Lowe's brand-new CEO spent his first week eliminating several high-level positions. But was it a smart move, or were he and the Lowe's board driven by simple envy?

What's the first thing you do when you land a job as the CEO of a major retail corporation with about $69 billion in annual sales and rapidly rising profits of $3.4 billion? Most people might think something like, "If it ain't broke, don't fix it." But Marvin Ellison, after being Lowe's CEO for all of seven days, took a very different approach. He eliminated four of the most high-profile positions in the C-suite, beginning with chief operating officer Richard Maltsbarger.

By just about every measure, Lowe's was doing just fine before the shakeup. Not only were sales and profits up, several Wall Street analysts made "buy" recommendations on the company, and its share price is $99.58, up from $76.43 a year ago. Some new leaders in Ellison's position might decide that a time when everything is already going great is the wrong moment to aggressively clean house. They might even want to reward these top executives for a job very well done.

Not Ellison. In addition to the COO position, he has eliminated the roles of chief customer officer, chief development officer, and corporate administration executive. In place of these eliminated positions, he's created some new executive vice president--not "C-suite"--roles, including EVP Stores, and EVP Supply Chain, both of which he has yet to fill, and EVP Merchandising, a job taken by William Boltz, former CEO of tool company Chervon.

Why these big changes? "We have taken a fresh look at our organizational structure and are realigning our leadership team to improve our focus, better leverage Lowe's omni-channel capabilities, and deliver increased value for our customers, associates, and shareholders," Ellison said in a statement released by Lowe's. The overall purpose of the changes is to "drive operational excellence," according to the company. And indeed, eliminating a chief customer officer and adding high-level supply chain and store executives suggests that Ellison's plan is to focus on operations.

But why make these sweeping changes now, when everything seems to be going so very well? It may be that this is simply what Ellison does. In his last role, as CEO of J.C. Penney, he instituted a similar top-level shakeup. The difference is that Penney was a company in deep financial trouble at the time he took over, so a wholesale shakeup that eliminated several very large salaries was probably an excellent idea. He left that company in much better financial shape than he found it, having retired $1.4 billion in debt and improved its revolving credit, according to J.C. Penney.

According to a Lowe's spokesperson, this is what often happens when a new leader takes over. "Any time you have a new CEO on board, you're going to look at restructuring the leadership team. That's the reason for the timing."

But then there's the simplest and weakest of reasons: human envy. Bringing in $69 billion in revenues is great by every measure except one--when you compare it to Home Depot's 2017 revenues of $101 billion. Wall Street analysts and maybe the Lowe's board are obsessed with pitting the two companies against each other--the Motley Fool has even produced a lovely chart showing how both companies have seen dramatically increased profits since 2010--but Home Depot's profits have risen more quickly and consistently. Forbes's Warren Shoulberg described Lowe's as "the perennial also-ran to Depot." That summarizes Wall Street's view of the company. 

And so it may be that Lowe's leadership views its considerable financial success the way a child might who was pleased with an allowance before learning that a classmate was getting much more. In that situation, the child's parents might say something like, "Stop comparing yourself to others--it will only bring you unhappiness." But Lowe's leadership is made up of adults with real power. And so some highly successful executives are now out of a job.

Published on: Jul 16, 2018
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