Whole Foods, Confronting Pressure From Activist Investor, Shakes Up Board

Whole Foods, Confronting Pressure From Activist Investor, Shakes Up Board

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Jana took a very public approach to seeking change at Whole Foods, criticizing everything from customer service to brand development at the company, which has faced growing pressure from traditional grocers in recent years.

Each of the four board members Jana proposed — a group that included Glenn Murphy, a former chief executive of Gap Inc., and Mark Bittman, a former food columnist for The New York Times — bought their own stakes in the company.

Whole Foods indicated privately that it would be willing to take two of Jana’s nominees but the hedge fund resisted that idea, according a spokesman for Jana.

The Whole Foods Market at Columbus Circle in Midtown Manhattan. The store is in the Time Warner Center, one of the most expensive retail spaces in New York.

Credit
John Taggart for The New York Times

Whole Foods chose to nominate its own candidates, ignoring Jana’s suggestions. In doing so, the company is gearing up for what could be a bare-knuckle battle with the hedge fund, which has typically been known for taking a more constructive approach by engaging with management behind the scenes. Jana decided in this instance to challenge Whole Foods in the public domain before engaging privately.

“We decided we’d rather keep all options on the table, particularly given all the change at the company being announced and the pivotal issues facing the company right now,” the Jana spokesman said in a statement. “Now we’ll be waiting to see if the newly reconstituted board can show a real commitment to fixing the operations at Whole Foods and pursuing all avenues to shareholder value creation.”

The Whole Foods brand was once synonymous with organic and natural foods, and the company built its brand around a culture of healthy eating and living. It stood out for offering fresh and local produce. But its products came with a hefty price tag, earning the grocer the nickname “whole paycheck” among some shoppers.

Whole Foods has been slow to adapt to drastic changes in the grocery sector in recent years. National retailers like Costco, Safeway and Walmart have begun to offer their own organic produce and kitchen staples, increasingly competing with Whole Foods.

Whole Foods shares have slumped as Wall Street lost faith in the company amid the changing landscape. The stock has regained some of the lost ground since Jana announced its investment.

Neuberger Berman began to raise concerns formal with the Whole Foods board in a letter to John B. Elstrott Jr., the chairman, in September. By November, the company had announced a series of management changes.

The changes included the elimination of the company’s co-chief executive structure and the appointment of Mr. Mackey as the sole chief executive. Walter Robb, the previous co-chief executive, continued to serve on the board. Whole Foods also brought board Mary Ellen Coe, the vice president of sales and product operations at Google, onto the board. And it announced that Glenda Flanagan, the chief financial officer, would retire at the end of 2017.

A spokeswoman for Whole Foods declined to comment.

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