Chipotle’s Shareholders Just Voted for More Power to Pick the Company’s Board
Chipotle Mexican Grill’s shareholders approved a proposal on Wednesday to give investors more power to shake up the burrito chain’s board after a string of food safety-related outbreaks undermined confidence in its directors.
Over the board’s objection, investors at Chipotle’s annual meeting passed a non-binding proposal that would allow an investor or group of investors owning 3% or more of the company’s outstanding shares continuously for at least three years to nominate directors to the board.
Investors also heeded the call of an activist shareholder and a proxy adviser to withhold support for some directors in protest of lax oversight. While the entire board was reelected, three members received unusually low numbers of votes.
The New York City Pension Funds, which sponsored the successful proxy access proposal, had predicted that the vote would be a referendum on Chipotle’s board.
“Today’s vote serves as a wake-up call for a board that urgently needs to restore investor confidence in the wake of costly risk oversight failures,” Scott Stringer, investment adviser at the proposal’s sponsor, the New York City Pension Funds, said in a statement.
Those failures include a lack of response to early red flags on food safety, his office said. The proposal received 57% of votes cast, according to Reuters’ calculations from results in a Chipotle regulatory filing. A counterproposal by Chipotle that would have required a 5% ownership threshold failed with about 24% of votes in support.
Company spokesman Chris Arnold said, “We have a history of taking action in response to the outcome of shareholder votes, and I don’t expect this will be any different.” He did not immediately clarify what action the company might now take.
Several major pension funds supported the measure this year, including the California Public Employee Retirement System, which helped Stringer drum up investor support.
Stringer has pushed through similar measures at other companies and made a similar proposal last year at Chipotle (CMG), citing what the fund saw as excessive executive compensation. That 2015 proposal failed after falling just short of winning majority support.
Calls for board changes and oversight have grown louder since the company’s food safety problems hammered its formerly high-flying shares.
Chipotle stock is down about 30% since October, when the chain closed restaurants in the Pacific Northwest due to an E. coli outbreak.
That news sparked intense scrutiny of other 2015 Chipotle-linked E. coli, salmonella and norovirus outbreaks, scared away customers and sparked a federal criminal investigation.
Shareholder CtW Investment Group separately called on fellow investors to withhold votes for long-time board members Patrick Flynn and Darlene Friedman, saying the chain’s recent food safety crisis shows the company needs a more independent and diverse board.
Institutional Shareholder Services (ISS), a major proxy advisory firm, recommended votes against Flynn and audit committee chair Albert Baldocchi, given that committee’s “failure to provide sufficient oversight of food safety risk.”
Shareholders withheld the most votes for Flynn and Baldocchi, at 29.6% and 21%, respectively.
Only 1% of S&P 500 directors received that level of opposition in last year’s proxy season, said CtW, which noted that Chipotle’s board was re-elected with over 95% support last year.
“This board was not only caught flat-footed by the food safety scandal, but even worse, has failed to draw lessons for itself from what is the most significant failure to oversee risk one could imagine under its watch,” Dieter Waizenegger, Executive Director of the CtW Investment Group, said in a statement.
Chipotle shares closed down 1.6% at $454 on Wednesday.