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Apr 12, 2022

McDonald’s shareholders to vote on civil rights audit proposal

Company is latest to field such a request

Shareholders in McDonald’s Corporation will vote next month on a proposal pressing the fast-food company to carry out a civil rights audit – the latest in a series of shareholder proposals looking at issuers’ impact in the area.

The SEC last week rejected a request from McDonald’s for no-action relief if it excluded the proposal from its proxy statement. Investors will instead vote at the company’s May 26 AGM on the measure, which was brought by the SOC Investment Group. It urges the board ‘to oversee a third-party audit analyzing the adverse impact of McDonald’s policies and practices on the civil rights of company stakeholders, above and beyond legal and regulatory matters, and to provide recommendations for improving the company’s civil rights impact.’

The proponent says input from civil rights organizations, franchisees, corporate and franchise employees, suppliers and customers should be taken into account in determining the specific matters to be analyzed.

Its supporting statement notes that the racial justice movement and the disproportionate impact of the Covid-19 pandemic have raised the public’s and policy-makers’ attention on civil rights and gender and racial equity. The SOC Investment Group writes: ‘McDonald’s says diversity, inclusion and equal empowerment are deeply rooted in its brand and underpin its success… Yet it is unclear how McDonald’s addresses racial inequality, as it reports diversity data only for US company-owned restaurants and staff, excluding an estimated 660,000 US franchise workers.’

It adds: ‘A civil rights audit will help McDonald’s identify, remedy and avoid adverse impacts on its stakeholders. We urge McDonald’s to assess its behavior through a civil rights lens to obtain a complete picture of how it contributes to social and economic inequality.’

McDonald’s, in seeking relief to exclude the proposal, argued that per Rule 14a-8(i)(7) it concerns ‘ordinary business operations’ because it relates to the company’s litigation strategy and the conduct of litigation to which the company is a party.

McDonald’s stated: ‘[I]ssuing the report requested in the proposal would require the company to take action that would harm its legal defense in multiple pending lawsuits, including because the proposal seeks an audit and a report on issues that are subject to ongoing litigation and in support of a predetermined adverse conclusion (contrary to the company’s stated position in such litigation) that the company’s existing policies and practices ‘adversely impact’ the civil rights of certain stakeholders, including but not limited to employees, franchisees and their employees, suppliers and customers (which the company strongly disputes).’

The SEC did not agree with the company’s argument, stating that ‘[i]n our view, the proposal transcends ordinary business matters.’

In addition to this argument, McDonald’s stated in its no-action filing that diversity, equity and inclusion (DE&I) are ‘top priorities for the company. Even while the company defends itself in the litigation referenced in this letter, it continues to take actions to hold itself accountable to public commitments to advance equitable opportunity for its employees, franchisees and suppliers.’ It pointed, for example, to having introduced a global franchisee recruitment initiative designed to increase the number of franchisees from all backgrounds, including historically under-represented groups.

The board in its proxy statement recommends that shareholders vote against the proposal, writing: ‘McDonald’s is committed to civil rights and [DE&I], as reflected in our strategy and policies. We are aligned with this proposal’s stated goal of identifying, remedying and avoiding adverse impacts on our stakeholders.

‘[But] after careful review of this proposal, our board has determined that shareholders would be better served by our vigilant focus on the robust strategies, assessments and reporting processes that are currently underway, as well as our additional plans to better understand and address our impact on civil rights and gender and racial equity.’

A McDonald’s spokesperson did not have additional comment.

McDonald’s is not the only US company to face such a proposal. The requests for civil rights audits come after several companies last year faced votes on requests that they conduct racial equity audits. The SOC Investment Group (previously known as CtW Investment Group) was the leader of that initiative. It works with pension funds sponsored by unions affiliated with the Strategic Organizing Center.

According to an SEC filing, 54 percent of the votes cast at Apple’s AGM last month were in favor of a shareholder proposal – also supported by the SOC Investment Group – requesting that the board oversee a third-party audit ‘analyzing the adverse impact of Apple’s policies and practices on the civil rights of company stakeholders, above and beyond legal and regulatory matters, and to provide recommendations for improving the company’s civil rights impact.’

Apple had written in its proxy statement that it is ‘committed to respecting human rights, including civil rights, and to ensuring everyone is treated with dignity and respect.’

The company argued that it ‘already fulfills the objectives of the proposal in several ways, including through impact and risk assessments, active governance and board oversight, engagement with our communities and key stakeholders and regular, transparent public reporting. We believe our current framework for the implementation and oversight of our human rights commitments is more effective than the broad and unfocused audit requested by the proposal.’

A request for comment from Apple was not returned at the time of the initial article.

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...