Target Investors Should Replace Seven Directors, ISS Says

Target Corp. (TGT) shareholders should vote against seven of the company’s 10 board members because they failed to do enough to prevent the retailer’s holiday-season data breach, a proxy advisory firm said.

Members of the board’s audit and corporate-responsibility committees should be voted out because they failed to recognize the potential threats to the company’s data, Institutional Shareholder Services Inc. recommended in a report yesterday.

The second-largest U.S. discount retailer has been trying to regain its footing as it copes with the theft of 40 million payment-card numbers by hackers during the crucial holiday shopping season. The company has since hired a new chief information officer and ousted its chief executive officer.

“The data breach revealed that the company was inadequately prepared for the significant risks of doing business in today’s electronic-commerce environment,” Rockville, Maryland-based ISS said.

Target “views risk oversight as a full board responsibility” and believes the company is ranked among the best in retail in data security, Eric Hausman, a Target spokesman, said today in an e-mailed statement.

Even so, the board “is re-examining the entire risk oversight structure, including senior management roles and reporting structures, as well as board oversight,” in the wake of the breach, Hausman said.

Shareholders may not be inclined to support the ISS recommendations, Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, said today in a phone interview.

‘Too Far’

“I think this one’s a little too far out there to get a lot of support,” he said. “I don’t know that the board members had much to do with” the breach. He recommends buying the shares.

ISS also recommended that Target split its chairman and CEO roles, a proposal that has failed to gain traction with investors at many other companies, said Yarbrough, who added that he supports that measure.

Target hasn’t made a decision about separating those positions and will evaluate its management structure after it selects a new CEO, Hausman said. Former CEO Gregg Steinhafel resigned earlier this month.

Separately, Target said today that it was forming a digital advisory council to improve its online and in-store technology operations and will hire 50 new software engineers this year. The council comprises Orbitz Worldwide Inc. Chief Technology Officer Roger Liew, OkCupid CEO and founder Sam Yagan, former Google analytics head Amy Chang and Bain Capital Ventures Managing Director Ajay Agarwal.

Target’s stock fell 0.8 percent to $55.34 at the close today in New York. Shares of the Minneapolis-based company have slid 13 percent this year, compared with a 3.3 percent gain for the Standard & Poor’s 500 Index.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net

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