Whole Foods Splits Positions

Whole Foods Market Inc. said co-founder and Chief Executive John Mackey has given up the title of chairman in order to conform with current standards for good corporate governance. As of last spring, about 37% of companies in the Standard & Poor’s 500 stock index had separate chairmen and CEOs, up from 22% in 2002, according to the Corporate Library, a research firm in Portland, Maine. (Whole Foods CEO Gives Up Chairman’s Post, WSJ, 12/24/09)

Both the Conference Board’s Commission on Public Trust and Private Enterprise and the Council of Institutional Investors have long recommended roles of the CEO and Chairman be split to ensure an appropriate balance of power.

CEOs who retain the dual role make it extremely difficult to challenge a powerful chief executive if necessary to protect shareowner interests. When I approached WFMI on this issue several years ago, independent directors didn’t even routinely hold meetings without the CEO present. and be “more likely to have certain troubling governance characteristics than companies where the roles are separated.”

Spearheading the reform effort is the Chairmen’s Forum, an organization of independent chairs convened by The Millstein Center for Corporate Governance and Performance at the Yale School of Management. Last spring, Mary Schapiro told the Council of Institutional Investors that the SEC is “considering whether boards should disclose to shareholders their reasons for choosing their particular leadership structure – whether that structure includes an independent chair, a non-independent chair, or a combined CEO/chair.” If such a requirement goes through, expect withhold votes for directors at companies that provide poor explanations of why they haven’t split the roles.

As an activist shareowner of WFMI, I’ve been after them for years to make this change, along with others such as John Chevedden. I’m under no delusion that Mackey is now under the thumb of the board chair. I’m sure he remains the driving force behind WFMI. However, given his track record of blunders like faking his identity on blogs and denying shareowners the right to present resolutions during the business portion of the annual meeting, at least he now has a better chance of not making a mockery of WFMI’s shareowners. The content of Mr. Mackey’s online postings were directly at odds with the Company’s core values of transparency and stewardship. His refusal to allow shareowner resolution proponents an opportunity to speak during the normal business portion of an annual meeting, even though SEC Rule 14a-8(h)(3) requires that a proponent or representative of a resolution contained in the company proxy must present their proposal, also conflicted with our Company’s "Declaration of Interdependence," which "requires listening compassionately, thinking carefully and acting with integrity."

According to Richard Bernstein, chief U.S. strategist at Merrill Lynch, companies in the top 100 of the S&P 500 with split chairman and CEO outperformed those that combine the roles during the last decade. Corporations with split roles posted a 22% annual return since 1994, outpacing the 18% return earned by firms that did not. WFMI is a great company that could be even better if it took the role of shareowners as seriously it does that of customers and employees. Splitting the roles of CEO and chair is a good sign attitudes may be changing. Instead of viewing participation by shareowners as creating a circus atmosphere, as Mackey has characterized it in the past, maybe now we will see real dialogue that will increase long-term value.

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