As famous and notable of an investor as he is, Carl Icahn does not hold much in the way of McDonald’s stock, owning only about $50,000 worth of the company’s shares—a pittance compared with the giant’s $190 billion market cap.
So, he is appealing to those with larger holdings—specifically large-scale institutional investors whose votes on board seats play a pivotal role in whether director nominees win shareholder votes. And he argues that they should hold McDonald’s accountable for “presiding over animal welfare violations, supply chain lapses and what I perceive to be a hollow environmental, social and governance (ESG) agenda,” Icahn wrote.
Icahn wants shareholders to vote his two nominees to the company’s board of directors in one of the first real proxy fights in company history, based on what he argues is a broken promise to stop buying pork from suppliers that keep sows enclosed in gestation crates. He has nominated Leslie Samuelrich, president of Green Century Capital Management, and Maisie Lucia Ganzler, chief strategy officer for Bon Appetit Management Co., to the McDonald’s board.
In a detailed statement on Thursday, McDonald’s defended its record on animal welfare. And the company said that Icahn is pushing “single-platform nominees” at the expense of “valuable directors.”
“Mr. Icahn would seek to remove valuable directors with strong track records from the McDonald’s board and replace them with single-platform nominees that not only lack public company board experience, but also the expertise and qualifications to add meaningful value regularly faced by the McDonald’s board,” the company said. “McDonald’s shareholders deserve better.”
Icahn launched his unlikely proxy earlier this year, saying that the company vowed a decade ago to stop working with suppliers that use gestation crates by now.
It’s an unusual fight for an activist who made his name in the 1980s for breaking up companies and was one of the models for the character Gordon Gekko in the movie “Wall Street.”
“At this point in my career,” he wrote, “I consider it my responsibility to engage in constructive activism to help rectify glaring injustices perpetuated by many ineffective boards of directors and management teams leading America’s top corporations.”
Icahn questioned the company’s argument that it expects to source 85% to 90% of its pork from sows not raised in gestation crates, but he blasted that as “a cynical fabrication intended to fool us into believing this egregious form of animal abuse in McDonald’s supply chain is largely not occurring.”
“I believe McDonald’s customers want food that is sourced ethically, responsibly and humanely,” he said. “Gestation crates are none of those.”
He said the company and its board are “behaving in a reprehensible manner” by not acting sooner on the topic. He also questioned McDonald’s decision to fight his efforts, estimating they will cost the company $16 million—meaning the burger giant is spending that much to keep two directors on its board. “I do not know of any director worth $8 million, do you?” he said.
“Can’t McDonald’s find better ways to spend that kind of money?” he said. “In more simple terms, how many pigs would be spared the torture of gestation crates if the $16 million were spent on that?”
But Icahn also took on corporate pay, noting that CEO Chris Kepczinski was paid $20 million, or 2,251 times the average employee, calling the ratio “unconscionable.”
“The board is clearly condoning multiple forms of injustice and I believe the majority of the public will agree,” he said.
In its response, McDonald’s said it “cares about the health and welfare of the animals in our supply chain” and said its work on the issue of gestation crates, done with the American Association of Swine Veterinarians, led to step changes in the pork industry. It argued that it sources only about 1% of U.S. pork production “and does not own any sows or produce or package pork.”
The company said that Icahn wants the company to require all its suppliers to move to “crate-free” pork but said that the definition of “crate-free” by the Humane Society of the U.S. “is so obscure that it represents a niche market” making up 0.1% of U.S. pork supply.
McDonald’s called the request “unfeasible” and said it would require 300 to 400 times the animals housed today to be in “crate-free” systems. The company said it would “significantly increase” its costs, “placing a burden on all aspects of our business, our supply chain and McDonald’s customers, while lacking the broad support of industry experts.”
The company agreed with Icahn that its customers want responsible sourcing but said that Icahn’s efforts would not accomplish that. “His campaign would have only one certain outcome: a greater financial burden on customers,” McDonald’s said.
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