Minneapolis Star Tribune Article: Gregg Steinhafel has faced up to many challenges as Target CEO
This morning my article on the turnaround at Target ran in the Minneapolis Star-Tribune. Here’s the article for those of you who don’t see this newspaper. – Bill
It isn’t easy being CEO of a public company. The glamour days of CEO rock stars and high-flying stock prices are gone. Companies are under constant scrutiny by activist investors, aggressive regulators, aggrieved customers and aggravated employees. As the public face of their companies, CEOs bear the brunt of that criticism.
Today the Twin Cities are blessed with a bumper crop of CEOs — the best group in my 40 years here. From U.S. Bancorp’s Richard Davis, Cargill’s Greg Page, Best Buy’s Brian Dunn and 3M’s George Buckley to General Mills’ Ken Powell, Medtronic’s Bill Hawkins and Ecolab’s Doug Baker, these CEOs are building great enterprises and leadership in their industries.
But none has faced the challenges that awaited Target CEO Gregg Steinhafel when he stepped into the shoes of predecessor Bob Ulrich. Serving on Target’s board from 1993 to 2005, I watched Ulrich transform the company from a multiformat retailer into a focused mass merchant. Thanks to Steinhafel’s merchandising genius, Target has found a sustainable niche a cut above Wal-Mart with creative offerings others can’t match in value.
Steinhafel became Target’s CEO in May 2008, just as the economy was sinking into recession. Hard times caused shoppers to be more frugal. Wal-Mart attacked Target’s core merchandising business.
More recently, Target survived what many consider a faux pas in supporting MN Forward’s pro-jobs campaign. Funds wound up supporting gubernatorial candidate Tom Emmer, who has taken anti-gay policy positions. GLBT organizations feared Target was abandoning its pro-gay stands.
Steinhafel had barely moved into the CEO’s chair when Target’s strategy was challenged by activist investor William Ackman. Buying up 7.8 percent of Target shares at retail’s peak in July 2007, Ackman watched his holdings slide as retail stocks fell.
Ackman demanded that Target spin off its credit cards. After lengthy discussions, Target’s board sold half of its card operations but retained management control. Ackman initially congratulated Steinhafel on the move, but later demanded that Target sell off the remaining 50 percent. Steinhafel and the board refused.
Next Ackman proposed that Target transfer the land and buildings that house Target stores into a real estate investment trust. That would have increased Target’s operating costs by $1.4 billion and split control over its real estate and merchandising arms. Steinhafel and the board were steadfast in rejecting Ackman’s financial engineering ploys.
Ackman responded with a proxy contest to replace four Target directors with his slate of five directors. While Target took the high road, Ackman went for the jugular, attacking long-standing directors like Wells Fargo Chair Richard Kovacevich for being “complacent.” Neither Steinhafel nor the board flinched.
Instead of challenging Ackman, Steinhafel met with Target’s major shareholders.
Before the votes were counted at Target’s 2009 annual meeting, Ackman gave a speech invoking the likes of John F. Kennedy and Martin Luther King. Shareholders apparently didn’t buy his act. More than 70 percent of votes were cast for the Target directors.
Always classy, Steinhafel shook Ackman’s hand and said the proxy battle provided him the opportunity to spend extra time with Target shareholders.
The criticisms of Target’s contributions to MN Forward were perhaps more painful than either Ackman’s attacks or Wal-Mart challenges. Suggestions that Target was somehow “anti-gay” cut deeply. The worst one could say about this incident is that Steinhafel may have been naive. But he admitted his mistake and reaffirmed the company’s long-standing support for gay rights. As he told me, “Target has the most gay-friendly policies in this state.”
Despite these challenges, Steinhafel never took his focus off merchandising. In the past 18 months, he has led a sharp turnaround from shrinking same-store sales during the recession. Shareholders have responded by driving up Target shares from lows of $26 in 2008 to $59 last week.
For all the challenges it has faced, Target has never lost sight of pleasing its customers, nor has it wavered in its commitment to give 5 percent of earnings to philanthropic causes. Most important of all, Target created 30,000 jobs in Minnesota in the last 30 years.
For CEOs of major companies like Target, there will always be challenges, disappointments, and missteps. The bottom-line measurement is, did you create sustainable value for your customers, employees, shareholders and your communities? The record is clear: Steinhafel is excelling in all four categories.
Bill George serves on the boards of Exxon Mobil and Goldman Sachs and previously served on the Novartis and Target boards. His e-mail is bill@bpgeorge.com.