An investor group is pushing to oust two Chipotle Mexican Grill Inc. board members, according to filings with the Securities and Exchange Commission on Wednesday. The group argues that the company stands at a critical juncture after three quarters of bad news tied to a series of foodborne illness outbreaks.
In a letter to shareholders leading up to the company’s May 11 annual meeting, Dieter Waizenegger, executive director of CtW Investment Group, urged voters to withhold support for Chipotle directors Patrick Flynn and Darlene Friedman, both long-term members of the Denver-based restaurant chain’s nominating and corporate governance committee.
“With the company facing slowing momentum and potential growth challenges going forward, Chipotle is in need of genuinely independent oversight now more than ever,” the letter said. “However much Chipotle may owe its conception to co-CEOs Monty Moran and Steve Ells, Chipotle’s growth has long since outsized its governance arrangements.”
The letter cited as problems the excessively long director tenures, saying the board’s median tenure is 17 years, as well as board insularity and a “lack of recognition that governance needs to evolve alongside a rapidly growing corporation.”
CtW also said the board’s lack of diversity is an issue, noting the board is all white and overwhelmingly male.
Friedman, however, is a woman who has served on the board for 21 years, while Flynn, a man, has served for 18 years. CtW said they both “must be held accountable for failing to sufficiently refresh the board and failing to bring about the attentive, independent and diverse oversight of management that shareholders deserve.”
CtW also questioned Chipotle’s systems of oversight following the string of six “food-safety failures” since July, which sent stock prices plummeting. The chain’s same-store sales dropped 26.1 percent in February, although that was an improvement over the 36.4-percent dive in January following the series of foodborne illness reports.
In the letter, Waizenegger said, “We are particularly worried about the board’s decision to install only a single member of the audit committee as a food-safety liaison. This central function should not be left to one person.”
The designee picked by the board, John Charlesworth, should not be considered independent because of his 17-year tenure on the board, CtW said.
Instead, the board should create a standalone food-safety and sustainability committee and to recruit several board members that could bring “fresh, objective expertise to the human capital and supply chain challenges likely at issue.”
CtW works with a more than $250 billion union-sponsored pension fund. The investment group first engaged with Chipotle’s board in 2014 citing “egregious” pay practices. Shareholders at the time rejected the company’s proposed pay plan.
Chipotle officials did not immediately respond to requests for comment at press time.
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