McDonald’s shareholders vote on Carl Icahn’s proxy battle for animal welfare

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

Luke Sharett | Bloomberg | Getty Images

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

Early vote tallies show McDonald’s is likely to triumph, The Wall Street Journal reported Tuesday. Shareholders can continue to vote until the meeting is over, but people familiar with the matter told the newspaper that those ballots are unlikely to change the outcome.

Icahn has publicly criticized McDonald’s for not meeting its original deadline for disposing of gestation crates for pregnant pigs, a practice animal rights activists say is cruel. He also argued that the company was supposed to ban the use of crates altogether, but has since changed the scope of its commitment.

For its part, the Chicago-based company 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 85-90% of its pork supply in the United States to come from pigs that are not kept in gestation crates if it is confirmed that they are pregnant. McDonald’s also said that eliminating the use of checkouts altogether would increase its costs and make customers pay more.

In his push for the treatment of pigs, Icahn also brushed aside McDonald’s broader commitments to tackle environmental, social and corporate governance issues.

“We believe there is a link between animal welfare issues and inadequate governance, and therefore other related ESG risks that society is not adequately addressing,” he said. wrote in his letter to fellow McDonald’s shareholders.

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

“Two seats on a big board like McDonald’s isn’t a lot, but I think that’s the message it would send to others in the industry that they need to do more to make sure their board is represented by experts in this field, rather than just giving someone a title that oversees ESG,” said Barclays analyst Jeffrey Bernstein.

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

Icahn is waging a similar proxy battle at Kroger, the largest U.S. supermarket chain operator, at Kroger’s annual meeting in the U.S., scheduled for June 23.

Securing the votes

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

“Two hundred shares is so far from having any influence on a company,” said Bruce Kogut, professor of corporate governance and ethics at Columbia Business School. “I guess it’s about publicity, and he cares now about environmental sustainability or ESG targeting, and he’s advertising himself as an activist in that space.”

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

Icahn also failed to convince the two major voting advisory firms, Institutional Shareholder Services and Glass Lewis, which advise thousands of funds on how to vote at shareholder meetings.

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

“It may be remembered as the first true ‘ESG competition’,” ISS said.

Glass 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 take a “simplistic” view of the issue. And he noted that the efforts don’t really take into account the company’s finances.

The Humane Society of the United States has submitted a shareholder proposal echoing Icahn’s criticisms, asking the company to confirm that it will meet its previous goal of eliminating confinement of pregnant pigs by 2022. If the company can’t meet that goal, it’s asking for more information about its pork supply chain. Icahn has teamed up with the organization in the past, and his daughter, Michelle Icahn Nevin, worked with the group.

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

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