CEO Frank Blake talks about his four-year tenure at Home Depot
By Maria Saporta
Friday, March 11, 2011
It was Jan. 3, 2007. Frank Blake, a relatively unknown executive at The Home Depot Inc., had just been named CEO following the sudden departure of the controversial Bob Nardelli.
Blake’s appointment caught many by surprise. Although he had been promoted to Home Depot’s vice chairman several months before, Blake had little retail experience and had never run a major public company.
Even Blake was caught off guard. When board members told him he had the job running the highest-ranked Fortune 500 company in Georgia, Blake asked them if they were sure about their decision.
“It was not something I expected or had been targeting for my career,” Blake said in a wide-ranging March 7 interview with Atlanta Business Chronicle, in which he reflected on his four-year, two-month tenure as CEO of the world’s largest home improvement retailer during the worst U.S. housing slump in decades.
For most of his tenure as CEO, Blake has been handling one crisis after another — mainly due to factors outside of his control.
At the time he was named CEO, analysts openly wondered why Blake had not been named temporary or interim CEO while Home Depot’s board sought a permanent CEO.
“It was unusual circumstances,” Blake said. But he added that he was “slightly oblivious” to those who questioned his appointment. “It never occurred to me I was interim. The board never treated me that way. I never treated the job that way.”
In fact, Blake set the tone and tempo of his tenure as Home Depot’s CEO in his first couple of days on the job.
“The best advice, period, was given to me the first day on the job from my wife, Liz: ‘Don’t forget, it’s not about you,’ ” Blake recalled. Unlike his predecessor, Blake has been an understated, humble executive who has no problem sharing the spotlight with others.
On his first afternoon as CEO, Blake reached out to Home Depot’s co-founders — Bernie Marcus and Arthur Blank. Both had become estranged from the home improvement company they had launched in Atlanta in 1978.
As Blake said, that was a “no-brainer.” Marcus and Blank had created Home Depot’s culture, and the company was in dire need to recapture that culture.
“It’s hard to get people to fully understand how Bernie and Arthur are viewed in the company. It’s with reverence,” Blake said. “Walking a store with them — it’s like being with rock stars.”
After calling the founders, Blake then put together his own “to do” list.
“Within the first three days, I put on a whiteboard — this is what I’m going to do short-term, medium-term, long-term to restore Home Depot and re-create a great company,” Blake said.
That whiteboard still exists today — serving as a reminder for what Blake has accomplished and all that’s left to do. It is a list that he continues to share with board members every fall at their strategic review. Some items have check marks, some have half-check marks and others are still undone.
One of the goals on that original list was to focus on Home Depot’s core business.
“We did that with the sale of HD Supply,” Blake said, referring to the wholesale distribution company spun off by Home Depot in 2007. “That was on the near-term list. On the farther-out list, where we still have half of a check at best, is that we want to create a relationship with our customer where it’s really unthinkable for the customer to go to a competitor because we have developed a stickiness with the customer.”
In other words, Blake is constantly grading his performance as Home Depot’s CEO. “I don’t know whether I’m a harsh or easy grader,” Blake said with a smile.
But Blake quickly deflected his contributions by giving the credit to others — be it the co-founders or the 300,000 Home Depot associates, especially his executive team.
“The truth of the matter is if it had been my job to create the culture at Home Depot in 2007, I’m pretty sure I would not be here today,” Blake said at a recent talk to Georgia Tech business students. “The benefit I had was that the culture at Home Depot set by our founders was a pretty strong culture. We actually wanted to reclaim the cultural distinction of business.”
It didn’t take long for Blake to realize that the culture had been dormant but had not died thanks to the number of longtime Home Depot associates.
“The average store manager’s tenure is 14 years,” Blake said, pointing out those people dated back to the “Bernie-Arthur” era. “Almost 75 percent of them started out as hourly associates. And every single one of our division presidents started out as hourly associates.”
Having associates who have grown up in the retail business has been a good counterbalance to Blake’s non-retail experience.
Nardelli hired Blake in 2002 as Home Depot’s executive vice president of business development and corporate operations. Before that, Blake had worked for Nardelli at GE Power Systems, when Nardelli was CEO and Blake was general counsel.
Blake also had served in the public sector as general counsel for the U.S. Environmental Protection Agency; as deputy secretary for the Department of Energy; and as deputy counsel to Vice President George H.W. Bush.
