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Pension funds campaign to oust Safeway chairman

By James F. Peltz
Los Angeles Times

	Steven Burd
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Shareholder unrest is brewing at Safeway with pension funds from several states launching a campaign yesterday to oust Safeway Chairman Steven Burd and two other directors.

In a protest similar to what occurred early this month at Walt Disney Co., officials of five major public-pension funds, including the California Public Employees' Retirement System (Calpers), said they hoped to persuade other Safeway investors to withhold their votes for the three directors at Safeway's annual meeting May 20 at the company's Pleasanton, Calif., headquarters.

"Safeway right now is not operating in the best interests of shareholders," New York City Comptroller William Thompson said at a news conference in Washington, D.C.

Safeway charged that organized labor was behind the pension-fund initiative. The company endured a 4-1/2-month strike by the United Food and Commercial Workers (UFCW) union at its 293 stores in Central and Southern California in order to win lower labor expenses in a new three-year contract. Albertsons and Kroger's Ralphs chain locked out their UFCW workers during the strike.

Safeway is now negotiating contracts in other parts of the country. A dispute could lie ahead in Western Washington, where grocery-worker contracts at the same chains expire May 2.

"This is an attempt — at the behest of union leadership — to pressure a company that has taken decisive action in labor issues and moved to restructure its labor costs," Safeway spokesman Brian Dowling said in a statement.

The pension-fund officials denied the claim. "This is not about ideology," said New York State Comptroller Alan Hevesi. "We are investors. This is about the performance of companies in which we all invest."

The officials also said the strike was only one reason for their unhappiness with Burd, who is also Safeway's chief executive. Although Safeway secured the labor cuts in Southern California that could help its earnings and stock price, the strike caused such bitterness between management and labor that "in the long run we're not sure it was in the best interests of the company," Thompson said.

The dissidents mainly complained about Safeway's depressed stock price and what they said was mismanagement, and asserted that several directors have conflicts of interest because of business relationships with the supermarket chain.

Safeway's stock traded above $60 a share three years ago. It closed yesterday at $20.47.

"That is a remarkable lack of performance as a result of a series of decisions made by the management of Safeway," Hevesi said.

The pension-fund officials also chided Burd and other directors for spending billions of dollars on troubled acquisitions of other grocery chains, such as Dominick's in Chicago. Safeway overall has 1,817 stores.

Besides hoping to unseat Burd, the officials want investors to vote "no" in the re-election of directors William Tauscher, who heads the board's compensation committee, and Robert MacDonnell, who sits on the compensation and audit committees. Those two and Burd are the only directors up for election this year.

"We have a board that is really not independent," Hevesi said, noting that four of Safeway's nine directors also have ties to Kohlberg Kravis Roberts (KKR), the corporate-buyout firm. KKR bought Safeway in 1986, then brought in Burd as chief executive in 1993 to turn around the then-struggling grocer.

The pension funds together own about 7 million Safeway shares, or 1.6 percent of its total common stock outstanding. But, as with Disney, they're hoping to build up negative sentiment toward Burd over the next two months.

"We believe this is a defining vote at a time when institutional investors are expecting real director independence, real director accountability," said Edward Smith, chairman of the Illinois Board of Investment.

At Disney, 43 percent of investors' shares were withheld in protest of Michael Eisner's re-election as chairman. Soon after, the Disney board yielded to the stockholders' revolt and removed Eisner as chairman, though he remains Disney's chief executive.

Speculation about Burd's departure as chairman, chief executive or both has floated around Wall Street since early this year. After engineering a strong rebound at Safeway during the 1990s, Burd has come under increasing criticism as Safeway's fortunes have eroded recently.

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