Shareholder Resolution Urges Chipotle to Link Executive Pay and Sustainability

Chipotle, shareholders resolution, corporate governance, sustainability reporting, Leon Kaye
Chipotle’s sales are down, but some are saying its co-CEOs are paid way too much.

Once the darling of both Wall Street and sustainability advocates, that rare admiration from both constituencies for Chipotle has gone down in flames over the past year. Outbreaks of E. coli and norovirus at scattered locations across the country have scared off customers, and the jury is out on whether free food coupons are going to lure them back.

Last August, after some food-safety scares, Chipotle’s stock roared back to hit an all-time high of almost $750 a share. But additional foodborne illness episodes have sunk the stock’s price again, down to almost $400 a share before rebounding to its current price hovering around $475.

Now, some investors are saying that they have had enough. The financial advisory firm Clean Yield Asset Management, which focuses on securities issued by what it deems are socially responsible companies, has partnered with Arjuna Capital, another investment advisor, to pressure Chipotle to change its corporate governance practices. In a 10-page filing submitted to the Securities and Exchange Commission (SEC), Clean Yield is urging Chipotle’s shareholders to vote in favor of a resolution that will tie executive compensation to the company’s sustainability performance.

Pointing out the fact that the $4.5 billion company has yet to issue even one sustainability report, the letter asserts such disclosure would only be the start of the company taking real steps to mitigate future risks.

In comparing Chipotle to some if its competitors, including Panera Bread, McDonald’s and Dunkin’ Donuts, all of which have committed to sustainability reporting, the resolution asserts that “a commitment to delivering a sustainable product should not be confused with possessing the means of delivering it.” Linking sustainability metrics to sustainability performance, asserts Clean Yield’s managers, could incentivize all employees, not just executives, to take sustainability more seriously, while reducing ongoing risks that have had taken a large bite out of the company’s financials.

Even before foodborne illnesses at its restaurants rocked the company, Chipotle had received criticism for its executive pay packages. A few years ago, a survey included the company’s co-CEOs within its list of the top 100 overpaid CEOs. Furthermore, the same report asserted that, within the restaurant industry, Chipotle’s Steven Ells and Monty Moran were the most overpaid CEOs due to their combined 2013 compensation of $49.5 million.

A year later, shareholders responded to that assertion by rejecting a proposed pay package in an overwhelming 77 percent “no” vote. While Chipotle kept preaching about its “food with integrity,” many shareholders and investment holders felt the way in which executives were paid lacked any integrity at all — and, in turn, they were not swayed by lofty rhetoric, cool paper cup designs or deep thoughts on to-go bags.

So far, Chipotle’s board of directors is refusing to acquiesce to any such demands over sustainability reporting. One proposal on the company’s most recent proxy statement, issued in anticipation of its annual meeting this May in Denver, is asking shareholders to approve a mandate for an annual sustainability report, which would be issued for this first time in October. Insisting that the company has made a “deliberate decision not to report in this fashion, preferring to devote our resources instead to taking actions,” Chipotle’s board is urging shareholders vote against it.

And as for Clean Yield’s proposal to integrate sustainability performance with executive pay, which is also up for a vote on the same proxy statement, the board is also recommending that shareholders check the “no” box. Saying that revamping its executive pay structure would hamper the “responsible, long-term growth of our business,” the company maintains that its current business practices are a strong enough incentive.

Are Chipotle’s executives and board tone-deaf? Perhaps. Is this a foolish stance to take considering the cutthroat nature of the restaurant industry? When it comes to its long-term success, the company’s stubbornness definitely risks alienating its stakeholders and shareholders even more, and the I-told-you-so’s will mount, especially if another outbreak occurs in the near future.

Image credit: Aranami (Flickr)

Corporate Responsibility

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Based in Fresno, California, Leon Kaye has written for TriplePundit since 2010. He has lived across the U.S., as well as in South Korea, Abu Dhabi and Uruguay. Some of Leon's work can also be found in The Guardian, Sustainable Brands and CleanTechnica. You can follow him on Twitter (@LeonKaye) and Instagram (GreenGoPost).

One response

  1. Leon, this may be a noble cause, but with the recent uproar over patrons getting violently sick over the food served at several of the chain’s establishments due to a lack of cleanliness on the part of the food preparers for whatever reason, Chipotle has a bigger issue on its hands than thinking about its sustainability concerns. This would be a pure case of the tail wagging the dog. Having been in this industry of environmental management for over 40 years now, I have seen way, way too much emphasis on sustainability at various levels of companies, service providers, and others, some of which don’t even have a clue at what “sustainability” really means, other than, hey let’s recycle our cooking grease, or let’s recycle our waste food, or the biggest kick I get, let’s get a green certified restaurant label, even though one such restaurant I identified in one of my ancient articles, even though they were green certified, kept their doors open while they kicked up their AC full blast in the summer in downtown Houston!
    Yes, I digress, I understand, but the point I am making here, is that before companies, service providers, whatever business you are in in which there is the potential for some type of risk or harm, you need to look at a few simple basics: are you doing your main job right, and you being as aware and conscientious as you can be, are you not taking short cuts or corners, and are you constantly aware of your surroundings?

    Before I became an environmental and health and safety inspector, and long before I became a consultant and columnist and author, I owned a restaurant. I saw what others did, I saw the waste at my food purveyors, and I did my work in the kitchen like I do all my other projects now – like an Engineer – i.e., a problem solver and risk management specialist.

    No doubt, Chipolte is very concerned now about pending lawsuits, but had they followed simple ServeSafe guidelines, we may not have had all those students from BC getting ill from their food.

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