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

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A sign outside of a McDonald’s Corp. restaurant in Louisville Kentucky on Friday Oct. 22, 2021.

Luke Sharrett | Bloomberg | Getty Images

McDonald’sThe Thursday morning shareholders meeting will be the culmination of an activist investor Carl Icahn’s proxy battle for two slots on the board. This is in the middle of an ongoing fight over the company’s animal welfare practices.

Early votes suggest that McDonald’s is likely to win. the Wall Street Journal reported Tuesday. Although shareholders may vote up to the end of the meeting, people with knowledge of the situation told the newspaper that they are unlikely change the result.

Icahn has publicly condemned McDonald’s for failing meet the original deadline of eliminating gestational crates for pregnant animals. Animal rights activists call this cruel. Icahn also claimed that McDonald’s was meant to prohibit the use of crates, but it has changed its commitment.

The Chicago-based restaurant has claimed that the Covid-19 pandemic as well as outbreaks of African swine flu have pushed back the original 2022 deadline it set ten years ago. McDonald’s is now expecting that 85% to 90%, if not all of the U.S. pork production will come from pigs who aren’t kept alive in gestation containers if they’re found to be pregnant. McDonald’s also stated that completely eliminating use of the crates will increase its costs, and cause customers to pay more.

Icahn’s advocacy for the treatment and care of pigs is also a swipe at McDonald’s commitments to environmental, corporate governance, and social issues.

He wrote to his fellow shareholders at McDonald’s, “We believe that there is a correlation between animal welfare problems and inadequate governance, which, therefore, leads to other ESG risky issues that the Company has not adequately attended to.”

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. McDonald’s currently has 12 members on its board.

Jeffrey Bernstein, an analyst at Barclays, said that although two seats isn’t a huge number on large boards like McDonald’s, it’s a message to the rest of the industry that more needs to be done to ensure that their board includes experts from this field.

Due to McDonald’s large size and its huge quantities of ingredients, any changes in the supply chain can have an impact on the entire industry. McDonald’s claims that its McRib sandwich and bacon used in its breakfast sandwiches and burgers account for less than 1% of the U.S. pork supplies.

Icahn has a proxy war at KrogerThe U.S.’s biggest supermarket operator, Kroger will hold its annual meeting on June 23.

Securing votes

Icahn holds only 200 shares of McDonald’s, which is a tiny amount that does not give him much power in voting.

Bruce Kogut from Columbia Business School is an expert in corporate governance. He said, “Two Hundred shares is so far from having any influence over a company.” My guess is it’s publicity. He now cares about ESG targeting or a sustainable environment, and he’s making a public announcement that he will be an activist in this space.

Icahn put forth a call for votes and called Wall Street giants hypocrisy. He stated that these Wall Street businesses are using ESG investing to make profits, but they don’t support “tangible societal advancement.” The Vanguard Group is State Street’s asset management arm, making it McDonald’s number three shareholder. BlackRockFactSet says that it’s a surprisingly high number.

Icahn was also unsuccessful in winning the trust of Institutional Shareholder Services (Glass Lewis), which makes recommendations to thousands to how to vote in shareholder meeting.

ISS offered only “cautionary assistance” to Icahn’s nominees and suggested that shareholders consider whether their current board is sufficiently focused on ESG issues. The firm said that the proxy fight was notable in Icahn’s focus on animal welfare, protein diversification, and the pay gap rather than operational issues.

“It might well be remembered for being the first real ‘ESG contest’,” ISS stated.

Glass Lewis advised, however, against voting to elect the new members of the board. The board stated that Icahn’s efforts to improve animal welfare is noble and worthy, but it has a simplistic view. The company’s finances are not considered in the context of these efforts, it said.

A shareholder proposal was submitted by the Humane Society of the United States, echoing Icahn’s concerns. The company is asked to verify that it has achieved its goal of eliminating confinement of gestating porcines by 2022. It will request more details about its pork supply chain if the company fails to meet that goal. Icahn worked with the organization previously, as did his daughter Michelle Icahn Nevin.

Although these shareholder proposals do not have to be binding, they can communicate with corporate boards that there is public support for their practices. Six other shareholder proposals are being made to McDonald’s, addressing plastics usage, antibiotics and lobbying.

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