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Monday, August 06, 2007

Nardelli Gets Paid to Fail at Chrysler

Stop me if you've heard this one before: An executive with no record of success is recruited by the Old Boys Network to spearhead the "turnaround" of a failing company. The company hires him at an outrageous salary, with ridiculous benefits and a golden parachute worth not millions, but hundreds of millions.

The guy gets it all, including a fat $200+ million payout for nearly driving the company into the ground. Got the picture? Think it can't happen? Well that's exactly what happened to Home Depot when they hired and then jettisoned Robert Nardelli as their CEO.

Nardelli succeeded where none before him could have: He drove the company in a vertical arc pointing straight down -- and then walked out the door with a $200+ million reward package for doing so.

If you've been reading this blog for any length of time, you'll recognize this as yet another case of Caretaker Manager Syndrome, where companies who don't know any better hire CEO's who know even less. The classic Caretaker Manager scenario is a three year contract:

Year One: Get hired by suckers whose company is hemorrhaging cash and market share to the point that their desperation clouds their good business sense. The Caretaker uses this first year to make promises and "assess the situation."

Year Two: Caretaker begins sniffing out departments where he can "cut costs", drastically slashes budgets and tosses out the very employees who built the company. By cutting costs, he hopes to "restore profitability."

Year Three: The costs are cut, but the Caretaker has done nothing to increase revenues. While profits have increased, overall revenue is down and company infrastructure is devastated to the point where any hope of a real financial recovery is gone. But the Caretaker Manager doesn't care: His deal is done. And by the time the folks who hired him find out how much damage he's caused, it's too late. His recruiter has already landed him at another company where he can do the same damage all over again.

Don't look now, but it's happening to Chrysler. According to the Los Angeles Times:

In Nardelli, Chrysler is getting a former senior General Electric Co. executive, who was both credited with overhauling purchasing and technology systems at Home Depot and widely criticized for pay and severance packages seen as excessive.
"This is an interesting choice, and I'm somewhat perplexed by it," said Erich Merkle, an auto industry analyst with IRN Inc. "There are still things that Chrysler needs long term and I'm not sure Nardelli can provide them."


Yep. I'm just as perplexed at how anyone could hire a bumbler like Nardelli after his public debacle at Home Depot. But then, I keep forgetting. Corporate America doesn't pay executives to succeed. It pays them to fail. Which actually makes Nardelli the perfect man for the job, I suppose.

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