CalPERS to Withhold Votes on Safeway CEO

Continuing its campaign to influence corporate governance, California’s largest public pension fund Wednesday said it would withhold its proxy votes for the reelection of Safeway Inc.’s chairman and two other members of the grocery chain’s board of directors.

The decision follows high-profile proxy actions by the California Public Employees’ Retirement System against Walt Disney Co. Chief Executive Michael Eisner and other companies.

CalPERS said it would withhold its votes for Safeway Chairman and Chief Executive Steven Burd because of a 60% drop in Safeway’s stock since early 2001 that the pension fund said wiped out $20 billion in market value. CalPERS officials also cited what they described as conflicts of interest and a lack of responsiveness to shareholder concerns.

The $166-billion pension fund also said it would not support the reelection of directors Robert MacDonnell and William Tauscher, both audit committee members, because, it said, they allowed Safeway’s external auditor to perform non-audit work.

Keeping Burd, MacDonnell and Tauscher on the Safeway board “is not in the investors’ best interest,” CalPERS Investment Committee Chairman Rob Feckner said.

The vote is set for Safeway’s annual meeting May 20 at the company’s Pleasanton, Calif., headquarters.

CalPERS said it owned 2.7 million Safeway shares with a value of $57 million. The stock closed Wednesday at $21.06, down 28 cents, on the New York Stock Exchange. In December, Feckner reported that the holdings were worth $77 million when the stock was at $19.98 a share.

Public pension funds in Oregon, New York, Connecticut and Illinois also have signaled that they would withhold their proxy votes from Burd.

Safeway Vice President Brian Dowling accused CalPERS of overlooking Safeway’s longer-term stock performance. “Since 1992 investors have seen an eightfold increase in Safeway’s share price,” he said.

“Safeway is in the midst of executing a well-defined strategy to differentiate itself from the competition and grow the business for shareholders, employees and customers,” he said, adding that the company “is firmly committed to the highest standards of corporate governance.”

Safeway, which owns the Vons and Pavilions chains, was the target of a 4 1/2-month strike in Central and Southern California by the United Food and Commercial Workers union. Albertsons Inc. and Kroger Co.’s Ralphs stores locked out UCFW workers. The strike and lockout ended more than a month ago.

In the midst of the strike, CalPERS’ Feckner wrote the CEOs of Safeway and the other two chains criticizing the companies for their “blatant disregard for quality of life issues for ... long-term employees” and urging them “to negotiate in good faith with the UFCW.”

Sean Harrigan, president of CalPERS’ board, is a former Safeway employee who currently serves as the international vice president of the UFCW.

The decision to withhold votes on Burd and the two directors did not come as a result of a vote by Harrigan and the 12 other board members, CalPERS spokeswoman Pat Macht said. Pension fund staff members made the decision based on general guidelines set up by the board, she said.

“Pressure is building” as more and more government pension funds seek changes at Safeway, said Patrick McGurn, senior vice president of Institutional Shareholder Services Inc., a Rockville, Md., advisor on proxy voting and corporate governance.

“We’re starting to see a kind of Disneyesque progression, and the big question is whether this spreads from public funds and unions to money management and mutual funds,” he said.