Frank Blake is Home Depot's 'calmer-in-chief'

ATLANTA — Soon after becoming the top executive at Home Depot in 2007, Frank Blake read to employees on a live TV broadcast from a copy of "Built from Scratch," the company biography written by founders Bernie Marcus and Arthur Blank.

The gesture didn't cost anything, move the stock price or ease the tough decisions Blake soon started making to downsize the Atlanta-based home-improvement retailer. But it set the tone for Blake's tenure as he has guided the company through the Great Recession and its savage effect on anything housing-related.

Blake's mellow, it's-not-about-me style helped him move Home Depot past the emotionally charged reign of predecessor Bob Nardelli and recapture some of the culture fostered by its founders. It also syncs with his push to get the company back to its service-oriented roots.

At the same time, Blake has found himself compelled to order painful steps to lay off thousands, sell an entire division, close poor-performing stores and restructure internally.

"You might be scratching your heads, going, 'This guy is too much of a nice guy,' " said Jeremy Garlington, a leadership consultant in Atlanta and managing partner of Point of View. "But from what he faced from a reputation point of view, he gets very high marks in righting the ship. He's been the calmer-in-chief for that company."

Employee morale and customer satisfaction are up, according to internal surveys. Home Depot's bottom line has remained solid, with a 2009 profit of $2.7 billion, even as it endured a $24.6 billion shrinkage in revenue during Blake's tenure this far.

On the other hand, Home Depot still lags archrival Lowe's and smaller hardware stores for customer service, external surveys say. And the housing market that fueled the chain's growth remains moribund, leaving much on Blake's plate.

Cultural healing

By most accounts, Home Depot needed cultural healing when Blake was named chief executive.

Nardelli wanted to modernize the chain, which grew dramatically along with the housing boom during his five years as CEO. But many employees believed he dismantled a culture in place since the founding, while customers griped about poor service.

One step Blake quickly took was to consult regularly with Marcus and Blank — and to make it known he does so. He regularly walks stores with them and has had them speak at the annual rally to motivate managers.

"Frank has been very observant about the symbols," said Joel Koblentz, senior partner with The Koblentz Group, an executive and board search firm in Atlanta. "There was a symbol that Bernie and Arthur had: That we're all associates and we're available. We're all in this boat together."

Blake has invoked the founders' ethos in other ways as well. He brought back Homer badges to award store employees for great service. In 2007, he began granting restricted stock to assistant store managers.

And he made it easier for store employees to win bonuses. Spending on such bonuses rose nearly sixfold to $146 million in fiscal 2009.

Blake, who declined to be interviewed, is fond of saying he's the least important employee because he doesn't work with customers every day. He brought back Home Depot's inverted pyramid, on which "CEO" is at the bottom and "customers" are at the top.

Every Sunday he hand-writes dozens of thank-you cards, most of them to store employees who helped customers solve problems.

He has a monthly live call-in TV show, called InBox Live, broadcast internally to Home Depot stores. Any associate in any store can ask him questions, and they do. The questions, and his answers, are unscripted.

Communication skills

That type of communication makes a successful business culture, said Hersh Shefrin, a professor of behavioral finance at Santa Clara University in California. He studies corporate culture and the psychological traits that lead business leaders to make good, or bad, decisions.

"It makes a difference who is at the top because it sets the tone for the company," Shefrin said.

He believes Blake's leadership style allows him to hear the warning signs and move decisively to address them.

One such moment came in Blake's first year as CEO when he sold HD Supply, which the company had created as part of Nardelli's strategy to move into heavy-duty supply to construction firms and governments.

Blake decided the $12 billion unit distracted from Home Depot's flagship stores. As the housing bubble burst he virtually stopped U.S. store growth, closed the higher-end EXPO division and laid off more than 10,000 employees.

One top Home Depot executive said Blake's leadership is effective because it is "genuine."

"He has a high degree of humility," said Marvin Ellison, Home Depot's executive vice president of U.S. stores. "It's not just his words but it's his actions. Also, associates love him."

A store manager, who goes by MNGophers29 in non-Home Depot-sponsored chat room The Orange Blood Bank, wrote in April: "Frank is very candid. If he thinks something (stinks), he will tell you. If he believes in something, he will explain why we are doing it. He has conviction and will stand up for what he believes, but also knows what it means to listen."

Yet other employees grouse in the chat room that while they generally like Blake's ideas, they aren't always carried out well at the store level. And store visits by headquarters management can tend to be "dog and pony" shows when they aren't a surprise, some complain.

Skimpy retail background

Blake's ascendancy to CEO wasn't universally hailed at the time. He had little retail experience, and ties to Nardelli. Both worked together at General Electric, and Nardelli recruited Blake to Home Depot.

But Blake quickly set himself apart with his low-key and unassuming style — a style that stood in stark contrast to the stereotype of a hard-edge turnaround artist such as Al Dunlap, the Sunbeam CEO who earned the sobriquet "Chainsaw Al" while at the appliance maker.

Blake rarely wears a tie to work and drinks Dunkin' Donuts coffee he gets at a Home Depot store on his way to work.

Garlington compared Blake to another attorney-turned-CEO who found success, Darwin Smith at Kimberly-Clark. "Lawyers are classically trained in conflict and how to navigate deep-rooted issues that have human resources and financial implications," Garlington said.

Home Depot said a 2009 survey showed associates' morale improved over 2007. Customers are happier too, according to Home Depot's weekly customer surveys. About 100,000 shoppers per week respond to Home Depot's online survey, which asks about the quality of customer service, merchandise, the store, etc.

However, recent J.D. Power and Associate results ranked Home Depot last in both home-improvement and appliance sales for customer satisfaction. Even though Home Depot has shown progress in the home-improvement category, the study said, it remained at the bottom due to "weak customer service relative to other retailers."

This "has been Home Depot's greatest obstacle to keeping pace with the rest of the industry," said the study. Meanwhile, "2009 marks the eighth consecutive time that Lowe's has bested its larger rival in customer satisfaction."

Where now?

With his tenure so far marked mostly by contraction, some wonder if Blake, 61, can get Home Depot growing again.

"Generally the guy who comes in as calmer-in-chief and rights the ship isn't the guy who leads the next wave of growth," Garlington said.

While no one suggests Blake will retire soon, Home Depot is grooming at least three internal candidates, said Koblentz: Carol Tome, chief financial officer, Craig Menear, executive vice president of merchandising, and Ellison, the head of U.S. stores.

Koblentz suggested Blake is another example of why "intellectual CEOs" are more in demand than "imperial CEOs" of the past. He likened Blake to other successful, low-key CEOs that once led Atlanta corporate giants, including Kent "Oz" Nelson and Mike Eskew at UPS and David Garrett at Delta Air Lines.

"What makes Frank Blake adept," Koblentz said, "is that he brought a sensibility without ego to Home Depot."