Egan-Jones Proxy Services came out last Thursday in support of most of Target Inc.’s board nominees in the retailer’s upcoming election, eschewing the slate pushed by Bill Ackman. Egan-Jones stated the following:

1. We believe that Pershing Square has provided no convincing strategic plan that would lead to improvement in long-term shareholder value.

2. We believe that the Company was transparent in its review and ultimate rejection of Pershing Square’s earlier real estate proposals.

3. We have confidence in the Company’s existing management and Board of Directors and the measures that they have undertaken, some relatively recently, to counter the difficult retailing environment.

4. While noting the relevant experience of several of the dissidents’ nominees, we are not convinced that their election would lead to significant improvements in shareholder value, nor work to the benefit of shareholders.

At Valuehuntr, we find these conclusions deeply disturbing.   Egan-Jones, much like Moody’s, depends on its paying clients to keep its doors open. But in the case of Egan-Jones, clients are institutional investors such as hedge funds, mutual funds, etc. Though we do not know for sure, it is conceivable that Egan-Jones might feel some pressure to turn out research that carries investment conclusions that would support its biggest clients’ largest positions. Could it be, for example, that the Egan-Jones’ largest revenue-generating clients are funds that are short the equity of Target, or long on the equity of competitors such as Wal-Mart? It is very likely.

The same applies to another advisory firm, Proxy Governance Inc. The firm said it would support two of the five dissident nominees. Proxy Services supports the election of Pershing Square nominees Michael L. Ashner and James L. Donald, citing Ashner’s commercial real estate experience and Donald’s retail grocery experience.

In recommending use of the GOLD proxy card, Proxy Governance noted the following:

Relevant Expertise: “Particularly in their arguments that thin director experience in areas of increasing strategic importance has led to suboptimal strategic outcomes, the dissidents make compelling points.”

Credit Cards: “The enduring strategic question, though, is not whether to sell or keep the [credit card] business but how to mitigate the substantial risk and capital intensity of a non-core business. To the extent the dissidents, rather than the board, were driving that question in 2007 and 2008, the dissident argument that director experience could be better aligned with strategic challenges seems credible.”

 Real Estate and Food Retailing: “The real strength in the dissident campaign, however, lies in the nominees, whose professional experience is directly relevant to certain strategic challenges the company faces (particularly outside its core retailing operations) yet which seem to be under-represented in the board as currently composed.”

In recommending Michael Ashner and Jim Donald, Proxy Governance stressed the following:

Real Estate: “Because the company’s sizeable holdings will continue to make real estate a significant strategic issue – even as the company has presented compelling reasons to question the TIP REIT proposal – we believe Ashner, who has extensive professional experience in commercial real estate, would add meaningfully to the current board’s composition.”

Food Retailing: “We believe the board’s ability to respond to the core strategic challenges of retailing, especially groceries, would be materially improved by the addition of the long-term grocery executive, Donald, who established Wal-Mart’s grocery business and superstore presence.”

Relevant Expertise: “We believe that J. Donald, with retail grocery experience, and M. Ashner, with commercial real estate experience, would add meaningfully to the board’s ability to assess and meet emerging strategic challenges in these two aspects of the company’s operations.”

Proxy Governance also commended Pershing Square for supporting and pressing the use of a universal proxy card, which would allow shareholders the ability to select the specific individuals it would like to see on the board from both the management and dissident slates.

It is difficult to believe that either Egan-Jones or Proxy Governance would advice against the interests of their revenue-generating clients. Therefore, these conflicts of interest may prevent Target’s shareholders to get an objective third party recommendation on Pershing’s proposal.

Tomorrow, RiskMetrics renders its decision. RiskMetrics typically advises more than 20% of shareholders, while Proxy Governance and Egan-Jones combined advice less than 10%. RiskMetrics’ recommendation will not be without conflicts. For example, The Vanguard Group owns nearly 2% of RiskMetrics, but also nearly 3% of Target.