CalPERS Leans on KKR in Safeway Vote

April 27, 2004 (PLANSPONSOR.com) - The California Public Employees' Retirement System (CalPERS) is now threatening to use its investment leverage with Kohlberg Kravis Roberts & Co. to press for the ouster of Safeway Inc.'s chief executive and several board members.

The nation’s largest public pension fund, which has a $225 million investment in two KKR funds, said Monday it may stop investing with the New York-based buyout firm unless KKR severs ties with Safeway, according to the Contra Costa Times.

“Unless they start moving in the right direction and taking positions shareholders are asking for, I don’t see why we would invest with them,” Rob Feckner, 46, chairman of CalPERS’ investment committee told Bloomberg.    He also told the Contra Costa Times, “”We want independent boards of directors.   Members of the KKR board sit on the Safeway board, and we don’t think that’s independent. We think it’s a conflict of interest.”  

KKR co-founder George Roberts and three other executives tied to KKR sit on the nine-member Safeway board.   KKR got involved with Safeway when the firm invested $129 million in a 1986 buyout of the company, but sold the last of its stake in 2000.

CalPERS has joined pension funds from New York, Connecticut and Illinois in saying it will withhold votes from Safeway chairman/CEO Steven Burd, and directors William Tauscher and Robert MacDonnell, claiming they are not sufficiently independent (see  Activist Funds Set Governance Sights on Safeway ).   MacDonnell is a retired KKR partner and brother-in-law of KKR co-founder George Roberts (who also sits on Safeway’s board). Other board members with KKR ties are KKR partner James Greene and Paul Hazen, chairman of Accel-KKR Co., an Internet venture firm, according to CalPERS.   The pension funds say they want to overhaul Safeway’s board, starting with Burd, because acquisitions and labor disputes hurt the company’s stock.

For its part, Safeway has said that it has “…adopted a definition of ‘independence’ for its directors that is more restrictive than that required by the most recent New York Stock Exchange rules, which have been approved by the Securities and Exchange Commission.”  

Ironically, CalPERS president Sean Harrigan has more than 30 years experience in the food industry, including working for Safeway Supermarkets in various capacities. In 1993, he became assistant to the director of organizing at the Food and Commercial Workers International Union in Washington, DC (see  CalPERS Board Backs Labor Official Harrigan for President ).

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