Reflecting on the Puzzling William Ackman-led Proxy Fight at Target

Now that the results of the William Ackman-led proxy battle for control of the Target board of directors is all but complete – with Ackman’s slate receiving no seats – those who watched the battle closely are offering their reflections, including William Ackman himself.

Originally billed as a proxy battle that could foreshadow how incumbent boards would perform in proxy battles during the current economic maelstrom, some analysts are now questioning more strongly in hindsight why Ackman even went after Target in the first place.

Joe Nocera, who tracked the Ackman-Target proxy battle for the New York Times, had this to say in his summary of the Target annual meeting last week:

“From the start, Mr. Ackman’s decision to put Target in his cross hairs two years ago has been a real head-scratcher…

…Indeed, Mr. Ackman had become so successful that he was able to raise $2 billion for a fund that would essentially invest in only one company — and he would then go to work generating ideas to boost the stock price. The company this new fund invested in was Target…

…But Target? In July 2007, when Mr. Ackman began buying the stock, the shares were trading in the 60s, near the all-time high. More to the point, Target isn’t exactly a troubled company. Rather, it is just about the only big-box retailer that has figured out how to compete successfully against Wal-Mart. Its 10-year stock performance is better than Wal-Mart’s. Analysts swoon over it. Customers, 80 percent of them women, love it…

…Look, I have nothing against shareholder activists. Sometimes they can do a world of good — and up until now, Mr. Ackman has generally been one of the good guys. And I’m in favor of good corporate governance as much as the next guy. But corporate governance is not an end unto itself; it is supposed to help make the corporation run better. By waving the corporate governance flag, Mr. Ackman tried to disguise the harsher truth: his effort was deeply misguided, and a huge, expensive distraction for a company trying to struggle through a recession. Despite his high-minded rhetoric, he was doing exactly the kind of thing that gives hedge fund activists a bad name. He made a terrible mistake buying Target when its price was so high, and that’s what he couldn’t admit.”

Follow the link to read the full article by Joe Nocera entitled Investor Exits and Leaves Puzzlement.

For his part, Bill Ackman did not take this characterization of his intentions lightly.  Shortly after Nocera’s article had been posted, Ackman sent a 5,000-word email to Nocera that was posted at Nocera’s NY Times blog.  Among the shots fired back by Ackman:

“Mr. Nocera’s article is a plagiaristic summary of Target’s PR firm’s positioning in this proxy contest. The piece has no relationship to the facts and represents the pettiest form of hateful and destructive journalism. It is the kind of article that wins bonuses for PR firms, but exists forever in the ether to serve its destructive purposes. I am a big boy and I can take it, but it was quite a disappointment to read such an article written by such a reporter in such a publication…

…Despite Mr. Nocera’s accusation of disingenuousness, never in my speech or otherwise did I suggest that this proxy contest was not a means to an economic end on behalf of the investors I represent. We took a stake in Target two years ago not because it was a bad company or had bad management, but because we saw opportunities to improve a well-managed great company and create value for Pershing Square and other shareholders.”

Follow the link to read the full response to Joe Nocera’s article by Bill Ackman

Despite the obvious polarity of the opinions between Ackman and Nocera, they both touch on an issue that is taking on increasing importance in the corporate governance: shareholder rights in relation to the composition of boards of directors.

At a time when the SEC appears poised to pass a controversial proposal to “give shareholders who meet stock ownership thresholds the power to nominate a limited number of directors in corporate board elections,” the question is perhaps not so much whether or not Ackman chose the right target, but whether or not such shareholder initiative on a grander scale will lead to stronger boards and more effectively run companies.

Certainly, with all of the recent failures of boards to provide collapse-preventing leadership, we are in a time in which increasing levels of accountability for directors seem particularly relevant.  And though William Ackman may not have won his battle, and while his intentions can perhaps be questioned, is it not reasonable to assume that the Target board, despite the expense incurred to fight the battle with Ackman, will now be stronger for having been challenged – and ultimately emerging victorious?

This is one of the debates that will continue to rage on in 2009 and beyond.  Bill Ackman may have fallen short in having his slate of directors installed at Target, but his decision to go all out in his proxy fight at least had the effect of shining more light on an important topic that warrants further discussion moving forward.

Tags: corporate governance, Target, William Ackman