A sign outside a McDonald’s Corp fast food restaurant. in Louisville, Kentucky, USA on Friday, October 22, 2021
Luke Sharrett | Bloomberg | Getty Images
Thursday morning’s McDonald’s shareholder meeting will be the culmination of a fiduciary battle led by activist investor Carl Icahn, who is vying for two seats on the fast food giant’s board of directors amid a fight over its animal welfare practices.
Early voting results show McDonald’s is likely to win, the Wall Street Journal reported Tuesday. Shareholders can continue to vote until after the meeting, but people familiar with the matter told the paper that the ballots were unlikely to change the outcome.
Icahn has publicly criticized McDonald’s for not meeting its original deadline to eliminate crates of pregnant pigs, which animal rights activists say is cruel. He also argued that the company should have banned the use of the boxes entirely, but has since changed the scope of its commitment.
For its part, the Chicago-based company blamed the Covid-19 pandemic and outbreaks of African swine fever for pushing back their original 2022 deadline set a decade ago. By the end of this year, McDonald’s expects 85% to 90% of its pork supply in the U.S. to come from pigs not kept in gestation crates if they are confirmed to be pregnant. McDonald’s also said moving away from crates entirely would raise its costs and result in customers paying more.
In an effort to treat pigs, Icahn has also dealt blows to McDonald’s broader commitment to address environmental, social and corporate governance issues.
“We believe that there is a link between animal welfare issues and inadequate management and therefore other ESG-related risks that the company does not pay due attention to,” he wrote in his letter to other McDonald’s shareholders.
Icahn has appointed Leslie Samuelrich, a sustainability-focused investor, and Maisie Gunzler, chief executive of Bon Appétit Management, to replace existing board members Sheila Penrose and Richard Lennie. There are 12 seats on the board of directors of McDonald’s.
“Two seats on a big board like McDonald’s is not much, but I think that’s the signal he’s sending to others in the industry that they need to do more to ensure that their board is represented by experts in the field and not just give someone a position that oversees ESG,” said Barclays analyst Jeffrey Bernstein.
Due to the size of McDonald’s and the sheer volume of ingredients used, changes in the company’s supply chain tend to have a ripple effect throughout the industry. McDonald’s claims that its McRib sandwiches and bacon for hamburgers and breakfast sandwiches account for about 1% of the U.S. pork supply.
Icahn has a similar fight for proxies at Kroger, the largest American supermarket chain operator in the US. The Kroger Annual Meeting is scheduled for June 23rd.
Icahn owns only about 200 shares of McDonald’s, a relatively small stake that doesn’t give him much voting power.
“Two hundred shares is a long way from having any impact on a company,” said Bruce Kogut, professor of corporate governance and ethics at Columbia University Business School. “I’m guessing it’s about advertising and now he cares about sustainability or ESG goals and he declares himself to be an activist in that area.”
Lobbying for more votes, Icahn accused big Wall Street firms of “hypocrisy” and said they were capitalizing on ESG investments for profit without supporting “tangible societal progress.” According to FactSet, the top three shareholders of McDonald’s are the Vanguard Group, State Street’s asset management division, and BlackRock.
Icahn also failed to beat two of the leading proxy consulting firms, Institutional Shareholder Services and Glass Lewis, which advise thousands of funds on how to vote at shareholder meetings.
ISS only offered “precautionary support” to Icahn’s nominees, saying that shareholders should consider whether the current board of directors is focused enough on ESG issues. But the firm noted that the fiduciary fight is notable because Icahn has focused it on issues like animal welfare, protein diversification and the pay gap rather than operational issues.
“Perhaps it will be remembered as the first real “ESG contest,” ISS said.
Glass Lewis, by contrast, advised against voting for new board members. It stated that Icahn’s commitment to improving animal welfare was “worthy and noble”, but that he took a “simplistic” view of the problem. And he noted that the efforts do not give a significant bearing on the financial performance of the company.
The Humane Society of the United States has put forward a shareholder proposal echoing Icahn’s criticism, asking the company to confirm that it will achieve its previous goal of eliminating pregnant pigs by 2022. If the company fails to achieve this goal, it will request more information about its pork supply chain. Icahn has teamed up with the organization in the past and his daughter, Michelle Icahn Nevin, used to work with the group.
Such shareholder proposals are non-binding but may signal corporate boards of public support for the company’s practices. McDonald’s is facing six more shareholder proposals relating to issues such as plastic use, antibiotics and lobbying.