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

Signage on the outside of a McDonald’s Corp. fast food restaurant in Louisville, Kentucky, USA on Friday, Oct. 18 22, 2021.

Luke Sharett | Bloomberg | Getty Images

MC Donalds Thursday morning’s shareholder meeting will mark the culmination 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 animal welfare practices.

The first vote count shows that McDonald’s will likely triumph, The Wall Street Journal reported on Tuesday. Shareholders can continue to vote until the meeting is over, but people familiar with the matter told the paper that voting is unlikely to change the outcome.

Icahn has publicly criticized McDonald’s for failing to meet the original deadline for eliminating gestation crates for pregnant pigs, a practice animal rights activists claim is cruel. He also said the company should have banned the use of the crates entirely, but has since changed the scope of his commitment.

For its part, the Chicago-based company blamed the Covid-19 pandemic and African swine fever outbreaks for postponing the 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 United States to come from pigs that are not kept in gestation crates if pregnancy is confirmed. McDonald’s also said that eliminating the use of checkout counters altogether would increase its costs and make customers pay more.

In his push to treat pigs, Icahn also considered 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, therefore, other related ESG risks that the Company is not adequately addressing,” he wrote in his letter to fellow McDonald’s shareholders.

Icahn has appointed 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 posts on a big board like McDonald’s aren’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 industry-specific representation rather than just giving a someone a stock that oversees ESG, “said Barclays analyst Jeffrey Bernstein.

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

Icahn is waging a similar proxy battle Krogerthe largest US supermarket chain operator in the Kroger annual meeting in the US is scheduled for June 23.

Security of votes

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

“Two hundred stocks are so far from having any influence on a company,” said Bruce Kogut, professor of corporate governance and ethics at Columbia Business School. “My guess is that it’s advertising, and now he’s concerned with a sustainable environment or ESG targeting, and he’s announcing himself as an activist in that space.”

In lobbying for more votes, Icahn denounced the big Wall Street companies for “hypocrisy” and said they are capitalizing on ESG investments for profits without supporting “tangible social progress.” McDonald’s top three shareholders are The Vanguard Group, State Street’s wealth management arm, and Black rockaccording to FactSet.

Icahn failed to win over the top two proxy consulting firms, Institutional Shareholder Services and Glass Lewis, which make recommendations to thousands of funds on how to vote in shareholders’ meetings.

The ISS has only offered “precautionary support” to Icahn’s candidates, saying shareholders should consider whether the current board of directors is sufficiently focused on ESG issues. But the company noted that the proxy fight is notable because Icahn has focused on issues like animal welfare, protein diversification, and the pay gap, rather than looking at operational issues.

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

Glass Lewis, on the other hand, advised against voting for new board members. He said Icahn’s drive to improve animal welfare conditions is “worthy and noble”, but that he has a “simplistic” view of the matter. And he noted that the efforts don’t give substantial consideration to the company’s financials.

The Humane Society of the United States unveiled a shareholder proposal echoing Icahn’s criticism, asking the company to confirm that it will achieve its previous goal of eliminating confinement of gestating pigs by 2022. If the company fails to achieving this is by asking for more information on its pork supply chain. Icahn has collaborated with the organization in the past and his daughter, Michelle Icahn Nevin, worked with the group.

Such shareholder proposals are not binding but can send a message to company councils about public support for business practices. McDonald’s is addressing six other shareholder proposals addressing issues including the use of plastics, antibiotics and lobbying.

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