Billionaire Activist Urges ESG-Focused Investors to Support his McDonald's Campaign

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by KnowESG

Carl Icahn is encouraging BlackRock Inc. and other socially concerned index fund managers to back his proxy campaign at McDonald's Corp. for better treatment of pregnant pigs. As part of his effort, the billionaire activist investor, who owns a $50,000 investment in McDonald's, proposed two members to the fast-food chain's board of directors in February, a departure from his usual fights for changes in financial strategy and the like.

At the annual meeting on May 26, McDonald's shareholders will vote on whether to endorse Mr Icahn's nominees or the company's slate. He claims that, despite being at the forefront of the environmental, social, and governance (ESG) investing movement, BlackRock and others have subjectively chosen principles they care about and had no commitments toward animal welfare.

He said recently in an interview, "They have tremendous power to do good or bad. What surprises me is how often they do not get involved and allow boards to believe that they will protect them in a contest.”

The housing of breeding pigs, or sows, by suppliers, is at issue. Mr Icahn wants McDonald's to require all suppliers to stop confining animals in small containers, typically 7 feet long and 2 feet wide.

For the first four to six weeks of a sow's pregnancy, and occasionally longer, many McDonald's suppliers employ so-called gestation boxes. Suppliers claim they increase efficiency inbreeding, while Mr Icahn and his nominees claim they are inhumane.

Mr Icahn slammed McDonald's for spending $16 million to defend itself against his proxy challenge rather than putting the money toward rescuing pigs from cages.

Mr Icahn's demands, according to McDonald's, are unrealistic since they would require 300 to 400 times the number of animals now housed without crates. It claimed that such a move would increase the company's costs and put a financial strain on its clients.

Mr Icahn is expecting a repeat of last year's remarkable success at Exxon Mobil Corp. when fledging activist Engine No. 1 LLC won three seats on the oil giant's board of directors with just a fraction of the company's stock. BlackRock, Vanguard Group, and State Street Corporation all supported the deal.

According to a JPMorgan Chase & Co. study from 2018, the top five asset managers own a median of 30% of most S&P 500 companies, making their support critical.

Mr Icahn also nominated Leslie Samuelrich, head of Boston-based mutual fund Green Century Capital Management, besides Ms Ganzler, an executive at food-service provider Bon Apétit Management Co.

Mr Icahn started lobbying McDonald's to get rid of the crates about a decade ago at the request of his daughter, Michelle Icahn Nevin, who was working on the subject at the Humane Society of the United States then. McDonald's promised in 2012 that by 2022, it would no longer buy pork from suppliers who use crates.

The two sides are now at odds over where they want to go with that goal. McDonald's claims that it slipped behind owing to Covid-19 and other issues, but by the end of 2022, it hopes to obtain 85 per cent to 90 per cent of its U.S. pork volumes from "verified" pregnant sows not kept in gestation crates. Sows can spend the first four to six weeks during pregnancy in gestation crates before their pregnancies are verified.


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