“I remember sitting down with our analysts and saying: ‘I don’t want a lot of people working for me with résumés like mine,’ ” Blake said. “It was important to get people who understood the retail business.”
To make matters more complicated, almost as soon as Blake became CEO, the booming housing sector took a nosedive.
“For the housing market, 2007 started out bad and just stayed bad through 2009,” Blake said, adding that 2010 was his first year as CEO with positive store-to-store comparisons. “There was a lot of discussion in 2007. No one knew how bad it was going to be. Nobody thought the correction would take this long. The housing market still hasn’t gotten any better.”
One barometer Home Depot (NYSE: HD) has used to measure its industry’s business climate is the percentage of the gross domestic product that has been spent on housing.
“In mid-2006, it got to the highest it’s ever been at 6.25 percent,” Blake said. “When I started it was 5.5 percent. The 60-year average was 4.75 percent, and the previous 60-year low was 3.2 percent. We now are at 2.25 percent.”
Blake went on to say that in 2007, the company thought the economy would get better in 2008, but then Lehman Brothers went bankrupt that September — and the wheels came off the bus, Blake said.
Throughout the economic ups and downs, Blake said, the company’s directors have been steadfast in their support.
“One of the things the board is great at is pulling me up and helping me look out over the horizon on where the business is going over the next five to 10 years,” Blake said. “When you are bouncing down the side of a mountain, you are more focused on grabbing a branch than gazing over the valley.”
In describing himself, Blake said he is “a congenital worrier.” One of his favorite quotes came from filmmaker Steven Spielberg, who said: “I worry everything to death, and I hope everything to life.” While Blake said he doesn’t totally understand the second part of that quote, he said “the worry part” fits him.
And the retail business provides endless opportunities for worry. Home Depot is open every day of the year except two — Thanksgiving and Christmas.
“This is a hard business,” Blake said. “It definitely has been all-encompassing. I don’t know if it’s ever a job that allows for a lot of great balance. Wow, this requires a lot of time.”
Blake said he has been fortunate to have “a terrific team” of executives and his experience as CEO has helped him realize the value of the people around him and become “even more appreciative of the job that they’ve done.”
Three executives Blake referenced several times were Carol Tomé, chief financial officer and executive vice president of corporate services; Craig Menear, executive vice president of merchandising; and Marvin Ellison, executive vice president of U.S. stores. Analysts view those three executives as potential internal candidates to succeed Blake when he steps down.
Meanwhile, Blake, 61, does not appear to be in a hurry to retire, and the board obviously has supported him as the company went from $79 billion in sales in fiscal year 2006 to a low of $66.2 billion in 2009. Last year, the business began to turn around with $68 billion in sales.
For when he does retire, Blake has been keeping a “moron list” — issues that would give his successor the right to call him a moron.
“I keep most of my moron list to myself,” Blake said. “The easiest one on the list is that 4 percent of our customers drive 30 percent of our sales, and 0.4 percent account for almost half of that. I should be writing birthday cards to those people. Too often we don’t even know who they are. If I were stepping into my shoes, I’d say: ‘Can you believe this?’ ”
One advantage of having a “moron list” is that Blake can try to fix those problems. The company is now trying to find out more data about its top customers and ways that they can feel appreciated.
When asked about when he might retire, Blake dodged the question. “It’s the board’s decision. It’s their call,” Blake said, while acknowledging that “life is unpredictable” and that succession is a “natural rhythm” for a company. “It’s a good thing to bring in new eyes.”
Meanwhile, Blake and his wife, Liz, who is general counsel for Habitat for Humanity International, are growing roots in Atlanta. Unlike the chatter of five or six years ago, there’s not even a whisper that Home Depot could move its corporate headquarters to another state.
“Genuinely, Atlanta has been one of the real plusses,” said Blake, adding that the relationship between Atlanta and Home Depot is “solid.”
Compared to other cities he’s been where it’s hard to get the mayor’s attention, Blake said the business community and political sector are engaged with each other. He also said he has been “very impressed” with both former Mayor Shirley Franklin and current Mayor Kasim Reed.
It also is easy to recruit people to move to Atlanta, especially when compared to GE’s headquarters of Schenectady, N.Y.
“My daughter now lives here,” Blake said. “And two of Liz’s sons live here. It very much does feel like home.”