business news in context, analysis with attitude

Safeway’s president/chairman/CEO, Steve Burd, was reelected to the company’s board of directors with 83 percent of the shareholders’ vote, surviving an attempt by dissident shareholders to force him to relinquish at least some of his power.

The dissidents, led by a number of public pension funds, had been campaigning for some two months to get a non-executive chairman of the company who had no ties to Burd. The company, however, had resisted the entreaties, saying that the pension funds had ties to organized labor, with which Burd and the company have had a contentious relationship.

A proposal to split the role of chairman and chief executive received only 33 percent of the vote. In addition, two other members of the board targeted by the dissidents - Robert MacDonnell and William Tauscher – were re-elected to the board.

The dissidents seem unwavering in their belief that changes are needed. "Shareholders will not tolerate board policies and management decisions that delay or obfuscate the serious and substantial corporate governance changes that are desperately needed," a group of state and city officials from New York, Connecticut and Illinois said in a joint statement.

The Seattle Times reported that the two sides had different spins on the Safeway annual meeting.

“The outcome shows ‘overwhelming support for Steve's leadership,’ said Chief Financial Officer Robert Edwards. ‘We believe shareholders support the strategy we are pursuing and believe we have the right senior-management team to carry out the job.’

“Pension funds in New York, Connecticut and Illinois, which are critical of Burd, issued a statement hailing the vote as ‘a victory of substance over illusion.’

"’I hope the company doesn't go back to business as usual,’ said Bill Atwood, executive director of the Illinois State Board of Investment.”

And the antipathy between Safeway and organized labor shows no sign of diminishing.

According to a report from Reuters, Matthew Hardy, a United Food and Commercial Workers spokesman, said “if the company keeps its tough bargaining stance, 30,000 union workers in Northern California were willing to strike when their contracts expire in September.” Hardy said that the Northern California union members are “not willing to accept the kind of cutbacks workers in Southern California recently agreed to” after a four-month strike.

However, it seems likely that those are exactly the kinds of cutbacks that Safeway will be looking for…which means that the stage is being set for another long and hostile labor dispute.
KC's View:
Seems to us that no matter how they spin it, Burd won and the dissident shareholders lost yesterday. The open question is whether Burd’s survival will mean an eventual win for the company and its shareholders, or whether yesterday’s events are a harbinger of continued loss – or market share, of profitability, of stature.

We’ve never felt that the unions are making legitimate demands of chains like Safeway, since they often seem to be negotiating as if there were no Wal-Mart, were no heightened competitive pressures facing the chains.

But chains like Safeway seem to be negotiating as if this is the prefect time to redress old wrongs and get as much blood from the unions as possible. Safeway and Burd seem particularly vulnerable to charges that they are scapegoating labor because of the mistakes they’ve made with acquisitions like Genuardi’s and Dominick’s that have nothing to do with labor.

It’s a tough problem. Safeway and Burd don’t seem to realize that a retailer’s success emanates from the sale floor, not the executive suite; the unions don’t seem to understand that they need to make some concessions in order to help chains like Safeway survive.

Ultimately, both sides are wrong and myopic and seemingly incapable of making the business model changes necessary for both to survive. But until they forge some sort of new relationship – call it a partnership – the disputes will only get uglier and competition like Wal-Mart will only gain ground at the mainstream supermarket industry’s expense.