Activist Investor Presses Target to Keep Outgoing CEO Out of Board Chair Slot

The Target flagship store in Edina, Minn. (Ben Brewer/Bloomberg)

Key Points

• An activist investor group, The Accountability Board, proposes Target’s board chair be an independent director, not outgoing CEO Brian Cornell.
• Target’s stock has decreased by 41% over the past three years, with an additional 15% drop since the new CEO announcement in August.
• The Accountability Board argues an independent chair improves oversight.

Target’s lackluster performance has drawn the attention of an activist investor who says the retailer should keep outgoing CEO Brian Cornell from leading its board of directors.

Under Target’s current succession plan, Cornell will become board chair after stepping down as chief executive in February. Michael Fiddelke, Target’s chief operating officer, will succeed him as CEO, the company said in late August.

The Accountability Board, an activist investor group focused on environmental, social, and governance issues, wants Target to change the plan. The firm has filed a shareholder proposal that would require Target’s board chair to be an independent director, meaning that the person hasn’t been an executive at the company in the past three years.

The proposal wouldn’t require Cornell to stop serving on the board altogether, but it would keep him from heading it. It matters because chairs usually play a bigger role than other directors in setting the agenda for meetings and advising the CEO.

“We have received this shareholder proposal and the board will consider it in conjunction with planning for our 2026 annual shareholders meeting,” a Target spokesman said. “We always welcome shareholder input and feedback.”

Matt Prescott, president of The Accountability Board, argues that having a current or former executive as chair of the board makes it harder for the board to oversee management effectively because oversight and management can become entangled. Having an executive as chair can make it hard for a board to challenge management decisions.

Proxy advisory firms Glass Lewis and ISS often support shareholder proposals for independent chairs. They cite research suggesting that companies where those roles are separated tend to outperform those in which one person does both jobs.

Separating the roles has been gaining traction. While in 2014, 47% of S&P 500 companies had separate chairs and CEOs, the share had risen to 60% by 2024, according to the latest Spencer Stuart Board Index.

The Accountability Board submitted a similar proposal ahead of Target’s 2024 shareholder meeting, pushing for the company to separate the roles, both of which were being filled by Cornell.

Given the slate of challenges Target has since faced, “the need for stronger independent Board leadership has been painfully clear,” The Accountability Board’s proposal reads. In the past three years, Target stock has shed 41% of its value as the company grapples with declining sales and foot traffic, shrinking profits, and a steady deterioration in the store experience, it says.

Fiddelke, the incoming CEO, has been tasked with righting the ship. But because Wall Street had wanted an external hire, he has faced an icy reception. Target stock is down 15% since the announcement in late August. The shares closed 0.6% lower on Wednesday.

“Investors didn’t seem to react favorably to the news that the guy who ran operations during Target’s decline was being promoted to CEO and that he would report to the very same board chair who was at the helm of the company during the decline,” Prescott told Barron’s.

An independent director would add a “firewall of independence” between management and the board, he added.

It is unclear whether the motion will pass. The 2024 proposal garnered support of roughly 30%, in line with the average for similar proposals that proxy season, according to Harvard Law School’s forum on corporate governance.

At the time, Target’s board recommended shareholders vote against the proposal, arguing in its proxy statement that its current leadership structure provided “effective, independent oversight,” and that any decision to change it would be based on the company’s specific circumstances.

The company eventually did separate the roles by naming Fiddelke CEO but not board chair, which Prescott described as a positive step. The company “just didn’t go far enough,” he said.

Write to Sabrina Escobar at sabrina.escobar@barrons.com