Chipotle Mexican Grill Inc. shareholders on Wednesday retained the company’s existing board, beating back an effort by an activist investor to oust a pair of board members, according to the Denver Post.
But shareholders also approved a proposal that would give shareholders “proxy access,” enabling larger, long-term shareholders to nominate directors, and potentially making it easier for them to shake up the company’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,” New York City Comptroller Scott Stringer, custodian of New York City’s pension funds, said in a press release on the vote.
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“Chipotle has repeatedly ignored attempts by the lead proponents to engage on the proposal and understand our underlying concerns. The onus is now on the board to move swiftly to engage investors on a meaningful proxy access bylaw and discuss the next steps to ensure a strong and diverse board of directors.”
Chipotle spokesman Chris Arnold said, “While it is a non-binding proposal, historically, we have taken action in response to shareholder votes and don’t see any reason this one will be different.”
The votes, held at Chipotle’s annual meeting Wednesday, were portrayed in recent days as a potential “referendum” among shareholders on the company’s board in the wake of a series of foodborne illness outbreaks last year.
The outbreaks led to a steep decline in Chipotle sales and profit. Same-store sales in the first quarter fell nearly 30 percent, and the company posted its first loss since becoming a public company in 2006. Chipotle’s share price has also fallen, from over $750 per share last fall to $452 per share Wednesday.
In this case, the votes could be viewed as a mixed message — showing support for the company’s board but also warning that they want the right to make changes down the line.
CtW Investment Group, a Chipotle shareholder, had been urging other shareholders to vote against longtime board members Patrick Flynn and Darlene Friedman. Their argument: The board needs new blood in the wake of the food safety issues.
Institutional Shareholder Services, a respected proxy advisory firm, recommended against the re-election of Flynn and Al Baldocchi, also citing food safety concerns.
According to the Denver Post, however, shareholders voted to retain Flynn, Friedman and Baldocchi.
“We had supported the reelection of all of our directors and were pleased that a majority of our shareholders shared that perspective,” Arnold said.
But the proxy access vote shows that shareholders want more say in board nominations in the coming years. New York City Pension Funds, along with the UAW Retiree Medical Benefits Trust and the City of Philadelphia Public Employees Retirement System, sponsored the proxy access proposal. The California Public Employee Retirement System also supported the measure.
They have also been pushing more boards to allow proxy access bylaws. More than 210 American companies have enacted such laws.
The proposal would enable shareholders owning 3 percent of shares for at least three years to nominate directors on the corporate ballot. Chipotle, however, favored a different proposal that would make the ownership threshold 5 percent.
Update: May 11, 2016 This story has been updated with comments from Chipotle Mexican Grill's spokesman.
Contact Jonathan Maze at [email protected]
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