Jonah Raskin : Tina Brown is Blushing Bride

Blushing bride. Image from Weddingstar.
READ THIS SKIP THAT:
The Daily Beast weds Newsweek

By Jonah Raskin / The Rag Blog / November 16, 2010

Mergers of media giants usually attract attention in the media, and for the moment the merger of Newsweek and The Daily Beast is big news. Tina Brown is back -- perhaps bigger than ever before. The former editor of Vanity Fair and The New Yorker, and the founder and the editor-in-chief of The Daily Beast, Brown described the merger as a “marriage,” and added that some marriages take longer than others to happen.

Brown brings a certain amount of sex appeal with her to her new job at Newsweek, as well as considerable experience in print media. But her sex appeal and her experience hardy seem enough to rescue the 75-year-old news magazine and rival of Time that is owned by Sidney Harman -- now 92-years-old; it will take more than Brown to prevent the sinking of that hoary old beast, Newsweek.

It’s estimated that Newsweek will lose $20 million this year; The Daily Beast -- that’s owned by Barry Diller’s Inter Active Corp (IAC) -- is only expected to lose $10 million this year. IAC also owns Evite and Excite and more. Newsweek thinks that online journalism and information is the shot in the arm that it needs; The Daily Beast thinks that Newsweek will add credibility. If it's a marriage, as Brown says it is, than It's more like a shot-gun marriage than a marriage of true love.

In either case, no one under the age of 25 is reading either Newsweek or The Daily Beast, which is a good reason advertisers are not flocking to either of them. The marriage ---or merge -- between the two of them seems like an act of desperation more than anything else.

The bigger story that the merger hides is the crisis of old-fashioned print media that print media doesn’t want to face, and doesn’t want to write about. It’s one of the biggest news stories of our time, and it’s not going to go away. It’s bigger than TV or the movies or radio, and one of these days we’re going to read a news story that says “Newsweek Closes Shop.”

Jonah Raskin is a professor of communication studies at Sonoma State University.]

The Rag Blog

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Salon et al : Romancing the Stone

On a roll: Image from Luminous Landscape.
Jann Wenner and Rolling Stone:
The Salon/Adobe/Oracle/Dell connection

By Bob Feldman / The Rag Blog / July 3, 2010

As the recent replacement of General McChrystal by General Petraeus as military leader of the Pentagon’s war in Afghanistan indicates, Rolling Stone magazine can publish an article that has a profound effect on U.S. politics during the current historical era of endless war abroad and endless economic recession at home.

But it’s unlikely that Rolling Stone will publish many news articles that are critical of either the Internet magazine Salon’s lack of reporting about U.S. political prisoners or of the way Salon, Adobe Systems, Oracle, or Dell Inc. executives obtain their wealth.

Here's why:

1. As of June 1, 2010, Rolling Stone owner Jann Wenner and his Wenner Media LLC firm apparently owned 10.1 percent of the Salon Media Group’s common stock;
2. Adobe Systems Co-Chairman of the Board John Warnock is also Salon’s Chairman of the Board;
3. former Adobe CEO Bruce Chizen sits on Oracle’s corporate board;
4. and current Adobe president and CEO, Shantanu Narayen, sits next to Texas Billionaire Michael Dell on the Dell Inc. Board of Directors.

Between 2004 and February 2006, Wenner also sat on Salon’s board of directors, after investing $200,000 in the Salon Media Group in December 2003. According to a January 15, 2004, Salon press release, after Rolling Stone invested in Salon, the Salon founder and then-CEO, David Talbot, stated:

I look forward to working with Jann Wenner on the Salon board of directors... Everyone at Salon is also very excited about collaborating with Rolling Stone... Salon’s partnership with Rolling Stone is full of great promise.

The same press release also reported that Wenner said:

I’m excited about this collaboration between Rolling Stone and Salon.

Ironically, a few years before Wenner joined its corporate board, Salon had posted an article by Sean Elder on June 28, 2002, titled “The Death of Rolling Stone,” which observed:

...The truth is that Rolling Stone has been such an undistinguished hybrid -- part ‘70s-style journalism (investigative reporting, distinct voices and rambling interviews), and part any other entertainment magazine you can name for so long that most of its subscribers are probably unaware that they still get it...

