- McDonald's shareholders meeting on Thursday morning will mark the climax of a proxy fight waged by activist investor Carl Icahn.
- Icahn has publicly criticized McDonald's for its delay in eliminating gestation crates for pregnant sows.
- Tallies of early votes show that the fast-food giant will likely triumph, the Wall Street Journal reported Tuesday.
McDonald's shareholders meeting on Thursday morning will mark the climax 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.
Tallies of early votes show McDonald's will likely triumph, the Wall Street Journal reported Tuesday. Shareholders can keep voting until the meeting concludes, but people familiar with the matter told the newspaper those ballots are unlikely to change the result.
Icahn has publicly criticized McDonald's for failing to meet its original deadline for eliminating gestation crates 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 crates entirely but has since changed the scope of its commitment.
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For its part, the Chicago-based company has blamed the Covid-19 pandemic and African swine fever outbreaks for pushing back its original deadline of 2022 set a decade ago. By the end of this year, McDonald's now expects 85% to 90% of its U.S. pork supply to come from pigs that aren't kept in gestation crates if they're confirmed to be pregnant. McDonald's has also said that entirely eliminating the use of the crates would raise its costs and result in customers paying more.
In his push on the treatment of pigs, Icahn has also taken swipes at McDonald's broader commitments to tackle 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 attending to," he wrote in his letter to fellow McDonald's shareholders.
Icahn nominated 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 seats on a large board like McDonald's is not huge, but I think it's the message that it would send to others in the industry that they need to do more to make sure their board has representation from experts in this area, rather than just giving someone a title that oversees ESG," Barclays analyst Jeffrey Bernstein said.
Because of McDonald's size and the massive 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 for its burgers and breakfast sandwiches account for about 1% of U.S. pork supply.
Icahn is waging a similar proxy fight at Kroger, the largest U.S. supermarket chain operator in the U.S. Kroger's annual meeting is scheduled for June 23.
Icahn only owns about 200 McDonald's shares, a relatively tiny stake that doesn't give him much sway in voting.
"Two hundred shares is so far away from having any influence on a company," said Bruce Kogut, a professor of corporate governance and ethics at Columbia Business School. "My guess is that it's about publicity, and he now cares about a sustainable environment or ESG targeting, and he's announcing himself as an activist in that space."
In lobbying for more votes, Icahn called out large Wall Street firms for "hypocrisy" and said they're capitalizing on ESG investing for the profits without supporting "tangible societal progress." McDonald's top three shareholders are The Vanguard Group, the asset management arm of State Street, and BlackRock, according to FactSet.
Icahn has also fallen short of winning over the top two proxy advisory firms, Institutional Shareholder Services and Glass Lewis, which make recommendations to thousands of funds on how to vote in shareholder meetings.
ISS only offered "cautionary support" to Icahn's nominees, saying that shareholders should consider whether the current board is focused enough on ESG issues. But the firm noted the proxy fight is notable because Icahn has focused it on issues such as animal welfare, protein diversification and pay gap, rather than looking at operational issues.
"It may well be remembered as the first true 'ESG contest,'" ISS said.
Glass Lewis, by contrast, advised against voting for the new board members. It said that Icahn's push to improve animal welfare conditions is a "worthy and noble," but that it takes a "simplistic" view of the issue. And it noted the efforts don't give substantive regard to the company's financials.
The Humane Society of the United States has put forth a shareholder proposal echoing Icahn's criticisms, asking the company to confirm that it will reach its previous goal of eliminating the confinement of gestating pigs by 2022. If the company can't reach that target, it's requesting more disclosure 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 nonbinding but can send a message to corporate boards about public support for company practices. McDonald's is facing six other shareholder proposals addressing issues including plastics use, antibiotics and lobbying activities.