Home Depot Agrees to Corporate Governance Reforms

April 7, 2008 (PLANSPONSOR.com) - Home Depot has agreed to pay $6 million in cash and $8.5 million in stock to cover legal fees and expenses and adopt an array of corporate governance reforms to settle combined shareholders' suits filed in Fulton County Superior Court and in U.S. District Court.

According to the Fulton County Daily Report, the company agreed to 13 corporate governance changes, which include:

  • Instituting “multiple changes” to the board of directors;
  • Ensuring that two-thirds of board members are independent, and that five key committees – including the audit, nominating, corporate governance, leadership development, and compensation committees – be composed only of independent members;
  • Allowing shareholder questions at meetings;
  • Requiring that candidates for uncontested board seats receive a majority of votes cast;
  • Imposing safeguards on the removal procedures for directors;
  • Insituting measures to prohibit the abuse of backdating and RTV policies; and
  • Allowing large or group shareholders to nominate directors.

A settlement hearing to finalize the order and allow any other documents or objections from Home Depot shareholders to be filed will be scheduled within 60 days. The news report said the agreement includes a provision that, in case the settlement deadline is not met or the plaintiff’s attorney fees are reduced or modified on appeal, the money will be refunded to the company.

The suits were filed after revelations that the company’s board of directors had for 19 years backdated the stock options granted to executives (See Home Depot Discloses 19 Years of Options Backdating ); fraudulently manipulated the company’s “return to vendor” (RTV) program, under which suppliers are billed for supposedly damaged or returned merchandise; and provided hugely disproportionate payments and benefits to former board chairman and CEO Robert L. Nardelli (See Corporate Excessive Pay Activists Win Strong Home Depot Support ). The suits also accused founding director Kenneth G. Langone of packing the board with corporate friends who lavished each other with benefits.

The suits charged that the company falsified reports provided to federal regulators, and shareholders suffered multimillion-dollar losses.