As Rolling Stone has slowly morphed into a magazine just like dozens of others, it has lost its reason for being... Rolling Stone seems like an anachronism, the Ladies’ Home Journal of rock journalism...

Salon’s Website attracts about 5.4 million unique visitors per month and “ultimately, Salon charges advertisers for a set number of ad impressions viewed by a Website visitor,” according to the Salon Media Group’s June 2010 10K S.E.C. financial filing.

Between March 2009 and March 2010, for example, Salon collected over $2.9 million from its corporate advertisers and $701,000 from its 15,800 paid subscribers (who pay Salon between $29 and $45 each year). In addition, none of Salon’s 45 full-time and two part-time employees are unionized or subject to a collective bargaining agreement.

Yet, according to its June 2010 10K financial filing:

Salon has been relying on cash infusions primarily from related parties to fund operations. The related parties are generally John Warnock, Chairman of the Board of Salon, and William Hambrecht. William Hambrecht is the father of Salon’s former President and Chief Executive Officer, Elizabeth Hambrecht, a Director of the Company. During the year ended March 31, 2010, related parties provided approximately $2.6 million in new loans.

Curtailment of cash investments and borrowing guarantees by related parties could detrimentally impact Salon’s cash availability and its ability to fund its operations.

Warnock (a founder and former CEO of Adobe Systems, as well as an Adobe board co-chairman since 1989) has sat on the Salon corporate board since 2001 and been Salon’s chairman of the board since December 2006. As of June 1, 2010, Adobe board chairman Warnock owned 41 percent of Salon’s Series D Preferred Stock, 52.8 percent of Salon’s Series C Preferred Stock, and 18.5 percent of Salon’s Series A Preferred Stock; while his Adobe Systems firm owned 100 percent of Salon’s Series B Preferred Stock.

Besides providing “cash infusions” for the media firm whose former president and former CEO is his daughter, William Hambrecht currently sits next to Salon board member Elizabeth Hambrecht on the WR Hambrecht & Co. investment firm’s corporate board, is a member of the Motorola and AOL corporate boards, and co-founded the United Football League in December 2009. The Hambrecht family’s tax-exempt Sarah & William Hambrecht Foundation also owns stock in Salon.

Sitting next to Salon Chairman of the Board Warnock on Adobe’s corporate board between December 2000 and April 2008 was an Adobe executive named Bruce Chizen who “has served as a strategic advisor to Adobe Systems Incorporated... since November 2007,” according to the website of the Oracle computer software company -- on whose corporate board former Adobe board member (and Adobe’s CEO between April 2000 and January 2005) Chizen currently sits. Coincidentally, on June 16, 2010, Bloomberg News reported the following:

Oracle Corp., the world’s second- biggest software maker, faces a lawsuit brought by a whistleblower and the U.S. Justice Department claiming it overcharged the government by tens of millions of dollars.

“Oracle failed to disclose discounts that it gave its most favored commercial customers, according to a complaint in federal court in Alexandria, Virginia. Under General Services Administration contracts, the government must get the company’s best prices, according to the complaint.

“Oracle knowingly and recklessly employed these techniques to offer commercial customers deeper discounts without offering those deeper discounts to the U.S. government," it said...

The complaint alleges "various schemes Oracle used to give commercial customers deeper discounts than the GSA schedule provided."

Taxpayers "overpaid for each Oracle software product by the amount of discounts and reductions from other commercial pricing practices that should applied to each such purchase," according to the complaint...

When Oracle board member Chizen was an executive at Salon board chairman Warnock’s Adobe firm, he apparently was not reluctant to eliminate the jobs of a lot of Adobe workers in order to enrich Adobe’s already wealthy top executives and stockholders. As the San Francisco Chronicle, for example, observed on June 3, 1999:

Adobe Systems Inc. yesterday announced it will slash 250 jobs by the end of the year, the second round of layoffs to hit the San Jose graphics software maker in the past nine months.

...The layoffs... will cut about 9 percent of Adobe's workforce...

