Pershing Square takes aim at Target's corporate governance practices

By Lisa Kerner

Charlotte, N.C., May 22 - Pershing Square Capital Management, LP announced that Target Corp.'s board failed to comply with its governance guidelines in connection with the recent changes in the principal employment of two of its incumbent directors, Solomon Trujillo and Anne Mulcahy.

According to Pershing Square, Target has a governance guideline that states that "any director (including management directors) whose affiliation or position of principal employment changes substantially after election to the board will be expected to offer to tender his or her resignation as a director promptly to the board."

Trujillo, who had been expected to retire from Telstra Corp. Ltd. on June 30, was removed on May 14. He has served on Target's board for 15 years, Pershing Square said.

The investor did not comment specifically on Mulcahy.

Target said the guideline that applies to the pair's situation is number 22, not 21 as Pershing Square believes.

Pershing Square said the fact that a different provision in the guidelines gives the board the discretion to permit a "retiring" director to serve an additional three years does not relieve the director's obligation to resign, nor the board's obligation to consider such the resignation.

Target is breaching its governance guidelines "to prolong the tenure of incumbent directors and disenfranchise shareholders' opportunity to add highly qualified new directors to its board," said Pershing Square.

Proxy firms split

The Nominees for Shareholder Choice, led by Pershing Square, said four proxy advisory firms have noted deficiencies in Target Corp.'s corporate governance practices.

Pershing Square urged Target shareholders to vote for the Nominees for Shareholder Choice using the gold proxy card and against Target's proposal to limit the board of directors to 12 members.

Target will hold its annual meeting of shareholders on May 28.

The shareholder group wants Target shareholders to vote for the election of Jim Donald, Richard Vague, Michael Ashner, Ron Gilson and Bill Ackman.

As previously reported, Glass, Lewis & Co. recommended that the company's shareholders vote for all four of Target's nominees - Mary N. Dillon, Richard M. Kovacevich, George W. Tamke and Trujillo.

RiskMetrics Group/ISS recommended that Target shareholders vote Pershing Square's gold proxy card, reject Target's proposal to reduce the board to 12 members and elect Ackman and Donald.

Proxy Governance, Inc. recommended that Target shareholders vote on Pershing Square's proxy card to elect Donald and Ashner to the board of directors.

Egan-Jones, recommended that Target shareholders withhold votes from two of Target's nominees, Kovacevich and Tamke.

Target chairman, president and chief executive officer Gregg Steinhafel has sent several letters to the Minneapolis-based retailer's shareholders in recent weeks also seeking their support on May 28.

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