Signage outside a fast food restaurant McDonald’s Corp. in Louisville, Kentucky, USA, on Friday, October 22, 2021.
Luke Sharrett | Bloomberg | Getty Images
This Thursday morning’s McDonald’s shareholders’ meeting will mark the climax of a power struggle by activist investor Carl Icahn, who is pushing for two seats on the board of the fast food giant amid a battle for their animal welfare practices.
Early voting shows McDonald’s is likely to succeed, the Wall Street Journal reported Tuesday. Shareholders may continue to vote until the meeting is over, but people familiar with the matter told the newspaper that those votes are unlikely to change the outcome.
Icahn has publicly criticized McDonald’s for failing to meet its original deadline to remove gestation boxes for pregnant pigs, a practice that animal rights activists say is cruel. He also argued that the company should completely ban the use of boxes, but has since changed the scope of its commitment.
For its part, the Chicago-based company has blamed the Covid-19 pandemic and African swine fever outbreaks for delaying its original 2022 deadline set a decade ago. By the end of this year, McDonald’s expects that between 85% and 90% of the U.S. pork supply will come from pigs that are not kept in gestation boxes if it is confirmed that they are pregnant. McDonald’s has also said that completely eliminating the use of the boxes would increase its costs and make customers pay more.
In his push for the treatment of pigs, Icahn has also rejected McDonald’s broader commitments to address environmental, social and corporate governance issues.
“We believe there is a connection between animal welfare issues and inadequate governance and therefore other related ESG risks that the company is not adequately addressing,” he wrote in his letter to fellow McDonald’s shareholders.
Icahn appointed Leslie Samuelrich, a sustainability-focused investor, and Maisie Ganzler, a Bon Appétit Management executive, to replace current board members Sheila Penrose and Richard Lenny. In all, McDonald’s has 12 seats on its board.
“Two seats on a big board like McDonald’s aren’t huge, but I think it’s the message I would send to others in the industry that they need to do more to make sure their board has expert representation in that area, instead of just giving someone an ESG-supervised degree, “said Barclays analyst Jeffrey Bernstein.
Due to the size of McDonald’s and the massive volumes of ingredients it uses, changes in the company’s supply chain tend to have a knock-on effect throughout the industry. McDonald’s says its McRib sandwiches and bacon for its burgers and breakfast sandwiches account for about 1% of the U.S. pork supply.
Icahn is waging a similar fight with Kroger, the largest supermarket chain operator in the United States at the annual Kroger meeting scheduled for June 23.
Getting votes
Icahn owns only about 200 McDonald’s shares, a relatively small stake that doesn’t give him much influence when it comes to voting.
“Two hundred shares are far from having any influence on a company,” said Bruce Kogut, a professor of corporate governance and ethics at Columbia Business School. “My guess is that it’s about advertising, and now it’s concerned about a sustainable environment or ESG targeting, and it’s being advertised as an activist in this space.”
Pressing for more votes, Icahn called the big Wall Street companies “hypocrisy” and said they were capitalizing on ESG investment for profit without supporting “tangible social progress.” McDonald’s top three shareholders are The Vanguard Group, the state-owned asset management arm, and BlackRock, according to FactSet.
Icahn also failed to win the two major proxy advisory firms, Institutional Shareholder Services and Glass Lewis, which make thousands-of-fund recommendations on how to vote at shareholders’ meetings.
ISS only offered “cautious support” to Icahn’s candidates, saying shareholders should consider whether the current board is sufficiently focused on ESG issues. But the company noted that the proxy fight is notable because Icahn has focused it on issues such as animal welfare, protein diversification and the wage gap, rather than looking at operational issues.
“It may be remembered as the first real ‘ESG contest,'” ISS said.
Glass Lewis, on the other hand, advised against voting for new board members. He said Icahn’s drive to improve animal welfare conditions was “dignified and noble”, but that he had a “simplistic” view of the issue. And he noted that the efforts do not give substantial consideration to the company’s finances.
The Humane Society of the United States has filed a shareholder proposal echoing Icahn’s criticism, asking the company to confirm that it will achieve its previous goal of eliminating the confinement of pregnant pigs in 2022. The company cannot achieve this goal, it is asking for more information about its pork supply chain. Icahn has partnered with the organization in the past and her daughter, Michelle Icahn Nevin, used to work with the group.
These shareholder proposals are not binding, but may send a message to the boards of directors about public support for the company’s practices. McDonald’s faces six more shareholder proposals that address issues such as the use of plastics, antibiotics and lobbying activities.