Safeway CEO fends off shareholder critics

Friday, May 21st 2004, 9:59 am

By: News On 6

PLEASANTON, Calif. (AP) _ Safeway Inc. chairman Steve Burd easily fended off shareholder threats to bounce him from his job, but still faced prickly questions about whether his effort to reduce supermarket employees' wages will do more harm than good.

Burd, Safeway's CEO for the past 11 years, scored a major victory early in the Pleasanton-based company's three-hour meeting Thursday when management announced 83 percent of shareholders had voted to re-elect him as chairman.

The 17 percent disapproval vote represented unusual level of dissent in corporate America, where directors rarely are spurned by more than 10 percent of shareholders. But the outcome fell well short of the disapproval levels expressed in other recent shareholder uprisings and missed the 25 percent goal set by a group of public pension funds spearheading the Safeway rebellion.

In another key decision, 66.8 percent of shareholders voted against a proposal urging Burd to split up the chairman and CEO roles _ a division many major companies are making to create more independence between management and the board.

Safeway drummed up more shareholder support earlier this month by announcing several changes to its corporate governance policies, including the appointment of an existing board member, Paul Hazen, as lead director and a commitment to replace three other board members this year.

Those reforms hadn't satisfied the disgruntled shareholders or two influential advisory firms. Both Institutional Shareholder Services and Glass Lewis & Co. had recommended withholding votes from Burd.

Safeway management and the dissident shareholders interpreted Thursday's results differently.

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.''

Disgruntled pension funds in New York, Connecticut and Illinois, issued a joint 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.

Safeway investors have had plenty of reasons to be disappointed recently. Two-thirds of the company's market value has evaporated since the end of 2000, wiping out more than $20 billion in shareholder wealth. Safeway's shares gained 3 cents Thursday to close at $20.98 on the New York Stock Exchange.

The grocer reported losses totaling $998 million in the last two years, as supermarket takeovers engineered by Burd in Illinois and Texas have soured and labor tensions have mounted.

Burd, 54, primarily has blamed the company's woes on a sluggish economy and tougher competition as discount king Wal-Mart Stores Inc. muscles into the grocery industry.

Burd predicted Safeway will snap out of its slump, painting a portrait of a chain that will provide ``world-class'' customer service to distinguish itself from Wal-Mart and other discounters at the same time he narrows the wage gap with rivals who rely on nonunion workers.

Safeway spends an average of $8.59 per hour more on employee wages and benefits than its nonunion operators, Burd told shareholders.

The grocer successfully whittled an even larger cost differential of $12 per hour within its Southern California division _ Vons _ earlier this year, but not before enduring a bitter 4 1/2-month strike that has saddled Safeway with $225 million in losses.

``If we don't solve this cost problem and get our costs lower, we don't have a business,'' Burd said. ``I sleep very well at night because I believe what we are doing is fundamental to the survival of our company and the continued employment of our 175,000 workers.''

Skeptics, including a mix of shareholders, store workers and industry analysts, have questioned how Safeway can expect to improve its customer service while simultaneously offering less attractive wages and benefits to future workers.

Joann Saraceno, a Vons cashier in Studio City who has worked for the chain for 24 years, told Burd his strategy has decimated employee morale and prompted many workers to quit.

``I would like to know my company cares about me, so I can be loyal to my company,'' Saraceno said, choking back tears. ``You cannot do superior service if you have no employees to do the service. They are fleeing the company.''

Burd defended Safeway's treatment of employees, saying they make the highest wages in the retail industry.