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March 10, 2006
Whole Foods Market Gags Shareowners at Annual Meeting
by Bill Baue
A leader on corporate social responsibility, Whole Foods lags on corporate governance by stymieing
shareowner democracy.
SocialFunds.com --
Shareowner activists suffered a setback on Monday at the annual meeting of Whole Foods Market
(ticker: WFMI)
when the company widely admired as a leader on corporate social responsibility (CSR) silenced
shareowners. Instead of allowing shareowners to present their resolutions when the item came up on
the formal agenda included in the proxy, the company shuffled
discussion of resolutions to the informal question and answer session, after votes on resolutions
had been counted. Indeed, the company's webcast of the meeting
ends abruptly after CEO John Mackey announces that all three shareowner resolutions "failed," with
no word from shareowners included in the audio file.
"Given that the annual shareholder
meeting is the one time each year that top executives and directors have to show up and be
accountable to shareholders, it is unconscionable for companies not to allow proponents to make a
short statement in support of their proposals," said Beth Young, senior research associate for The
Corporate Library (TCL), which
assesses corporate governance. TCL recently downgraded Whole Foods from "A" to "C" on its
Board Effectiveness Rating, which covers "shareholder responsiveness." "Of course, companies
need to ensure that their annual meetings will be orderly and don't run on for eight hours, but
reasonable time limits and limits on numbers of questions can meet those goals."
 The move may have even flouted US
Securities and Exchange Commission (SEC) regulations, which state,
"Rule 14a-8(h)(3)
requires that the shareholder or his or her qualified representative attend the shareholders'
meeting to present the proposal."
"In our view, Whole Foods' practices clearly conflict
with SEC regulations, because proponents are required to be present to 'move' their proposals,"
said Bruce Herbert, president of Newground
Social Investment, a socially responsible investing (SRI) firm. "It is either a misguided
decision based on a lack of knowledge, or a display of arrogance based on ego--either way, it does
not reflect well on the company."
"It also seems to flatly contradict the company's pledge
to 'recognize everyone's right to be listened to and heard regardless of their point of view,'" Mr.
Herbert told SocialFunds.com. "Whole Foods should recognize that any company that presents itself
as socially responsible, as it does, is an easy target for a cynical press and public when it fails
to uphold reasonable standards of corporate practice."
However, Whole Foods seems to be
taking a head-in-the-sand approach. Company spokesperson Kate Lowery did not respond to
SocialFunds.com's requests for commentary--including an explanation of how denying shareowners time
to speak represents social responsibility, sustainability, and corporate governance best practice.
During the Q&A session, the representative for the Green Century Balanced Fund (GCBLX), which
filed a resolution asking the company to report on alternatives to packaging with toxic endocrine
disruptors, voiced disappointment with how the company was running the meeting. Mr. Mackey
responded by recommending that "if he didn't like it, he should buy stock in a different company,"
according to corporate governance expert James McRitchie, editor of CorpGov.net. Mr. Mackey's advice to take the
"Wall Street Walk" reveals a lack of understanding of current corporate governance best practice.
"Today it is widely recognized that the best course of action for investors who think a
company has great potential may be to use their power as the owners of the company to make
changes," Mr. McRitchie told SocialFunds.com. "Investors, especially large institutional
investors, are not about to cut and run when selling will drive the price down--and certainly many
believe Whole Foods has value."
Mr. Mackey also stated that there was "nothing unethical
or unusual" about prohibiting shareowners from presenting their resolutions during the formal
meeting agenda.
"I have never heard of a company taking this course--even those who run to
the other side of the planet to avoid large numbers of shareholders still allow resolution
proponents to speak," said Mr. McRitchie.
Unfortunately, Whole Foods seems to be digging
itself an even deeper hole, as it is not announcing the voting results until it releases its 10Q on
May 19, according to Andrew Shalit, director of shareholder advocacy at Green Century Funds.
"There are
certainly rare occasions where votes are very close or there's a genuine dispute about the
results--as in hotly contested proxy contests--and companies are justified in not announcing the
results at the meeting," Ms. Young of TCL told SocialFunds.com. "But in the vast majority of
situations, the voting results as of the date of the meeting are very close to the final results,
so companies should announce the results at the meeting."
The most confounding aspect of
Whole Foods' behavior is that it contradicts its own philosophy.
"We take responsibility
for our own success and failures," states the company's Core Values. "We celebrate
success and see failures as opportunities for growth."
When Weyerhaeuser (WY) replaced its
practice of fielding shareowner questions from the floor with a requirement of submitting questions
before the annual meeting last year, it raised alarm over the potential for censorship of
uncomfortable questions.
"In retrospect . . . we sincerely regret this decision," stated
CEO Steve Rogel in a statement issued soon after the annual meeting. "Future shareholders meetings
will welcome the voice of the shareholders by way of oral questions from the floor."
"WFMI
is begging for trouble here, and it needs to examine the Weyerhaeuser experience closely--both the
negative publicity and their swift apology," said Mr. Herbert of Newground. "Management would do
well to not waste time and focus by making excuses for their poor behavior, but instead to revise
its position here, apologize, and move forward."
| Editor's Note: | On March
13, three days after this article was posted, Whole Foods filed a Form 8-K
with the SEC disclosing voting results from its annual meeting.
Dividing the number of
votes "for" by the sum of the number of votes "for" plus the number of votes "against," the
shareowner resolution asking Whole Foods to report on energy efficiency received 8.9 percent
support, almost three times the threshold (3 percent) a first-year resolution needs to surpass to
qualify for re-filing next year.
The shareowner resolution asking the company to report on
endocrine disruptors received 10 percent support, more than three times the threshold.
The shareowner resolution asking for a simple majority threshold for shareowner votes received
24.6 percent support, but the proposal overlapped significantly with a management proposal (item
number 3), which was ratified. |
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SRI World Group, Inc. All Rights Reserved.
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