When Frank Blake was chosen to replace Bob Nardelli as chairman and chief executive of Home Depot last month, some investors were unimpressed.

Critics complained that, as a company insider who served as Mr Nardelli's chief strategist and dealmaker, he was too attached to the status quo to bring the radical change many investors wanted.

A month later, doubters are being forced to reconsider after a series of bold steps by Mr Blake to reshape the company's management and to rebuild its battered credibility with investors.

His latest and most significant act came late on Monday. Home Depot awarded a seat on its board to Relational, an activist investment firm that has hounded the retailer about sluggish share price performance and executive compensation practices.

The decision to embrace Relational is in stark contrast to the belligerent attitude of Mr Nardelli to activist investors - symbolised by his refusal to answer questions from shareholders at Home Depot's fractious annual meeting last year.

Mr Blake appears to hope that, by seeking compromise with Relational, Home Depot can avoid another damaging proxy fight at this year's annual meeting and improve the board's relationship with shareholders.

Matthew Fassler, analyst at Goldman Sachs, said Home Depot could have resisted California-based Relational because the firm owns little more than 1 per cent of the company.

But he welcomed the "peaceful resolution to a potentially messy episode" as evidence of a new culture of improved governance and greater focus on shareholder value by the home improvement chain.

Mr Blake had already made an important concession to shareholders by agreeing a compensation package worth less than half the $24m a year that Mr Nardelli was paid and more closely linked to share price performance.

Steps have also been taken to overhaul management, criticised for being too rigid and authoritarian under Mr Nardelli, with four senior executives having departed since Mr Blake took charge.

While the new leadership style has been broadly welcomed, it remains to be seen whether Mr Blake is prepared to make the more fundamental strategic changes wanted by Relational and other investors.

Relational has called for Home Depot to consider new strategic options to increase shareholder value, including a possible leveraged buy-out by private equity firms and the disposal of its large wholesale division.

In return for its seat, Relational agreed to drop its campaign for an independent strategic review and vowed to support each slate of directors proposed by the board for the next three years.

But David Batchelder, Relational's nominee for the board, will be free to push for change from within when he takes his seat this month.

Willingness on the part of America's second-largest retailer to seek compromise with its fiercest shareholder critic underlines increasing influence of activist investors upon US companies.

In a joint statement with Ralph Whitworth, head of Relational, Mr Blake said the agreement would "give Home Depot the benefit of Relational's strategic business advice" without a distracting proxy battle.

Mr Batchelder commended Home Depot's board for "demonstrating accountability and responsibility" by responding to shareholder concerns: "We look forward to working together to further strengthen the business and deliver strong returns to all shareholders."