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Whole Foods' Mackey Shocks Again

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Whole Foods Market's (Nasdaq: WFMI  ) co-founder and CEO, John Mackey, is nothing if not full of surprises. Just months after the ruckus sparked by his voicing what some considered to be controversial views on health care, he has now delivered a more positive shock for corporate governance fans. Mackey has voluntarily given up the role of chairman of the board of Whole Foods.

Why's it shocking? Well, Mackey had held the titles of CEO and chairman of the board at Whole Foods for about three decades, and shareholder activists have been agitating for a separation of the roles there for several years running (I wrote on the topic in 2007).

Shareholder activists pursue this change at many companies (and are often unsuccessful). Well-known entities like ExxonMobil (NYSE: XOM  ) are frequent targets. Meanwhile, high-profile corporate debacles like Lehman Brothers, Citigroup (NYSE: C  ) , Countrywide Financial, Merrill Lynch, and Bank of America (NYSE: BAC  ) all had CEOs acting as chairmen when major mistakes transpired. (Granted, a CEO also presiding over the board of directors is a common practice in corporate America to begin with.)

Fixing director independence (with an independent chairman as a key component) is an important corporate governance issue. Boards of directors are supposed to represent shareholder interests, and having management's top dog also preside over the board can be a conflict of interest, not to mention a distraction from his or her core (and essential!) job of actually running the company.

The SEC filing that disclosed Mackey's decision said the reason is to "avoid unnecessary distraction and protect the Company's corporate governance profile." Mackey's decision is curious, since such shareholder demands are not new for Whole Foods. Then again, a union-related shareholder, CtW Investment Group, agitated for Mackey's resignation or removal after the health-care controversy earlier this year. Perhaps the coming proxy season was gearing up to be just a tad more "distracting" than usual.  

Overall, though, I'd say this is good for the company's reputation. Whole Foods has taken other important steps, as well, like adopting majority voting. In 2006, Mackey voluntarily gave up salary and donated stock options, becoming one of the best examples of a modestly paid CEO when most CEOs' pay had gone wild. The public commitment to donate future stock options sets Mackey apart from, say, the leaders of Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) , who have also voluntarily taken $1 salaries and received fat options grants. Whole Foods has other elements that promote goodwill, too.

Those of us who are fans of reasonable corporate governance principles, and hopeful that corporate America will get away from policies that endanger good business practices, applaud moves like this one. What do you think of Mackey's move, or the idea of separating the roles at companies across the board? Sound off in the comments boxes below.

Apple and Whole Foods Market are Motley Fool Stock Advisor recommendations. Google is a Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax owns shares of Whole Foods Market. The Fool has a disclosure policy.

Read/Post Comments (14) | Recommend This Article (24)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 28, 2009, at 4:58 PM, Fool wrote:

    I beleive its a bad move. last I heard we still had the right to speak our mind. (Right or Wrong)

  • Report this Comment On December 28, 2009, at 5:08 PM, Fool wrote:

    I agree 100% with the last post, this america and that is what sets us apart. I'm saddened by this move.

  • Report this Comment On December 28, 2009, at 7:26 PM, DDHv wrote:

    The CEO has the job of running the company. The board of directors has the job of seeing whether he is doing it well. The two things do not blend well unless the CEO is just the right kind of person. Which does happen occasionally.

  • Report this Comment On December 28, 2009, at 7:49 PM, Fool wrote:

    I think the CEO is again right as he was in his compensation decisions and his stand on the healthcare debate, one great leader.

  • Report this Comment On December 28, 2009, at 8:37 PM, PuddinHead42 wrote:

    I intentionally went to Whole Foods to shop after the wiennie whiners protested against his statements on healthcare even though he provides great health care for the employees. I am not ending all shopping there. This is disgusting. To kowtow to a bunch of ill informed professional protesters makes me ill and I am sure I spent way more money then any 5 of them combined. terrible move Mackey, grow a pair.

  • Report this Comment On December 28, 2009, at 9:54 PM, Fool wrote:

    I agreed with his stance on Health Care and I believe he's doing the right thing with this move as well. Opinions need to be heard, and smart individuals like Mr Mackey are absolutely necessary to help move this country in the right direction. His company however needed this seperation of power and the stock will rightly move in a positive direction as a result...

  • Report this Comment On December 29, 2009, at 10:48 AM, PhulishMortal wrote:

    Right move, right time. Good job, Mackey.

  • Report this Comment On December 29, 2009, at 12:02 PM, corpgov wrote:

    At the heart of the success of Whole Foods is Mackey's vision of selling and promoting healthy food. However, equally important is a more democratic shop floor model involving self-managed work teams. By dividing the roles of CEO and Chair, Mackey takes democracy to a higher level... at least the potential is there.