Yet in the same breath, Adobe executives said revenues for its second quarter, which ends tomorrow, should be better than expected. Adobe expects as much as $246 million in revenues for the quarter, which would touch the high end of analysts' estimates.

"The business is doing well and we are certainly excited by that," said Bruce Chizen, Adobe executive vice president for worldwide products.

"But we have an obligation to... our stockholders... to grow this company aggressively" he said...

Adobe dominates the market for graphics and document software used by publishers with programs like Illustrator, Photoshop and PageMaker…

Last August, Adobe announced a restructuring that eventually pared 350 positions, or 12 percent, of its workforce...

...Chizen said the company's goal is to save about $25 million to $30 million in administrative costs annually.

And in 2005, Chizen and Salon board chairman Warnock’s profitable Adobe firm was also not reluctant to lay off more U.S. workers, despite generating “record profits” in 2005. As the Seattle Post-Intelligencer (12/16/05) noted:

Adobe Systems Inc. posted higher fourth-quarter earnings Thursday but said it expects to cut 650 to 700 jobs as it folds recently acquired rival Macromedia Inc. into its operations...

At Thursday's earnings announcement, Chief Executive Bruce Chizen said 2005 was "another remarkable year for Adobe." He added, "We grew our business 18 percent, generated record profits, and for the third consecutive year achieved record revenue for the fourth quarter and year." ...

The 11 percent to 12 percent companywide work force reduction will... help the company... achieve its 2006 financial targets, said Murray Demo, Adobe's chief financial officer...

Salon Chairman of the Board Warnock founded his then-privately-owned Adobe Systems firm with his current co-chairman of the Adobe corporate board, Charles Geschke, in 1982; but, ironically, “their original product called PostScript was derived from technology... developed at the University of Utah,” a publicly-funded state university, according to A History of the Personal Computer by Roy Allan.

The same book also noted that “shortly after the founding of Adobe, Apple Computer made a significant financial investment in the company.”

Besides owing 19 percent of Adobe’s stock until 1989, Apple Computer was apparently, simultaneously, the biggest “customer” of the same Adobe firm that it partially owned until 1989. As the 1997 book Apple by Jim Carlton revealed:

[Apple Computer Founder] Steve Jobs... got Apple to invest $2.5 million in... in Adobe...

By 1989, Adobe had grown to a minibehemoth selling hundreds of millions of dollars worth of Postscript and related programs per year... Adobe licensed PostScript for use on Apple’s Macintosh, with Adobe receiving royalty payments as well as money for the use of PostScript-related Type 1 fonts... It had mushroomed in size in tandem with Apple’s growth...

...Apple paid Adobe royalties on PostScript sold in Laser-Writers, as well as an extra $300 for each Type 1 font needed to print characters...

In 1986, for example, Apple accounted for 80 percent of Adobe’s sales, according to the International Directory of Company Histories.

The current Adobe CEO and president (who both sits next to Salon board chairman Warnock on Adobe’s corporate board and next to Texas Billionaire Dell on Dell Inc.’s corporate board), Shantanu Narayen, also has not been reluctant to lay-off a lot of Adobe workers. As the San Francisco Chronicle reported, for example, on December 4, 2008:

Adobe Systems in San Jose is laying off 600 employees...

The layoffs... represent 8 percent of Adobe's global workforce...

“The global economic crisis significantly impacted our revenue during the fourth quarter," Adobe's president and chief executive officer, Shantanu Narayen, said in a statement. "We have taken action to reduce our operating costs and fine-tune the focus of our resources on key strategic priorities."

Yet the AFL-CIO website indicates that “in 2009 Shantanu Narayen received $6,663,781 in total compensation” -- after the Adobe CEO and Dell Inc. board member eliminated the jobs of eight percent of Adobe’s workers in 2008. And although Adobe’s 2009 revenues still exceeded $2.9 billion, in November 2009 the Tech Crunch website confirmed that Adobe executives were going to lay off 680 more Adobe workers -- representing nine percent of Adobe’s remaining work force -- in 2010.

According to the TechAmerica Foundation’s recently-released annual Cyberstates report, Cyberstates 2010: The Definitive State-by-State Analysis of the High-Technology Industry, the U.S. high-tech industry lost 245,600 jobs in 2009 -- including 112,600 jobs eliminated by high-tech manufacturing firm executives and 20,700 jobs eliminated by software services company executives.

