This Is How We Win

Guest post by Josh Balk, Matt Prescott, and Matt Penzer

Jack in the Box is one of the largest fast-food chains in the U.S., with more than two thousand locations and annual revenue of $1.69 billion. As investors, our organization, The Accountability Board, recently filed a shareholder proposal calling on the company to measure and reduce its greenhouse gas emissions. We went head-to-head against its board of directors at the company’s annual shareholder meeting this month, each side making their case to investors. And after the shareholder votes were tallied, we won.

In the face of the catastrophic risks posed by climate change, our proposal was indeed common-sense —and the fact that Jack in the Box fought against such a basic request serves to illustrate the degree to which companies will often fight to maintain the status quo even when circumstances clearly command change. But that’s something that we’ve faced our entire careers.

Before founding The Accountability Board, we each spent more than a decade at the Humane Society of the United States (HSUS) and saw firsthand how companies will paddle hard upriver against increasingly forceful currents of change, often with dramatic ramifications for themselves and their shareholders.

When it comes to animal cruelty, a (now-infamous) example is SeaWorld. Following the 2013 documentary Blackfish depicting animal abuse, SeaWorld’s share value fell 44%; by 2015, it had reported an 84% drop in second quarter net income compared to the previous year.

At HSUS, the focus of our work was not on orcas and dolphins, but chickens and pigs. And what we found was that the agricultural sector was just as notoriously opposed to change. As we passed common-sense animal welfare measures at the ballot box and legislatures time and time again, producers (and their trade associations) fought against them—and lost. They also tried to dissuade major food companies from making supply chain reforms that customers clearly favor—and lost.

Take the pork industry, for example.

A 1976 article in Hog Farm Management recommended: “Forget the pig is an animal—treat it just like a machine in a factory.”And producers listened. By the 1990s, gestation crates (which confine breeding pigs in solitary confinement so restrictively they can’t even turn around) had come to dominate production.

But not without significant blowback.

As early as 2002, Florida became the first in the U.S. to ban gestation crates, followed by Arizona in 2006, and California in 2008. More states followed, and major restaurant chains and other companies began taking notice and announcing their own commitments to eliminate gestation crates. Indeed, especially with a tidal wave of legislation and public criticism clearly on the horizon, for companies to demand more humane practices was not just a sound ethical move, but also a smart business one.

In 2012, for example, we worked with McDonald’s to announce that it would eliminate gestation crates within a decade. But with 2022 approaching and the company not poised to fulfill its pledge, we knew measures must be taken to hold it accountable. After all, if McDonald’s could break that commitment, what would become of its other commitments on highly-material issues, like its pledge to use 100% cage-free eggs by 2025?

So together with Carl Icahn, famed “corporate raider” and subject of the 2022 HBO documentary “Icahn: The Restless Billionaire,” we took the company on. (We’d become friends with his daughter while at HSUS.) Through a formal “proxy contest” – where Icahn nominated a slate of directors to replace some of the company’s own nominees – we raised alarms about the company’s trajectory on animal welfare. Although we knew that electing directors would be unlikely, we believed there was no better way to hold McDonald’s accountable than through a widely publicized fight with Carl Icahn.

While the proxy contest indeed did not succeed at the ballot, it did succeed in garnering more media coverage for farm animals than ever before in U.S. history, including major features in the Wall Street Journal, New York Times, Washington Post, Financial Times, BBC, NPR, and dozens more.  In a particularly significant blow to the company, highly influential “proxy advisor” Institutional Shareholder Services (ISS) even acknowledged McDonald’s hadn’t kept its commitment on gestation crates and, as a result, issued only cautionary support for its board members; shortly after, one of them resigned and several executives left the company.

After that, we founded The Accountability Board, where we hold companies accountable to their commitments on matters that are highly consequential from both ethical and financial standpoints. 

Specifically, we hold investments in approximately 150 major companies, primarily within the food and agriculture sectors. We engage these companies to enhance corporate transparency, improve board governance, mitigate risks associated with material concerns (like climate change and animal cruelty), and more. 

And when our engagement alone does not produce results, we often file proposals for inclusion in the companies’ annual proxy statements. These statements, distributed to all shareholders, include items to vote on such as executive compensation and board elections. We use them, however, to spotlight areas where companies are not living up to their commitments or are otherwise failing to address highly material social issues in a way that we believe will harm shareholders.

Which brings us back to Jack in the Box. The company unsuccessfully fought us on a simple, common-sense proposal aimed at ensuring its board was taking what, in our view, are the bare minimum steps to address and mitigate climate change risks.

It also brings us back to McDonald’s.

Following our widely publicized proxy contest with Carl Icahn, McDonald’s has now shifted nearly all of its pork in the U.S. to systems that house pigs in groups (rather than crates) for at least the majority of their pregnancies. And the company not onlykept its cage-free egg promise, but exceeded it, reaching 100% cage-free eggs (for the two billion eggs it uses domestically each year) two years early.

Today, The Accountability Board is engaged in another battle with McDonald’s—with a shareholder proposal regarding its lack of cage-free goals in international markets. And like Jack in the Box, the company is yet again fighting us, urging shareholders to vote against our proposal, despite that it would put the company in line with its largest global competitors.

We’ve also filed proposals with dozens of other companies that have backtracked on material commitments—including Walmart, Wendy’s, Kraft Heinz, and many more.

We believe this work is critical. The more companies become resolute in their refusal to change with the oncoming tidal waves and insist the seas ahead of them are smooth—even when doing so is simply indefensible from ethical and financial standpoints alike—the greater our responsibility became to rock the boat.

Josh Balk, Matt Prescott, and Matt Penzer are, respectively, CEO, President, and Chief Legal Counsel of The Accountability Board.