Activist: Why Ackman Failed vs. Target

4. The worse the stock performance track record of a company is the easier it is for an activist to make the case for change. Joe Nocera of the New York Times took Ackman to task for his Target activist campaign. Nocera questioned why Ackman would go after Target in the first place when the company's 10-year stock performance was actually better than Wal-Mart's. Not every poorly-performing stock makes an attractive activist target, but it's clear that poor performance is a necessary condition for any activist to win over broad support.

Under the SEC's 2010 proxy rules, just as many Target shareholders agreed with Ackman that Target's performance should have been better in recent years as other shareholders who would have sided with Nocera that all this was a waste of time. Yet, as Ackman made constant suggestions that Target should be more like Wal-Mart, it would have helped him more if there was clearly a stark difference between the stock performances of the two companies over some time. It wasn't compelling enough.

I am heartened by how many shareholders last week voted for an activist campaign that, although far from perfect, would have improved on the status quo at a sleepy board. Ackman made mistakes in this campaign that lost him the trust of the long-term holders of the stock. Even still, the final tally likely will show a very close contest.

And next year's new rules from the SEC will mean that investors like Ackman will no longer have to pay $15 million to run proxy contests. Target's vote is more likely to be an early warning of future activist successes than a death knell.