It is very possible that John Mackey, CEO of Whole Foods, has now killed the merger the company has been seeking with Wild Oats.
As we mentioned here, we disagreed with the FTC’s decision to deny the merger, which Whole Foods has been challenging in court. We felt the FTC was misjudging the relevant market for organic and natural foods and thus assuming that the Whole Foods/Wild Oats combination would be anti competitive.
Supermarkets now sell organic and natural foods, and the share of the market held by Whole Foods and Wild Oats, even combined, is infinitesimal.
Now, however, John Mackey has broken the basic rule of executive management, which is don’t do or say anything that you would be embarrassed at seeing on the front page of The Wall Street Journal or The New York Times.
For seven years, John Mackey, the head of a publicly held company with a fiduciary responsibility to his shareholders and a legal obligation to disclose information to all investors at the same time, maintained a secret identity as “Rahodeb,” an anagram of his wife’s name.
He touted his stock, made stock price projections and bashed Wild Oats, talking down the stock Whole Foods was soon to try and buy up.
What do corporate governance experts have to say about all this? The media reports have been full of the same points. Here are a couple examples:
For an executive to use a pseudonym to praise his company and stock “isn’t per se unlawful, but it’s dicey,” said Harvey Pitt, a former Securities and Exchange Commission chairman. Told of the Mackey posts, Mr. Pitt said, “It’s clear that he is trying to influence people’s views and the stock price, and if anything is inaccurate or selectively disclosed he would indeed be violating the law.’ He added that ‘at a minimum, it’s bizarre and ill-advised, even if it isn’t illegal.’
Charles Elson, a professor of corporate ethics at the University of Delaware, described Mr. Mackey’s behavior as “bizarre”.
He added: “A chatroom is not a forum for a CEO of a public company to discuss his business and the industry. I don’t think this is going to be viewed very positively by many people in the corporate community.”
This all came to the fore as a result of a document that was made public in the course of the Federal Trade Commission investigation of the Whole Foods/Wild Oats merger.
This will give the FTC an opportunity to kill the deal because it makes Whole Foods seem obsessive about Wild Oats. He didn’t post secretly about Kroger or Safeway — it was Wild Oats.
Beyond this deal, though, this revelation poses many challenges for Whole Foods.
First of all, this is the chain that has lived on its “holier than thou” pedigree. Yet it turns out that the founder and CEO is out there trying to manipulate the stock while keeping his role in doing it secret.
The wholesome nice place has a CEO out there trash-talking the CEO of its competitor.
The truth is that if the CEO of Kroger or Wal-Mart did this, their boards would fire them. If the CFO of Whole Foods did this, he would already be gone.
So far, John Mackay’s job seems safe, but the reputation of the company he built, much less so.