But at Adobe board Co-Chairman Warnock’s Salon Media Group, Salon executives still seem to earn a lot more money than the average U.S. worker. According to Salon’s December 2009 10K financial filing, for example, Salon Editor-in-Chief Joan Walsh “received cash compensation of $219,000 during fiscal year 2009” and “Richard Gingras, who became” Salon's “CEO effective May 1, 2009, earns a base salary of $230,000.”

Coincidentally, in a July 10, 1999 Salon article, Salon Editor-in-Chief Walsh wrote the following in reference to U.S. political prisoner Mumia Abu-Jamal and his U.S. left supporters:

...The Mumia cult sickens me like little else in American politics today. For the white left, it's Black Panther worship all over again, with even less to worship... Abu-Jamal has done little but run a one-man self-promotion machine from prison.

...Mumia's minions are content with marching in the streets and signing petitions on behalf of their cuddly convict. "He is just beautiful," says author Alice Walker. "He has a lot of light. He reminds me of Nelson Mandela." What an insult to Mandela...

Mumia madness pushed me over the edge earlier this year, when Oakland teachers demanded to stage a teach-in on his behalf throughout the Oakland schools...

Besides owning both stock in Adobe Co-Chairman Warnock’s Salon Media Group and Rolling Stone magazine, Wenner’s media firm also owns both Us Weekly magazine (www.usmagazine.com) and Men’s Journal magazine (www.mensjournal.com). According to New York Magazine (3/27/00) in at the turn of the century, Wenner Media was still a private company “worth somewhere between $500 million and $750 million, with earnings in the $40 million-to-$60 million range.”

In the early 1990s, Wenner spent about four months out of the year at his three-story country manor in East Hampton, Long Island, employed servants there, and also owned both a five-story Manhattan townhouse and a Mercedes limousine, according to the book Rolling Stone Magazine: The Uncensored History by Robert Draper.

And in October 2009, Wenner apparently purchased an eight-room, three-story waterfront home on one and a half acres in Montauk, Long Island for $11.9 million -- after previously purchasing a 62.9 acre upstate estate in Tivoli, New York for $5.8 million in 2007, according to the New York Post (10/22/09).

So if you’re a U.S. music fan who’s been suffering economically during the current U.S. historical era of endless war abroad and endless economic recession at home (or been laid-off recently by corporations like Adobe, Oracle, and Dell), don’t expect Rolling Stone or Salon to be that eager to promote a more equitable redistribution of the U.S. celebrity music world and U.S. high-technology computer industry’s surplus wealth in 2010.

[Bob Feldman is an East Coast-based writer-activist and a former member of the Columbia SDS Steering Committee of the late 1960s.]
The Rag Blog

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Comcast-NBC Merger : Controlling Content and Delivery

Image from ZeroPaid.
The Comcast-NBC marriage:
The importance of Net Neutrality

With a monopoly on delivery, what’s to stop a new breed of ISPs/cable providers from dictating content to customers?

By Jared Moya / December 10, 2009

See 'Internet war: The fight for free access,' Below.

A scary thing happened last week when the Comcast Corporation, the largest cable provider in the U.S. and ISP to some 15 million customers, decided to to purchase NBC Universal in order to delve further upstream from the pipe that simply delivers content to the world where’s it created.

“We believe this venture represents a natural evolution in the world of communications and entertainment, a marketplace that becomes more open, more competitive, and more global every day,” it says. “The opportunity to combine these assets makes possible some innovative programming opportunities that will permit the new company to better serve the interests of many key segments of the viewing audience, including local viewers in the markets served by NBCU’s owned-and-operated stations, and the particular interests of Hispanics, African Americans, children and families, and other key audience segments. This combination also permits us to hasten the arrival of the multiplatform, ‘anytime, anywhere’ future that Americans want.”

In other words, it has seen the writing on the wall in terms of streaming video-on-demand services. Consumers increasingly want to watch content when and where they want.

