McDonald’s shareholders to vote on proxy fight with Carl Icahn over animal welfare practices

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  • McDonald’s shareholders meeting on Thursday morning will mark the climax of the proxy battle waged by activist investor Carl Icahn.
  • Icahn has publicly criticized McDonald’s for delays in dismantling pregnancy boxes for pregnant sows.
  • The Wall Street Journal reported Tuesday that early vote numbers suggest the fast-food giant is likely to win.

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McDonald’s shareholders meeting 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 fight over its animal welfare practices.

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Early vote count shows McDonald’s likely to win, The Wall Street Journal reported on Tuesday, Shareholders can continue voting until the meeting ends, but people familiar with the matter told the paper that ballots are unlikely to change the outcome.

Icahn has publicly criticized McDonald’s for failing to meet its original deadline to eliminate pregnancy boxes for pregnant pigs, a practice animal rights activists say is cruel. He has also argued that the company should have banned the use of crates altogether, 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 the outbreak of African swine fever for pushing back the original 2022 deadline set a decade ago. By the end of this year, McDonald’s now expects 85% to 90% of its US pork supply will come from pigs that are not placed in a womb crate if they are confirmed to be pregnant. McDonald’s has also said that completely eliminating the use of crates will increase its cost and result in customers paying more.

While emphasizing the treatment of pigs, Icahn also takes a dig at McDonald’s broad commitments to tackle environmental, social and corporate governance issues.

“We believe that there is a link 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 McDonald’s shareholders.

Icahn named Leslie Samuelrich, a sustainability-focused investor, and Macy Ganzler, an executive at Bon Appetit 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 big board like McDonald’s is not very big, but I think the message it will send to others in the industry is that they need to do more to make sure their boards have experts in this field. Representation is, not just, as Barclays analyst Jeffrey Bernstein said, “giving a title to someone who oversees ESG.”

Due to the size of McDonald’s and the sheer amount of ingredients it uses, changes to the company’s supply chain have a ripple effect across the industry. McDonald’s says the bacon for its McRib sandwiches and its burger and breakfast sandwiches accounts for about 1% of the US pork supply.

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

to secure votes

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

“Two hundred shares is far from making any impact on a company,” said Bruce Kogut, professor of corporate governance and ethics at Columbia Business School. “My guess is it’s about the hype, and he cares about targeting a sustainable environment or ESG now, and he’s proclaiming himself as an activist in that space.”

In lobbying for more votes, Icahn called out large Wall Street firms for “hypocrisy” and said they were capitalizing on ESG investments for profits without supporting “tangible social progress”. According to FactSet, the top three shareholders of McDonald’s are State Street’s asset management arm, The Vanguard Group, and BlackRock.

Icahn also fell short of winning over the top two proxy advisory firms, Institutional Shareholder Services and Glass Lewis, which recommend thousands of funds on how to vote at shareholder meetings.

The ISS only offered “careful support” to Icahn’s nominees, saying shareholders should consider whether the current board is sufficiently focused on ESG issues. But the firm notes that the proxy fight is notable because Icahn has focused on issues such as animal welfare, protein diversification and the pay gap, rather than looking at operational issues.

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

In contrast, Glass Lewis advised against voting for new board members. It said Icahn’s push to improve the animal welfare situation is a “worthy and noble” one, but that it takes a “simplistic” approach to the issue. And it noted that the efforts do not give adequate regard to the company’s financial position.

Echoing Icahn’s criticisms, the Humane Society of the United States has put forward a shareholder proposal, asking the company to confirm that it is meeting its previous goal of ending the confinement of pigs that conceive by 2022.
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Will reach If the company can’t reach that goal, it is requesting more disclosure about its pork supply chain. Icahn has worked closely 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 send a message to corporate boards about public support for company practices. McDonald’s is facing six other shareholder resolutions addressing issues including plastic use, antibiotics and lobbying activities.

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