    The chairman's primary jobs are to advise the CEO and to monitor them on behalf of shareowners. Neither function can be carried out effectively by the CEO.

    A combined CEO/Chair exerts a dominant influence on the board and its agenda, weakening the board’s oversight of management, effectively putting themselves in charge of their own evaluation.

    Separating the chair and CEO positions avoids that fundamental conflict of interest. An independent board chair provides a better balance of power between the CEO and the board and supports strong, independent board leadership and functioning.

    See "Chairing the Board The Case for Independent Leadership in Corporate North America" by the Millstein Center for Corporate Governance and Performance, Yale School of Management.

  • Report this Comment On December 29, 2009, at 12:26 PM, gesualdo1 wrote:

    I deplored Mackey's online antics as rahodeb on Yahoo's financial bulletin board. I also hated his op-ed on health care reform enough to boycott Whole Foods. Mackay has a right to speak his mind. But if there are consequences as a result he should accept them as well. I don't know if the controversies I've mentioned were factors in his decision to step down as Chairman. But I applaud the move. It's the right thing to do for the company.

  • Report this Comment On December 29, 2009, at 6:32 PM, corpgov wrote:

    Don't expect much real change in the immediate future. John Elstrott, the new chairman, has been on the board since 1995. Back in 1996 the relatively conservative National Association of Corporate Directors, in its Report on Director Professionalism, called for term limits.

    The NACD suggested a term limit of between 10 and 15 years, after which the board would say to a director, "Thanks, but you need to do something else." No one could stay on the board beyond 15 years.

    After about 10 years, most directors have been completely captured by the CEOs who brought them to the board and who decide their pay and perks. Long-term directors also get too comfortable. They are not innovating against themselves.

    Real change may come at Whole Foods only after a board shake-up but this step makes that slightly more likely.

  • Report this Comment On December 30, 2009, at 11:36 AM, naturemind wrote:

    Surely we can all agree John has the right to speak his mind. I also have the right to no longer shop at his stores and more important, not be an advocate for the company. With all the positives that WFM does on so many causes, John's alignment with a political idology that I is in complete conflict with the fast majority of his customers is just bad management...plan dumb.

    The poster who said he now spends 5 times more than the average boycotter, is total BS. My family has spent over $20,000 per year for the last 15 years.

    The only reason John resigned was because the board did not want to continue to lose sales. Positive comps have been the life blood of this stock. Mackey is now the darling of Fox news and the extreme right who now have their own flower child. Now if we can get all the gays to find Jesus and let the poor take there fate of poverty and no health care, we will have a great society.

  • Report this Comment On December 30, 2009, at 5:24 PM, royblan wrote:

    At least Mackey walks the talk. I shop all I can at WFMI precisely to piss off the whiners. As for prices, the 365 line is better for you and price-competitive with Big Store private labels. Good move, Mackey.

  • Report this Comment On December 30, 2009, at 7:27 PM, corpgov wrote:

    From WFMI's 8-K:

    Whole Foods Market always has strived to maintain high corporate governance standards. In keeping with this goal, the Board added the Lead Director designation in 2000, and since that time, has shifted all of the responsibilities of the Chairman of the Board to the Lead Director. Despite this shift in responsibilities which has rendered the Chairman role to a mere title, the Company repeatedly has received proposals from corporate activists to separate the Chairman and CEO roles. To avoid unnecessary distraction and protect the Company’s corporate governance profile, Mr. Mackey believes giving up the Chairman title to be in the best interests of the Company and its stakeholders.

    From the language, it would appear that Whole Foods is making the changes, not because they believe in good governance but because they want to avoid unnecessary distraction. Additionally, although the changes were made by the Board, it is obvious Mr. Mackey was "the decider," as our former President would say. On his blog (12/29/09), Mr. Mackey writes, "Was I forced to give up the Chairman’s title? Absolutely not! Both the idea and the decision to give up the title were completely my own… At no time has anyone on the Board or in management ever asked me to give up the title."

    Mackey was ahead of most with his vision of a shift toward natural food and his adoption of decentralized decision-making, something of an experiment in workplace democracy. Team members meet regularly to decide everything from local suppliers to who should get hired. Democracy seems to have worked well for Whole Foods at the shop floor level. It is time the company also adopted more of a democratic approach with regard to the Board and its shareowners.

  • Report this Comment On December 30, 2009, at 8:55 PM, meddguy wrote:

    I can't imagine why anyone would not favor separating

    the roles of CEO and Chairman. I do not see any downside.


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