However, the move means Comcast will control every step of the system from content creation to delivery, and could easily begin preventing customers from accessing competing content or charging them more to do so than they would normally as a sort of a penalty.

“While we believe that this transaction is, and will be determined to be, pro-competitive, pro-consumer, and strongly in the public interest, we recognize that competitive concerns will be raised about the combination of such significant multiplatform assets in a single company,” it adds. “Therefore, we also intend to make a number of affirmative voluntary commitments in our applications for approval that we believe will effectively address any such concerns.”

It leaves out the fact that none of its “commitments” say anything about guaranteeing online access to its competitors or allowing competing streaming services to exist on its network. Since streaming is the future of content delivery it’s important that equal access be guaranteed to all, especially since ISPs enjoy regional monopolies around the country (try finding more than one broadband provider in your area).

“I am not exaggerating when I say that Comcast’s proposed acquisition of NBC Universal poses a genuine threat to free expression and diversity of speech in our democratic society,” says Andrew Jay Schwartzman, president of the Media Access Project, a non-profit law firm and free speech advocacy organization that promotes freedom of expression, independent media, and low-cost, universal access to communications services.

“I believe that the sale should not be permitted. The deal is the first attempt at vertical integration of content and delivery in the broadband era. It presents antitrust and communications regulators with the challenge of addressing whether any one company should be allowed to hold dominant positions in both video and Internet delivery,” he says.

Exactly.

The easiest manifestation of the harm it could do to competitors is the simple withholding of NBC content from both standard cable and online competitors. It also has an inherent interest in making sure that competing video streaming services don’t succeed.

Comcast CEO Brian Roberts says that “today NBC makes certain content available online and I can’t imagine we will change that process,” but we all know that could change with time. The primary concern of a business will always be profits, and it’s only a matter of time before Comcast begins attempting to maximize the potential of of NBC content by dictating the price and availability.

Gigi Sohn, executive director of Public Knowledge, a public interest advocacy organization dedicated to promoting the public interest in access to information, warns that the deal will ultimately harm consumer choice and result in higher fees for services.

“With all that programming under its control, Comcast will have every incentive to take its shows off of the Internet and force consumers to buy a cable subscription to get online access to that programming,” she said. “Want to watch reruns of 30 Rock? Buy a Comcast subscription.”

The whole affair makes Network Neutrality even more important. Federal Communications Commission (FCC) Chairman Julius Genachowski has already emphasized that we need to “safeguard the free and open Internet” by ensuring, among other things, that consumers must be able to access the lawful Internet content, applications, and services of their choice.

Without it, Comcast will have a free hand to do as it pleases.

Stay tuned.

Source / ZeroPaid

Graphic from techrepublican.

Internet war:
The fight for free access

There is a silent battle occurring in Washington, D.C., over our ability to freely access and exchange information through our last unbiased medium, the Internet. The telecom industry is feverishly buying up policy-makers in an attempt to block new, unanimously approved FCC regulations on Internet service providers.

The new plan would ensure Internet users' equal rights to its content, while prohibiting broadband providers such as AT&T, Comcast and Verizon from selectively blocking or slowing content and discriminating against competitors.

In retribution, the big telecom interests are sending a message using their highest paid member of Congress, Sen. John McCain, to submit the Internet Freedom Act, which is anything but. The act states the FCC "shall not propose, promulgate or issue any regulations regarding the Internet or IP-enabled services."

So the FCC would not be allowed to be the FCC, giving service-providers freedom to control, without checks, any and all bandwidth, connection speed, content and applications.

Misleading policy makers and scare tactics should be ignored. FCC regulations would only affect the big Telecom interests and not the Internet itself. Opponents mistakenly claim regulations might slow innovation. Does this include censoring, blocking or stifling applications such as VoIP, Google Voice and legal peer-to-peer networking applications by companies such as AT&T and Comcast?

Regulation preventing such acts, according to a number of studies, will not only lower prices and guarantee higher performance overall, but open the web to more users -- allowing people to share ideas and programs and accelerating innovation and investment. AT&T's own two year experiment in 2006 with neutrality rules brought about greater increases in investment than any other ISP in America.

