In today’s marketplace, companies are under increasing scrutiny regarding their public impacts—and their governance of these matters. This has serious material implications for all stakeholders.
In 2017, for example, Papa John’s faced major controversy over race-related comments from its then-Chairman and CEO. As Peter Saleh of the financial services firm BTIG told CNN in 2019, “This company has lost maybe 10% of its total sales number since it started struggling back during late 2017. Things started to fall off a cliff for them.”
Beyond a single executive’s comments, the deeper problem stemmed from poor governance. Consider that today, one of Papa John’s “strategic priorities” is to “build” a culture of leaders who “believe in diversity” – implying it had not previously sought to meet even the extremely low bar of leaders who believe in diversity. With diversity’s link to performance well-established by the largest asset managers, that suggests a grave dereliction of Board responsibilities. Thus, company policies and actions relating to diversity carry serious governance implications. As such, The Accountability Board filed a proposal with Papa John’s seeking improved diversity disclosures and measurable targets.
The shareholder proposal process can help protect shareholder value and enhance corporate responsibility by highlighting areas of poor governance and seeking reforms and disclosures that preserve and enhance companies’ ability to implement core values and deliver durable financial returns.
As another example, our investigation into Wendy’s found it to be the only major restaurant chain with no commitment for transitioning to “cage-free” eggs. By contrast, McDonald’s already uses 100 percent cage-free eggs domestically, while Restaurant Brands (parent of Burger King), Yum! and others are on their way there as a growing number of states have begun banning eggs from caged hens. Wendy’s position thus raises governance questions about whether its Board adequately recognizes, let alone appropriately manages, the material risks accompanying animal mistreatment. As such, our proposal there asks Wendy’s to join its peers by setting measurable cage-free egg targets. While the proposal does not prescribe what targets Wendy’s should have, instead leaving that to the Board’s discretion, it does ask that Wendy’s have targets.
Similarly, our investigation into Dine Brands revealed that it appears to be the only major restaurant company whose 10-K risk disclosures don’t even mention climate change. This, too, raises governance concerns—especially in light of comments made by Dine’s CEO explicitly linking climate change to the company’s long-term success. So, while climate change is clearly an environmental issue, recognizing and addressing it are foundational governance concerns—hence our proposal asking Dine to explain the “Board’s governance practices with respect to determining climate change policies and the company’s lack of climate change risk disclosures.”
Ultimately, public companies must deliver shareholder value. In today’s economy, Board governance must ensure management is appropriately disclosing and mitigating material risks over these highly consequential issues. Through shareholder advocacy and proxy voting, fund managers can enhance accountability and protect their holdings for years to come.
Matthew Prescott
President and COO, The Accountability Board