Activist: Why Ackman Failed vs. Target

Doesn't this sound more like how a banana republic runs itself, rather than one of the largest retailers in the world?

Another aspect of the vote that inflated the results in Target's favor were the broker non-votes. We are now close to the end of the 2009 proxy season. Thanks to some recent changes by the Securities and Exchange Commission this will be the final year in which brokers can take all the non-votes they receive from their underlying shareholder clients and, in one fell swoop, throw the votes to management's favor. This happens in 99% of the cases in which they vote.

The Wall Street Journal recently concluded that, in most large company votes, these broker non-votes going in support of management amount to 15% to 20% of the overall votes counted. These votes should count as abstentions, since the real owners of the shares haven't indicated a preference. Starting in 2010, thanks to the SEC, that will happen.

Let's assume Target received the "overwhelming" support of 70% of their shareholders. Assuming a normal amount of broker non-votes landing on Target's side of the ledger, it appears that the vote, if it had taken place under next year's rules, would have been up for grabs.

Scott Galloway, New York University Stern School professor and activist investor with Firebrand Partners, who also serves on the New York Times (NYT Quote) and Eddie Bauer (EBHI Quote) boards, sent a tweet out after the vote saying that it was "a blow to activists everywhere." For the reasons I've outlined, I'm more sanguine. However, I think it's important to understand where things went wrong in this campaign, as I certainly thought Ackman had adequately made his case sufficiently to win at least a couple of seats.