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Shareholders Aim for Safeway's Burd

Is Safeway CEO Steven Burd about to get the Michael Eisner treatment? On Mar. 25, five of the nation's biggest public pension funds are set to announce a vote-no campaign aimed at tossing CEO Burd off Safeway's board, along with two other Safeway (SWY) directors, William Tauscher and Robert MacDonnell.

Hoping for a repeat of the shareholder revolt that battered the Disney (DIS) CEO, Connecticut State Treasurer Denise Nappier, New York State Comptroller Alan Hevesi, and top officials of three other public funds are pushing the withhold-the-vote drive against Burd and the other two directors. Now, BusinessWeek has learned that at least five more big public pension funds are seeking their boards' approval to join in the oust-Burd movement. Behind the scenes, they're all getting support from the AFL-CIO, which recently ended a bitter labor battle with Safeway.

Fund officials say they'll withhold votes for Burd at Safeway's May 20 annual meeting because of his lax management and the grocery chain's poor performance. They want Tauscher out because of conflicts of interest that they contend undermine his status as an independent director. Tauscher has had millions of dollars of personal business dealings with Safeway and got loans from it. MacDonnell's independence, fund officials say, is compromised by his ties to businesses affiliated with Kohlberg Kravis Roberts, which owned Safeway until 2000.

"POTENTIAL FOR ANYTHING." "The track-record of Safeway's leadership, the drastic decline in shareholder value, the absence of adequate board independence, and the reluctance to confront substantial concerns that continue to be raised by shareholders have only intensified our concern," says Nappier. A Safeway spokesman defends Burd and says all its outside directors qualify as independent.

While the vote-no campaign at Safeway lacks the publicity of the anti-Eisner juggernaut, proxy experts think a sizable minority of shareholders may repudiate Burd. One reason he's vulnerable is a Securities & Exchange Commission rule proposal that would let shareholders run dissident candidates on a company's proxy ballot in certain circumstances, including a no-vote of 35% or more against a director.

"There's potential for anything after Eisner," says Carol Bowie, director of governance research at the Investor Responsibility Research Center. "That showed how this can snowball. No CEO is immune." Safeway's Burd is about to find out if that's true. By Amy Borrus in Washington, D.C.

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