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

Signs outside McDonald’s Corp. A fast food restaurant in Louisville, Kentucky, United States, on Friday, October. 22, 2021.

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

The Wall Street Journal reported Tuesday that the number of early votes shows that McDonald’s is likely to prevail. Shareholders can continue to vote until the meeting ends, but people familiar with the matter told the newspaper that those ballots were unlikely to change the outcome.

Icahn publicly criticized McDonald’s for failing to meet the original deadline to cancel gestational boxes for pregnant pigs, a practice animal rights activists say is cruel. He has also argued that the company was supposed to ban the use of the funds entirely but has since changed the scope of its commitment.

For its part, the Chicago-based company has blamed the Covid-19 pandemic and the outbreak of African swine fever for pushing back its original 2022 deadline a decade ago. By the end of this year, McDonald’s now expects that 85% to 90% of its pork supply in the United States will come from pigs that are not kept in gestational crates if they are confirmed to be pregnant. McDonald’s also said that completely eliminating the use of boxes would increase their costs and cause customers to pay more.

In the context of his push to cure pigs, Icahn has also taken a heavy hand at McDonald’s broader commitments to address environmental, social and corporate governance issues.

“We believe that there is a link between animal welfare issues and inadequate governance, and thus, other environmental, social and corporate governance risks of which the company is insufficiently concerned,” he wrote in his letter to fellow McDonald’s shareholders.

Icahn has nominated Leslie Samuelrich, an investor focused on sustainability, and Maisie Ganzler, CEO of Bon Appetit 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 board as big as McDonald’s are not huge, but I think that is the message that will be sending to others in the industry that they need to do more to make sure their board has representation from experts in the field, rather than just Barclays analyst Jeffrey Bernstein,” said Jeffrey Bernstein, an analyst at Barclays. Giving someone a title oversees ESG.”

Given the size of McDonald’s and the huge amounts of ingredients it uses, changes in the company’s supply chain tend to have a ripple effect across the industry. McDonald’s says the mackerel and bacon sandwiches it makes for burgers and breakfast sandwiches account for about 1% of the U.S. pork supply.

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

Securing votes

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

“Two hundred shares so far are far from having any impact on a company,” said Bruce Cogot, professor of corporate governance and ethics at Columbia Business School. “I think it’s about publicity, and now he’s taking an interest in sustainable environment or targeting ESG, and he’s advertising himself as an activist in this field.”

Pressing for more votes, Icahn called big Wall Street firms “hypocrisy” and said they are leveraging ESG’s investment to make profits without supporting “tangible societal progress.” The three largest shareholders in McDonald’s are The Vanguard Group, the state street’s asset management arm, and BlackRock, according to FactSet.

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

The ISS only offered “cautionary support” for 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 noteworthy because Icahn focused it on issues such as animal welfare, protein diversification and the pay gap, rather than looking at operational issues.

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

By contrast, Glass Lewis is advised not to vote for new board members. She said Icahn’s drive to improve animal welfare is “worthy and noble,” but takes a “simplistic” view of the issue. He notes that the efforts do not give an objective consideration to the company’s financial statements.

The Humane Society of the United States submitted a proposal to shareholders, echoing Icahn’s criticism, asking the company to confirm that it will reach its previous goal of eliminating hog pregnancy confinement by 2022. If the company can’t reach that goal, to demand more disclosure of the chain Pork supply. Icahn has collaborated with the organization in the past, and his daughter, Michelle Icahn-Neven, has been with the group.

These shareholder presentations are non-binding but may send a message to corporate boards of general support for the company’s practices. McDonald’s faces six other proposals for shareholders that address issues including the use of plastics, antibiotics and lobbying activities.

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