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McDonald’s doesn’t want to disclose a racial audit because it faces lawsuits from hundreds of Black franchisees

January 25, 2022, 8:10 PM UTC
Updated January 25, 2022, 8:24 PM UTC

McDonald’s Corp. is asking the U.S. Securities and Exchange Commission to omit a shareholder proposal for a racial audit from its annual proxy, citing pending lawsuits by Black franchisees and employees.

Including the civil-rights audit proposal would interfere with McDonald’s business because the lawsuits involve related issues, an attorney for the Chicago-based fast-food giant said in a letter to the SEC dated Jan. 23. The company referred to pending litigation including lawsuits by 238 current and former Black franchisees claiming that unfair treatment and racism have steered them to low-volume restaurants.

“Issuing the report requested in the proposal would require the company to take action that would harm its legal defense in multiple pending lawsuits,” the attorney from Gibson, Dunn & Crutcher LLP said in the letter. “We respectfully request that the staff concur with our view that the proposal may be excluded from the 2022 proxy materials.”

McDonald’s declined to comment beyond the letter.

In November, an adviser to union pension funds called on McDonald’s to analyze how its policies are contributing to social and economic inequality. At the time, SOC Investment Group said the restaurant chain should oversee a third-party audit with input from franchisees, corporate employees, suppliers and customers, and that its reported diversity data excluded hundreds of thousands of restaurant employees at franchised stores.

While some companies say civil-rights audits aren’t necessary, they’re becoming more common after the Black Lives Matter protests and movement that started in 2020. Last year, Citigroup Inc. agreed to a deep dive to determine how it may be contributing to racial inequity, following a similar move by money manager BlackRock Inc.

McDonald’s has already made promises regarding diversity, saying it will increase minority representation in U.S. leadership roles to 35% by the end of 2025 from 29.1% in 2020, and it has also tied some executive pay to diversity targets. It’s revamping its domestic supply chain, as well, shifting more spending to women and minorities. This goal includes spending by franchisees, who own and operate about 93% of the company’s restaurants worldwide.

The burger seller also pledged to do more to recruit, train and invest in new minority-owned franchisees, offering them loan assistance. But a group of Black McDonald’s store owners has criticized that move, saying that the company needs to do more to aid its current Black operators who face systemic barriers to success.

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