Chipotle Mexican Grill Inc. is coming under fire for its board makeup as it tries to bounce back from disease outbreaks that scared off customers.
Influential proxy advisory firm Institutional Shareholder Services Inc. has published a report recommending shareholders vote against the re-election of two Chipotle board members during the company’s annual meeting May 11.
A Chipotle spokesman wasn’t immediately available to comment Wednesday.
ISS singled out Chipotle’s Nominating and Governance Committee chairman Patrick Flynn, saying the food safety problems “exposed a flawed board succession process that has not allowed the directors’ skill sets to keep pace with the company’s size and complexity.” The firm also recommended against the re-election of Audit Committee chairman Al Baldocchi, arguing that last year’s series of food safety incidents “points to a failure of risk oversight on the part of the Audit Committee.”
It is the second such call for sent a letter to Chipotle shareholders urging them to withhold support from Flynn and from Nominating and Corporate Governance Committee member Darlene Friedman, citing their lengthy board tenures.
Chipotle has been slow to recover from E. coli, norovirus and salmonella outbreaks that sickened hundreds of customers nationwide last year. The burrito maker on Tuesday posted its first loss as a public company and reported that same-store sales dropped a steeper-than-expected 29.7 percent in the first quarter as it struggled to earn back the trust of its most loyal and frequent customers.
The company has taken a number of steps to overhaul its food safety program, including introducing more ingredients testing, hiring a new food safety czar and providing additional employee training on proper food handling procedures.
ISS argues the company didn’t act quickly enough.
“While the company took remedial steps immediately following the largest E. coli incident, and has implemented enhanced food safety protocols, its response was arguably reactive, occurring only after the problems received widespread media coverage during the company’s fourth quarter in 2015,” ISS wrote in its report.
ISS also argued that most of the company’s discussion with major investors lately has focused on improving the share price and —not on bolstering food safety.
Chipotle’s compensation committee last month moved to tie executive compensation more closely to its share performance, dictating that shares would have to return to above $700 for 30 consecutive days to trigger new stock awards.
Chipotle shares closed Wednesday at $417.22.
