Target CEO Steinhafel resigns following breach

NEW YORK - Target President and CEO Gregg Steinhafel resigned Monday as the retailer continues to recover its image nearly five months after a massive holiday-season data breach.

Steinhafel also resigned as chairman of the board of directors. John Mulligan, Target's chief financial officer, will serve as interim president and CEO, while current board member Roxanne Austin will take over as interim chair.

"Today we are announcing that, after extensive discussions, the board and Gregg Steinhafel have decided that now is the right time for new leadership at Target," a company statement posted on its website Monday morning says.

Steinhafel, a 35-year veteran of Target, will serve as an advisor during the transition. In an SEC filing Monday, Target said Steinhafel is entitled to severance pay but that the board "has not made a final determination on other compensation-related aspects" of Steinhafel's departure.

In a letter to the board of directors, posted to Target's website Monday, Steinhafel said, "The last several months have tested Target in unprecedented ways. From the beginning, I have been committed to ensuring Target emerges from the data breach a better company, more focused on delivering for our guests."

Target hired executive recruitment firm Korn Ferry to assist in finding its next CEO.

Some say Steinhafel's resignation should have come sooner.

"It would have been better to start the year with fresh eyes and a fresh approach," says Brian Sozzi, CEO of Belus Capital Advisors. "I think this reflects the very slow-moving nature that is inherent of Target's culture."

Target should now take the opportunity to look for a leader outside the company and one with international business experience who could help salvage the retailer's unsuccessful launch in Canada, Sozzi says. Target opened 124 stores across Canada last year and announced in January that it plans to open nine more in 2014.

Sozzi characterizes Target's Canadian expansion as a "giant failure," adding that the company opened too many stores at once and has failed to connect with Canadian shoppers who still see more value going to Walmart and Costco.

"They didn't have the operation of the store properly thought out," he says. "We've seen consistent merchandise out of stock. Prices are too high."

Target's Canadian operation lost $329 million in its fiscal fourth quarter and $941 million for the year ended Feb. 1. In contrast, its U.S. segment earned $1.4 billion in the quarter and nearly $5 billion for the year.

Target said in February that its Canadian stores lowered its unadjusted fourth-quarter earnings per share by 40 cents to 81 cents a share and sliced $1.13 per share from its full-year unadjusted earnings of $3.07 per share.

In fact, Steinhafel's resignation may have as much to do with the aftermath of the data breach as the company's overall strategic initiatives, including its Canadian segment.

"The board may just believe that it's time to find somebody else who can take the reins and maybe take them in a different direction," says Ken Perkins, an equity analyst with Morningstar. "I think that they really will want somebody who can take an objective look at the Canadian operations and help turn those around."

Steinhafel stepping down follows other recent executive leadership changes. Target appointed a new chief information officer last week. Bob DeRodes takes over the position today after former CIO Beth Jacob resigned in March. DeRodes is a Target outsider, coming to the company after working for payments processor First Data. DeRodes also formerly served as CIO at The Home Depot, serves on the board of transaction company NCR Corporation, and was a government adviser on information technology.

Target said in December that hackers stole credit and debit card information from 40 million customers. In January it revealed that personal information like email addresses and phone numbers may have been stolen from up to an additional 70 million customers.

In the months since, Target adopted a faster timeline for switching to more secure chip-based credit and debit cards, and the payment terminals that accept them. As part of the $100 million effort, Target announced last week that it all of its store-branded cards would be reissued as MasterCard chip-and-pin cards in 2015.

Target shares were down $1.77, or 2.85%, to $60.24 shortly before 11 a.m.

Monday morning Target's board of directors released a written statement. It reads, in part:

"Today we are announcing that, after extensive discussions, the board and Gregg Steinhafel have decided that now is the right time for new leadership at Target. Effective immediately, Gregg will step down from his positions as Chairman of the Target board of directors, president and CEO. John Mulligan, Target's chief financial officer, has been appointed as interim president and chief executive officer. Roxanne S. Austin, a current member of Target's board of directors, has been appointed as interim non-executive chair of the board. Both will serve in their roles until permanent replacements are named. We have asked Gregg Steinhafel to serve in an advisory capacity during this transition and he has graciously agreed.

The board is deeply grateful to Gregg for his significant contributions and outstanding service throughout his notable 35-year career with the company. We believe his passion for the team and relentless focus on the guest have established Target as a leader in the retail industry. Gregg has created a culture that fosters innovation and supports the development of new ideas. Under his leadership, the company has not only enhanced its ability to execute, but has broadened its strategic horizons. He also led the company through unprecedented challenges, navigating the financial recession, reacting to challenges with Target's expansion into Canada, and successfully defending the company through a high-profile proxy battle.

Most recently, Gregg led the response to Target's 2013 data breach. He held himself personally accountable and pledged that Target would emerge a better company. We are grateful to him for his tireless leadership and will always consider him a member of the Target family.


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