Investors Lose Bid to Oust Safeway Chief

A bid by Safeway Inc. investors to unseat Chief Executive Steven Burd and two other directors fell short Thursday, though the dissidents delivered a harsh reprimand by withholding 17% of shareholders’ votes from the ballot for Burd’s reelection as chairman of the supermarket chain.

The campaign against Burd was led by the California Public Employees’ Retirement System and several other public pension funds. They are unhappy with Safeway’s financial performance and contend that board members have conflicts of interest.

Some of the dissidents had hoped Burd would be denied 25% or more of stockholders’ votes during the annual meeting at Safeway headquarters in Pleasanton, east of San Francisco.

In March, a similar campaign persuaded Walt Disney Co. investors to withhold 45% of votes cast for the reelection of Michael Eisner as chairman. Eisner ultimately surrendered the chairman’s post but remains CEO.

Even at 17%, the Safeway vote “sends a clear and unequivocal message to Steve Burd and the leadership at Safeway” that reforms “are desperately needed,” several of the pension funds said in a statement. “Shareholders have registered their discontent.”

CalPERS spokesman Brad Pacheco called the vote “a substantial showing of dissatisfaction by Safeway shareholders.” The funds hold about 7 million, or roughly 2%, of the company’s shares outstanding.

Pacheco noted that another proposal on the ballot -- to separate the chairman and CEO jobs at Safeway -- received about 33% of investors’ votes. He said CalPERS maintained that Safeway “should strip Mr. Burd of his chairmanship.”

Burd, 54, made only a passing reference to the proxy fight while speaking to a mostly subdued, polite audience of about 350 people. He talked about Safeway’s strategy to improve its results and, when he opened the floor for questions, none of the investors aggressively challenged him. He left after the meeting ended without speaking to reporters.

Safeway’s chief financial officer, Robert Edwards, said the votes showed “the shareholders overwhelming support Steve Burd as the chairman and chief executive of this company.”

The dissidents’ proxy fight this spring came shortly after Safeway, which is the parent of the Vons and Pavilions chains, endured a long, bitter strike by the United Food and Commercial Workers union in Central and Southern California. Ralphs grocery parent Kroger Co. and Albertsons Inc., which bargained jointly with Safeway, locked out their workers during the dispute.

Safeway still faces contract negotiations in Northern California, and during the meeting several hundred UFCW members and others held a boisterous rally outside headquarters as police kept watch.

With Burd the main target of anger of some disgruntled shareholders inside and protesters outside, security was tight at the meeting. Vehicles were inspected, bags were checked and guards were placed throughout the complex. The news media’s access to stockholders was restricted.

Burd became the union’s main enemy during the strike because of his unrelenting push to lower Safeway’s labor costs. He held to that position again Thursday, telling investors that lower employee costs were “essential to our future, there’s no argument about it.”

Burd’s supporters and some analysts, noting that some of the public pension funds and their officers have ties to organized labor, had suggested that the campaign to oust Burd reflected ongoing resentment of his handling of the California strike.

Allan Zaremberg, president of the California Chamber of Commerce, said after the vote that the proxy fight reflected “an effort by organized labor to intervene in the corporate boardroom rather than settle their issues at the bargaining table.”

The aftermath of the Southern California strike was evident at the meeting. Joann Saraceno, a clerk at a Vons in Studio City, choked with emotion as she told Safeway’s directors about low worker morale after the strike, and she asked the board to “treat our employees fairly.”

In seeking to remove Burd as chairman, the pension funds cited Safeway’s heavy losses in the last two years -- which were aggravated by the strike -- and the steep drop in Safeway’s stock price, which they said had wiped out $20 billion of shareholders’ value since 2001.

Safeway’s stock edged up 3 cents Thursday, to $20.98 a share, on the New York Stock Exchange.

The shares traded at $60 three years ago.

The dissidents also complained that several of Safeway’s directors have ties to Kohlberg Kravis Roberts & Co., a leading corporate-buyout firm in New York that bought Safeway in 1986 and brought in Burd as chief executive in 1993.

Director Robert MacDonnell, for example, is a former partner at KKR. He was one of three Safeway directors up for reelection this year, along with Burd and William Tauscher.

The “no” votes for MacDonnell and Tauscher were 14.7% and 14.5%, respectively, Safeway said.

Besides CalPERS, the other dissidents included pension funds in Illinois, Connecticut, New York state, New York City and Massachusetts.

Two firms that advise clients on proxy matters, Institutional Shareholder Services and Glass, Lewis & Co., also told clients to withhold support for Burd.

KKR later took Safeway public again and no longer owns Safeway stock. But the pension funds contend that Safeway’s board has continued to approve acquisitions and other transactions that benefited KKR but haven’t paid off for stockholders.

This month, Safeway tried to mollify dissidents by announcing plans to replace three of its other directors as soon as possible, saying the action would improve the board’s independence. But Safeway left Burd in place, sparking an angry reaction from the pension funds.