BREAKING: CtW Investment Group Calls for Whole Foods Board to Remove CEO John Mackey

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A boycott-ers dream come true?

CtW Investment Group has called for Whole Foods Board to start finding a suitable replacement for CEO John Mackey (confirmed with a published letter below).

It is said that the damage caused by Mackey’ WSJ Op-Ed made him a ‘liability’ to the company he co-founded.

CtW Investment Group Executive Director Bill Patterson commented:

“Mr. Mackey attempted to capitalize on the brand reputation of Whole Foods to champion his personal political views, but has instead deeply offended a key segment of Whole Foods consumer base,”

“This is not the first time Mr. Mackey’s unsanctioned communications have damaged Whole Foods’ image with consumers and investors. At a time when shareholders are looking for Whole Foods’ management to focus on improving operations in an uncertain economy, we cannot afford the risk to our Company’s brand reputation caused by Mr. Mackey’s indiscretion. He has become a liability and the board should begin the process of identifying a suitable replacement.”

The Killer Letter

August 24, 2009
Dr. John B. Elstrott
Lead Independent Director
c/o Director of Internal Audit

Whole Foods Market
550 Bowie Street,
Austin, TX 78703

Dear Dr. Elstrott:

Events of the past week establish yet again that John Mackey’s lack of personal discipline makes him a liability for Whole Foods Market, Inc. Despite past indications that the board needed to exercise independent oversight of Mr. Mackey and supervise his external communications closely – most notably his postings on the Yahoo! Finance bulletin board, which led to an SEC inquiry – you and your fellow directors failed to take meaningful action to prevent Mr. Mackey’s uncompensated brand and reputational risk to our Company.

The board must now recognize that managing reputational risk is central to building shareholder value at Whole Foods and act accordingly. Replacing Mr. Mackey as Chairman and CEO is the critical first step in this process. We first raised questions regarding Mr. Mackey’s leadership in a July 25, 2007 letter to you in which we called on the board to immediately remove him as Chairman and determine what additional steps were warranted in response to Mr. Mackey’s ill-advised Yahoo! Finance postings. As a result of the board’s inaction, Mr. Mackey’s indiscretion has continued to place our Company’s brand reputation at risk. We therefore call on the board to immediately undertake the following:

• Immediately remove Mr. Mackey as Chairman of the Board.
• Establish and disclose to shareholders a clear succession plan so that he can be removed expeditiously from his position as CEO as soon as feasible; the plan should detail how the board intends to ensure that CEO succession is a routine topic of discussion by the board, there is an emphasis on development of internal candidates while remaining open to external candidates, all board members are given exposure to internal candidates, and that there is both a long-term perspective to address expected CEO transition periods and a short-term perspective to address crisis management in the event of death, disability, or an untimely departure of the CEO.
• Quickly implement a board policy and process for supervision of executive communications in order to ensure that Mr. Mackey can cause no further damage to Whole Foods’ brand and reputation in his remaining time with the company.
• Commit to issuing a thorough and exacting annual review of all political or partisan uses of corporate resources, including a justification of any such expenditure, and make this review publicly available.

The CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a federation of unions representing nearly 6 million members, to enhance long-term shareholder returns through active ownership. These funds are substantial long-term Whole Foods shareholders.

Whole Foods’ Unique Strength and Vulnerability

Whole Foods is the leading national provider of natural and organic foods, and as such has benefited from growing environmental and health consciousness among affluent urban consumers. However, this leading position makes Whole Foods uniquely vulnerable to disaffection from these core customers if they perceive that the company is not managed in a manner consistent with their values. Following the publication of Mr. Mackey’s op-ed piece opposing President Obama’s health care reform proposal on August 16, 2009, Whole Foods customers have reacted with outrage: at least 26,000 have now joined a Whole Foods Boycott page on Facebook. Numerous commentators have noted that a boycott of Whole Foods by politically progressive customers could cause a significant loss of shareholder value. We note with apprehension that the Company’s letter of apology to customers – the necessity of which reinforces our concerns – appears to have done nothing to soften the backlash against Mr. Mackey, and unfortunately, Whole Foods itself.

While we respect Mr. Mackey’s First Amendment right to express his political views, as he did for instance in noting that the Constitution contains no “right” to health care, we hasten to point out that neither the First Amendment nor any other provision of the Constitution give Mr. Mackey or any other CEO the right to retain their position regardless of behavior or performance. Moreover, Mr. Mackey’s article was not a citizen’s “letter to the editor,” but a lengthy op-ed that explicitly tied him to Whole Foods by identifying him as the CEO. Given Whole Foods’ unique exposure to a key segment of the customer base, Mr. Mackey’s decision to express his views in such a public way, and on an issue of such enormous moment, seems ill-advised at best.

As noted above, we first called on the board to remove Mr. Mackey as chairman and to evaluate his suitability as director and CEO in a letter to you over two years ago. In that letter, we specifically called the board to investigate whether Mr. Mackey’s Yahoo! Finance postings violated Whole Foods’ code of conduct and to establish clear disciplinary policies for unsanctioned executive communications. Unfortunately, you failed to take any meaningful action, and now Whole Foods shareholders again face potentially damaging fallout from unmanaged and uncompensated reputational risk.

Similar inaction now is unacceptable. The board must act immediately to address the burgeoning crisis caused by Mr. Mackey’s undisciplined behavior or shareholders will have little option but to conclude that you and your fellow directors are unable or unwilling to hold management accountable.

Sincerely,
William Patterson
Director

CC: Whole Foods Market Board of Directors
Source: PRNewswire

Does this mean that the boy-cotters have won? Are things as simple as they seem?