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Tickers in this Article: WFMI, KR, SWY, COST
John Mackey is a great businessman. In 1980 he helped to co-found what is arguably one of the most popular concepts in organic food today - Whole Foods (Nasdaq:WFMI). On top of being an entrepreneur, he also seems to me to be a pretty good guy. From most of what I've read about him, he seems like a family man and a person who cares deeply about worthy causes such as animal welfare and the environment.

Rahodeb's Revenge
However, for those unaware, Mackey made headlines for himself earlier this year... and not for good causes. Instead, it was his alleged online activities that grabbed attention. Specifically, it was reported that Mackey had been posting comments on internet sites for a period of up to seven years using the screen name "rahodeb".

His posts reportedly touched upon company activities and a company called Wild Oats, which Whole Foods acquired this past year. Mackey reportedly called Wild Oats' stock overpriced, and some might say influenced the amount that Whole Foods ultimately paid for the company.

Nevertheless, it was recently reported last week that the company completed an investigation into the activities, and that the company's board continues to support him. (To see the Reuters news report, check out "Whole Foods Board Backs CEO Mackey".)

Only one question comes to mind upon reading this story, "Why?".

Board's Move Provides Questions, Not Answers
Seriously, why would the company continue to support him? What he did may or may not have violated securities laws; However, I think that he violated something much more important - investors' trust.

Even from an investor relations perspective, does it make sense to keep Mackey on? The stock is trading about 13 points off its 52-week high, and seems to be looking for direction. In addition, I would argue that big name grocers such as Kroger (NYSE:KR) and Safeway (NYSE:SWY) and warehouse clubs such as Costco (Nasdaq:COST) are increasingly cashing in on organic and other healthy foods. As a result, this could be a very pivotal year for the company.

In other words, why take a chance with a fellow whose integrity is being questioned, and who will have trouble winning back the confidence of sell side analysts, particularly at a time like this?

Other Concerns

Suppose for a second that Whole Foods' stock tanks for some reason and the company is sued, which tends to happen frequently these days. It's possible a plaintiff's attorney could use Mackey's activities as ammunition in some way. I know I would certainly try! Also, how will the SEC investigation play itself out? Will there be more bad press? And if so, how might it impact the share price?

Whole Foods is a great company, and Mackey seems like a good man. But this is a public company, and in my mind the shareholders deserve better.

To continue reading on this subject, see Get Tough On Management Puff.

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