strategic direction, part of an undercurrent that led to the resignation of former Chief Executive Bob Nardelli.
Under an agreement announced Monday night, David H. Batchelder, a principal of Relational Investors, will join Home Depot's board Feb. 22, and Relational will to drop the proxy challenge, the two sides said.
“This to me is just a wonderful situation,” said Richard Moore, the state treasurer of North Carolina, today on "Street Signs." “The board and senior management of the company are actually listening to their shareholders … I think this will be a wonderful voice in the boardroom.”
"The activists often times, such as in this case, have invested an enormous amount of money in the company,” added Randy Lampert, managing director at Morgan Joseph and the head of Morgan Joseph’s Shareholder Activist Group.
(Relational Investors owns approximately 26.5 million shares, or about 1%, of Home Depot.)
“They’ve also invested an enormous amount of resources in analyzing the company and trying to determine the best course of action for change. Often times change designed to produce substantial returns for shareholders.”
Batchelder, also a director of Washington Group International and ConAgra Foods , commended the Home Depot board "for demonstrating accountability and responsibility in responding to, and collaborating with, shareholders like Relational."
“Diversity always, always creates a better product," concluded Moore. "That should be a win-win for everybody.”