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Safeway dumps 3 board members, but CEO Burd will stay

By Michael Liedtke
The Associated Press

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SAN FRANCISCO — Hoping to quell a shareholder rebellion, supermarket giant Safeway Inc. shook up its board of directors yesterday, but continued to stand behind embattled CEO Steve Burd, the main target of irate investors.

The company said it will jettison three directors, including two longtime board members, and appoint replacements with no previous Safeway ties to foster more independence from management.

Financiers George Roberts and James Greene, who pocketed big windfalls by helping to engineer a leveraged buyout of Safeway nearly 20 years ago, will leave the company's board as soon as replacements are found. Roberts, 60, and Greene, 53, had been on Safeway's board since 1986 and 1987, respectively.

Hector Ley Lopez, who runs a Mexican supermarket chain in which Safeway owns a 49 percent stake, will relinquish his board seat by year's end. He joined Safeway's board four years ago.

In another move apparently aimed at calming restive shareholders, Safeway named Paul Hazen as the board's lead independent director. Hazen, a Safeway board member since 1990, is supposed to serve as a bridge between the other directors and Burd, who is Safeway's chairman as well as chief executive officer.

The reshuffling didn't appease Safeway's most-strident shareholder critics — a group of public pension funds in New York, Connecticut and Illinois trying to oust Burd at the company's May 20 annual meeting.

"Safeway's proposed changes are superficial and transparent attempts to deflect attention" from the shareholder uprising, the groups said in a statement.

After years of steady sales and earnings growth, Safeway recently has been hurt by a series of bad acquisitions, labor strife and intensifying competition from discount king Wal-Mart. Safeway operates stores under its own name, as well as Vons, Randalls, Dominick's and Genuardi's.

The dissident shareholders are trying to persuade other Safeway investors to withhold their votes for Burd and two other Safeway directors, William Tauscher and Robert MacDonnell. Those three men are the only directors up for re-election this year.
 
Although Tauscher and MacDonnell will remain on the board, Safeway is stripping them of some responsibilities. Tauscher, a former Safeway consultant, is stepping down as chairman of the board's executive compensation committee, and MacDonnell, who formerly worked at the same buyout firm as Roberts and Greene, is leaving the board's audit committee.

Burd, Safeway's CEO for the past 11 years, has been the focal point of the recent shareholder backlash. The dissidents blame him for a painful downturn that has lumped the company with $998 million in losses during the past two years and erased more than $20 billion in shareholder wealth since early 2001.

Although he is keeping his job, Burd "has to be on notice and well aware of the discontent among shareholders," said Gregory Taxin, chief executive of Glass Lewis, a shareholder-advisory firm.

"He is entering a new probationary period where shareholders will be monitoring his and the company's performance very closely."

The pension funds said they will continue to press for Burd's removal.

But Taxin hailed Safeway's board changes as "an extremely strong and positive move in the right direction."

Safeway's shares fell 17 cents yesterday to close at $22.78.

Until announcing yesterday's concessions, Safeway has consistently brushed off the shareholder attacks as the misguided campaign of a few public pension funds beholden to labor groups still bitter about a 3-1/2-month Southern California grocery strike that ended in late February.

Following up on a shareholder recommendation approved last year, Safeway also agreed to deduct the costs of employee stock options from its profits.

The grocer might have been forced to make the switch anyway because the nation's accounting-rules maker is pushing a proposal that would require publicly held companies to begin expensing stock options next year.

If Safeway had expensed stock options last year, the company estimated its 2003 loss would have been $220.9 million instead of the $169.8 million setback reported under generally accepted accounting principles.