An internal investigation of stock option practices at Home Depot, the second-largest US retailer, has discovered $200m of unrecorded expenses related to the backdating of option grants during its 26 years as a public company.
Almost all the backdating occurred during the 1980s and 1990s, when Home Depot was one of America’s fastest growing retailers, expanding from a three-store start-up in 1979 to a $45bn nationwide chain in 2000.
The investigation, by a sub-committee of Home Depot’s board, concluded that no intentional backdating had taken place since Bob Nardelli, the current chief executive, took charge in 2000, and cleared all current management and directors of wrongdoing.
Home Depot launched the inquiry in August after becoming the largest US company ensnared in the scandal over backdating of stock options to increase the potential value of employees’ compensation packages.
More than 160 companies have acknowledged that they are either facing regulatory inquiries or carrying out internal investigations of the way they handed out stock options. Home Depot said the unrecorded expenses would not have a material impact on its financial statements.
The company said its billionaire founders, Bernie Marcus and Arthur Blank, were not among the recipients of backdated stock options. But the investigation has cast fresh light on a period when Home Depot was known for its free-wheeling, entrepreneurial culture.
Mr Nardelli, a former executive at General Electric, was hired to replace Mr Blank in 2000 after narrowly losing out in the battle to succeed Jack Welch as chairman of GE.
While he has faced criticism for his hefty compensation package, Mr Nardelli has received credit for taming Home Depot’s “cowboy culture” and injecting GE-style discipline into its management. Home Depot’s investigation found that, before 2000, the stated grant date for stock options was “routinely earlier than the actual date on which the grants were approved”.
“In almost every instance, the stock price on the apparent approval date was higher than the price on the stated grant date,” the report said.
Backdating is not necessarily illegal but the practice has forced several companies to restate earnings and sparked probes by the Securities and Exchange Commission and the Justice Department.