Pension Funds Seek to Oust Safeway Chairman

Shareholder unrest is brewing at Safeway Inc., the owner of Vons and Pavilions, with several state pension funds launching a campaign Thursday to oust Safeway Chairman Steven Burd and two other directors.

In a protest similar to what occurred this month at Walt Disney Co., officials of five major public pension funds, including the California Public Employees’ Retirement System, said they hoped to persuade other 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.

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 union at its 293 stores in Central and Southern California to win lower labor expenses in a new three-year contract. Albertsons Inc. and Kroger Co.’s Ralphs chain locked out their UFCW workers during the strike.

“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.

The pension fund officials denied the claim. “This is not about ideology,” New York State Comptroller Alan Hevesi said. “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 cost 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.

Safeway’s stock traded above $60 a share three years ago. It closed Thursday at $20.47, up 45 cents, on the New York Stock Exchange.

The officials want investors to vote no on Burd and the two other directors up for reelection: William Tauscher, who heads the compensation committee, and Robert MacDonnell, who sits on the compensation and audit committees.

“We have a board that is really not independent,” Hevesi said, noting that four of the nine directors have ties to Kohlberg Kravis Roberts & Co. The corporate buyout firm bought Safeway in 1986 and brought in Burd as chief executive in 1993.

The pension funds together own about 7 million Safeway shares, or 1.6% of its total common stock outstanding. As with Disney, they’re hoping to build up negative sentiment toward Burd.

“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% of investors’ shares were withheld in protest of Michael Eisner’s reelection as chairman. Soon after, the Disney board yielded to the stockholders’ revolt and removed Eisner as chairman, although he remains Disney’s chief executive.