Signage outside a McDonald’s Corp. fast food restaurant. in Louisville, Kentucky, USA on Friday, October 22nd, 2021.
Luke Sharett | Bloomberg | Getty Images
Thursday morning’s McDonald’s shareholders’ meeting will mark the culmination of a proxy battle led by activist investor Carl Icahn, who is pushing for two seats on the fast food giant’s board in the middle of a battle over animal welfare practices.
Early polls suggest McDonald’s is likely to win, The Wall Street Journal reported on Tuesday. Shareholders may continue to vote until the end of the meeting, but people with knowledge of the matter told the newspaper that these votes are unlikely to change the outcome.
Icahn has publicly criticized McDonald’s for failing to meet its original deadline for disposing of pregnancy boxes for pregnant pigs, a practice that animal rights activists say is cruel. He also argued that the company should ban the use of boxes altogether, but has since changed the scope of its commitment.
For its part, the Chicago-based company blamed the Covid-19 pandemic and outbreak of African swine fever for pushing back the original 2022 deadline set a decade ago. By the end of this year, McDonald’s now expects 85-90% of their pork supply in the US to come from pigs not kept in pregnancy boxes, if confirmed to be pregnant. McDonald’s also said that a complete elimination of the use of boxes would increase costs and make customers pay more.
In his push for the treatment of pigs, Icahn also disregarded McDonald’s broader obligations to tackle environmental, social and corporate governance issues.
“We believe there is a link between animal welfare issues and inadequate management, and therefore risk other related ESG risks that society does not adequately address,” he said in his letter to other McDonald’s shareholders.
Icahn appointed Leslie Samuelrich, a sustainability-focused investor, and Maisie Ganzler, a director at Bon Appétit Management, to replace the current board members Sheila Penrose and Richard Lenny. McDonald’s has a total of 12 seats on its board.
“Two seats on a big board like McDonald’s is not much, but I think that’s the message it would send to others in the industry that they need to do more to ensure that their board is represented by experts in this field, rather than just giving someone a title that oversees the ESG, ”said Jeffrey Bernstein, an analyst at Barclays.
Due to the size of McDonald’s and the large amounts of ingredients it uses, changes in the company’s supply chain tend to have a ripple effect throughout the industry. McDonald’s says their McRib sandwich and bacon in its burgers and breakfast sandwiches make up about 1% of pork supply in the United States.
Icahn is leading a similar proxy battle with Kroger, the largest U.S. supermarket chain operator, at Kroger’s annual meeting in the United States, scheduled for June 23.
Securing the votes
Icahn owns only about 200 McDonald’s shares, a relatively small shareholding that does not give him much voting rights.
“Two hundred shares is so far from having any impact on a business,” said Bruce Kogut, a professor of corporate governance and ethics at Columbia Business School. “I guess it’s about publicity, and now he cares about environmental sustainability or ESG targeting, and he advertises himself as an activist in that area.”
To push for more votes, Icahn called large Wall Street corporations “hypocrisy” and said they exploited ESG investments for profit without supporting “tangible societal progress.” The three largest shareholders in McDonald’s are The Vanguard Group, the asset management division of State Street, and BlackRock, according to FactSet.
Icahn also failed to convince the two major voting advisory firms, Institutional Shareholder Services and Glass Lewis, which advises thousands of foundations on how to vote at shareholders’ meetings.
The ISS offered only “cautious support” to Icahn’s nominees, saying shareholders should consider whether the current board is focused enough on ESG issues. But the company noted that the proxy battle is notable because Icahn focused it on topics such as animal welfare, protein diversification and the pay gap rather than operational issues.
“It can be remembered as the first true ‘ESG competition,'” the ISS said.
Glas Lewis, on the other hand, advised against voting for new board members. He said Icahn’s efforts to improve animal welfare conditions are “dignified and noble”, but have a “simplistic” view of the problem. And he noted that the effort does not really take into account the company’s finances.
The Humane Society of the United States has submitted a shareholder proposal that reiterates Icahn’s criticism and asks the company to confirm that it will meet its previous goal of eliminating the confinement of pregnant pigs by 2022. If the company cannot achieve this goal, it asks for more information on its pork supply chain. Icahn has previously collaborated with the organization, and his daughter, Michelle Icahn Nevin, worked with the group.
These shareholder proposals are not binding, but can send a message to the boards of directors about public support for corporate practice. McDonald’s faces six other shareholder proposals on topics such as plastic use, antibiotics and lobbying.