What deregulation means to these companies is not freedom from some fictitious dictatorial power but immunity from having to answer for their own irresponsible and inevitably oppressive actions. What has deregulation really given us, besides robbing us of laws designed to protect the environment, worker safety and consumer rights?

Michael A. Burger / CJOnline

• For previous Rag Blog articles about Net Neutrality, go here.

Thanks to Media Reform Daily / The Rag Blog

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Whole Foods : Investment Group Calls for John Mackey's Head

Investment group calls for Mackey's head;
Whole Foods tries damage control

CtW Investment Group calls on Whole Foods board to remove Chair and CEO John Mackey; Says damage caused by WSJ op-ed shows Mackey is a 'liability'

See full text of letter, Below.

The CtW Investment Group called on the Whole Foods Market (NYSE:WFMI) board to remove CEO John Mackey as Chairman and to begin the process of naming a new CEO in a letter to Whole Foods’ lead independent director, Dr. John Elstrott, yesterday afternoon [October 24, 2009]. Citing the risk to Whole Foods’ brand reputation caused by Mr. Mackey’s editorial opposing President Obama’s proposed healthcare reform, CtW urged the board to take immediate action to prevent continued damage in the face of a quickly-growing boycott by Whole Foods’ progressive customer base.

“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,” said CtW Investment Group Executive Director Bill Patterson. “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 can not 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.”

-- CtW Investment Group

Whole Foods attempts to quell boycott cries

By Alex Palmer / August 26, 2009

Protesters and unhappy customers have taken to the streets and to social networking sites to express their displeasure regarding Whole Foods chief executive John Mackey's recent Wall Street Journal op-ed column. Some are threatening to boycott the store altogether.

The column, which appeared on Aug. 12, was critical of President Obama's healthcare plan. It urged the country to embrace a more free-market healthcare system. "A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to healthcare, food or shelter. That's because there isn't any. This 'right' has never existed in America," Mackey wrote in the piece.

Today, members of the Washington, D.C.-based United Food and Commercial Workers Union demonstrated outside Whole Foods stores in two locations in Ohio and plan to continue disseminating educational materials to shoppers over the next few weeks.

The group has emphasized the incongruity between Mackey's assertions and the brand image that Whole Foods has built. "Whole Foods has attempted to wrap itself in a progressive image, but when you peel back the layers you see that it is run by an executive who repeatedly pushes extreme positions," said Scott Frotman, spokesman for the union. "Frankly, Mackey's ideology seems more in line with the radical tea baggers harassing people at town hall meetings than the men and women waiting in line to buy organic green tea in his stores."

Online, the playwright Mark Rosenthal's "Boycott Whole Foods" Facebook group now has over 26,000 members. Whole Foods' Facebook page has comments from numerous supporters stating their solidarity with Mackey and commitment to their local stores.

"While Whole Foods Market has no official company-wide position on the healthcare reform issue, we would not want our very successful and sustainable healthcare coverage to be jeopardized," said the company in a statement. "We have heard from individuals who both agree and disagree with John's ideas, as there are many opinions and emotions surrounding the ongoing healthcare reform issue, including lots of differing views here inside of Whole Foods Market. We appreciate those diverse perspectives, but it is unfortunate there is misinformation and confusion out there to cloud John's good intentions."

Whole Foods sent out letters to customers apologizing for any offense that may have been created and started a forum on its Web site for discussion of healthcare reform (Currently it has over 17,000 posts, compared to 249 on favorite recipe swaps.)

Still, consumers are likely to lump the CEO's personal opinion together with the brand. Especially considering Whole Foods has a highly engaged customer base, many of whom are deeply concerned about the issues of health and food, said Amy Shea, global director of Brand Keys. "It becomes problematic for a brand when you have the emotional side firing, and that's what [Mackey] did, he tripped that wire. It's never a good idea for a CEO to do an op-ed piece on such a volatile topic. Of all the topics he could have chosen, he chose one that is very, very close to the space in which the brand participates."

Source / Brandweek / Posted Aug. 24, 2009

Letter from the CtW Investment Group to the Whole Foods Market Board of Directors

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 publically 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 benefitted 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 / CTW Investment Group

Thanks to Roger Baker / The Rag Blog

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