McDonald’s shareholders vote on Carl Icahn’s proxy fight over animal welfare

Signage outside a McDonald’s Corp. fast food restaurant in Louisville, Kentucky, USA, on Friday, Oct. 22, 2021.

Lucas Sharrett | Mayor Bloomberg | fake images

Thursday morning’s McDonald’s shareholder meeting will mark the climax of a proxy fight waged by activist investor Carl Icahn, who is pushing for two seats on the fast-food giant’s board amid a battle over its practices. of animal welfare.

Early vote counts show McDonald’s likely to win, the Wall Street Journal reported Tuesday. Shareholders can continue voting until the meeting concludes, but people familiar with the matter told the newspaper those votes are unlikely to change the outcome.

Icahn has publicly criticized McDonald’s for missing its original deadline to eliminate gestation crates for pregnant sows, a practice that animal rights activists say is cruel. He has also argued that the company was supposed to ban the use of boxes altogether, but has since changed the scope of his commitment.

For its part, the Chicago-based company has blamed the Covid-19 pandemic and African swine fever outbreaks for pushing back its original 2022 deadline set a decade ago. By the end of this year, McDonald’s now expects that 85% to 90% of its US pork supply will come from pigs that are not in gestation crates if they are confirmed pregnant. McDonald’s has also said that eliminating the use of checkouts altogether would increase its costs and make customers pay more.

In his push for treatment of pigs, Icahn has also attacked 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 thus other related ESG risks that the company is not adequately addressing,” he wrote in his letter to McDonald’s shareholders.

Icahn nominated Leslie Samuelrich, a sustainability-focused investor, and Maisie Ganzler, an executive at Bon Appétit Management, to replace existing board members Sheila Penrose and Richard Lenny. In total, McDonald’s has 12 seats on its board.

“Two seats on a big board like McDonald’s isn’t huge, but I think it’s the message it would send to others in the industry that they need to do more to make sure their board has expert representation in this area, rather than just giving them someone a security that oversees ESG,” said Barclays analyst Jeffrey Bernstein.

Due to McDonald’s size and the massive volumes of ingredients it uses, changes in the company’s supply chain tend to have a ripple effect throughout the industry. McDonald’s says its McRib sandwiches and the bacon for its burgers and breakfast sandwiches make up about 1% of the US pork supply.

Icahn is waging a similar power struggle at Kroger, the largest supermarket chain operator in the US The Kroger US annual meeting is scheduled for June 23.

securing votes

Icahn only owns about 200 McDonald’s shares, a relatively small stake that doesn’t give him much voting influence.

“Two hundred shares of stock is a long way from having any influence on a company,” said Bruce Kogut, a professor of ethics and corporate governance at Columbia Business School. “I guess it’s about advertising, and now he cares about a sustainable environment or ESG orientation, and he advertises himself as an activist in that space.”

Pushing for more votes, Icahn called big Wall Street companies “hypocrisy” and said they are capitalizing on ESG investing for profit without supporting “tangible social progress.” McDonald’s three largest shareholders are The Vanguard Group, the asset management arm of State Street, and BlackRock, according to FactSet.

Icahn also failed to win over the two major proxy advisory firms, Institutional Shareholder Services and Glass Lewis, which make recommendations to thousands of funds on how to vote at shareholder meetings.

ISS only offered “cautionary support” to Icahn’s nominees, saying shareholders should consider whether the current board is sufficiently focused on ESG issues. But the firm noted that the proxy fight is notable because Icahn has focused it on issues such as animal welfare, protein diversification and the pay gap, rather than operational issues.

“It may well be remembered as the first true ‘ESG contest,'” ISS said.

Glass Lewis, by contrast, advised against voting for new board members. He said Icahn’s drive to improve animal welfare conditions is “dignified and noble” but that he takes a “simplistic” view of the problem. And he noted that the efforts do not give substantial consideration to the company’s finances.

The Humane Society of the United States has submitted a shareholder proposal that echoes Icahn’s criticism and asks the company to confirm that it will achieve its previous goal of eliminating the confinement of pregnant pigs by 2022. If the company cannot reach that goal, it is requesting more disclosure about its pork supply chain. Icahn has been associated with the organization in the past, and his daughter, Michelle Icahn Nevin, used to work with the group.

These shareholder proposals are not binding, but can send a message to corporate boards of public support for company practices. McDonald’s is facing six other shareholder proposals that address issues including the use of plastics, antibiotics and lobbying activities.

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