Target's CEO is out - but why?
May 5, 2014: 5:26 PM ET
By Jennifer Reingold, senior editor
Gregg Steinhafel
FORTUNE -- Way back in 2008, as he was planning to step down after 14 years in the corner office at Target (TGT), then-CEO Bob Ulrich had a few choice words for a Fortune reporter who asked him how his handpicked successor, Gregg Steinhafel, would fill his shoes. "I know there are some people who have sort of this twisted concept that they can't do it without me," he said, "but that would obviously be the worst legacy that one could possibly leave."
Ulrich's legacy may now be in question. As of this morning, Steinhafel is out in the wake of a devastating data breach, a 46% profit drop in the most recent quarter, and a frustrating foray into Canada. What is confusing -- and surprising -- is the abruptness of the change and the fact that the $73.3 billion retailer has no apparent succession plan. "This is not a foolish board," says Jeffrey Sonnenfeld, management professor at the Yale School of Management. "This triggers the thought that there's some devastating new piece of information, or there's been a confrontation on the board."
Certainly, it seems clear that the data breach -- which involved the exposure of 110 million customers' personal and/or payment data and led to the replacement of CIO Beth Jacob with Bob DeRodes -- had a lot to do with Steinhafel's demise. But one former very senior executive thinks there was more to it than that. "I think the database event was simply the tip of the spear," he says. "There have been myriad issues under Gregg's leadership -- not the least of which is a dramatic erosion of the brand, the culture, and the company's reputation. I've heard quite clearly that he's utterly lost the support of his leadership team." Target did not respond to requests for comment.
After a strong start in which Steinhafel vanquished a governance challenge from activist investor Bill Ackman and steered Target through the financial crisis, the executive began to struggle in what has been a rough environment for all retailers. But it may have been the response to the massive data breach late last year, which Target executives knew about four days before they told the world, that speaks to what some are calling a troubled management style. It seemed yet more evidence of Target's highly insular and secretive culture, one that held everything from product development to new store formats close to the vest and kept its executives as far away as possible from the press.
Steinhafel, a deeply private man from a retailing background, fit perfectly into that mold. But while the strategy worked well when Target was still leading the retail space, it was much less effective when outsiders wanted to understand how the company was addressing online retailing or the renewed energy of rival Wal-Mart (WMT). Nor did it work when trying to reconnect with customers, who -- it appears from recent results -- have abandoned the retailer in droves. Beyond a few short interviews, Steinhafel kept to himself as the crisis unspooled. And as so often happens, it was the response to the crisis that mattered as much as the crisis itself.
Even Steinhafel himself said in a recent interview with the Wall Street Journal: "Target won't be defined by the breach, but how we handle the breach." That will now be up to his replacement, who, it seems, may be an outsider: a shocking notion for any longtime Target watcher. Here's hoping that whoever takes over understands that what Target needs most of all right now is transparency.
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