May 27, 2016
In mid-May, Chipotle Mexican Grill (NYSE: CMG) shareholders voted on two investor-proposed sustainability issues during the company’s annual meeting. The fact that both sustainability proposals lost is not all that unusual – sustainability/CSR/ESG resolutions rarely receive shareholder approval at U.S. public companies. In fact, even organizations that specialize in raising such issues in the context of annual shareholder votes acknowledge that they rarely win. Instead, they hope the proxy process will motivate the board to “take a stand on sustainability” – as sustainability investor Bob Eccles said in his March 30, 2016 blog post on Forbes.com.
Despite the company’s “Food with Integrity” commitment, Chipotle’s board and management opposed the non-binding proposals. One proposal requested that Chipotle issue an annual sustainability report. The proposal received approximately 8 million “for” votes and 10.4 million “against” votes – a “for” percentage of approximately 43 percent. The other proposal requested that the Chipotle board’s Compensation Committee prepare a report assessing the feasibility of integrating sustainability metrics into the performance measures of senior executives under the company’s compensation incentive plans. That proposal received only 23 percent of “for” votes.
However, what’s really important is what happens next. My feeling is that Chipotle’s board and management won the battle, and there won’t be a war. The “for” investors, such as Domini Social Investments LLC, made their point. Given the publicly available information, my sense is that the people at Chipotle heard them and appear to share their interest in being more communicative and transparent. Additional engagement and information will be forthcoming over the next year, and my prediction is that, within three years, Chipotle will issue a sustainability report. But they are not going to issue a report because someone told them to do it.
In its March 24, 2016 proxy statement, the Chipotle board’s response to the sustainability report proposal was clear and reasonable: “Chipotle has made a deliberate decision not to report in this fashion, preferring to devote our resources instead to taking actions, adopting practices, and communicating these efforts in areas that have a positive impact on the sustainability of our business. We do not believe that a separate effort to generate, distribute, and update comprehensive reporting on our sustainability achievements represents an efficient or prudent use of our resources.”
If Dix & Eaton had been counseling Chipotle on this matter, we would have recommended a similar statement and strategy in response to the sustainability proposals. The one thing the Chipotle response leaves unstated, but is probably implied, is the phrase “at this time.” At this point, we would recommend that the company and its advisers work on ways to spur additional engagement and information-sharing, and begin laying the foundation (quietly, of course) for a sustainability report. In addition, there are sustainability champions at Chipotle whose influence on the organization and opportunity to make a difference have never been higher. They may be the real winners of the Chipotle shareholder votes.
So, what do you think of Chipotle’s stance, and what do you think they should do next? I hope you will post a comment or email me.