May 2009
Shareholder Demands

It used to be that a publicly held company’s only responsibility to its shareholders was to be profitable. But today investment groups and individual shareholders are increasingly making demands of the companies they hold shares in. That was the case for McDonald’s in December when three investment groups each submitted a shareholder’s resolution concerning pesticide use.

McDonald’s operates in more than 100 countries worldwide and is the largest buyer of french fries. The fast food giant doesn’t produce fries itself, but works closely with processors in the supply chain. Every member of the McDonald’s supply chain is required to have a Good Manufacturing Program in place, a verified Hazard Analysis and Critical Control Points program, crisis plan and other food safety procedures. Food safety and food quality are of equal importance, and in 2007 the company updated its Supplier Quality Management System to align to two. McDonald’s also established a supplier social accountability program and environmental scorecard. The supplier performance index allows the company to rate suppliers, who then work with growers and other suppliers to extend the McDonald’s sustainability vision. Additionally, McDonald’s has a Quality Systems Board provides direction and recommendations for food safety, quality and nutrition, according to the corporation.

Bard College, Newground Social Investments and the AFL-CIO Reserve Fund proposed that within one year, McDonald’s report to shareholders the options available for reducing pesticides in the supply chain. According to the Securities and Exchange Commission rules, the proposal would have to have been added as a voting item to the next McDonald’s shareholder proxy material. However, McDonald’s contacted the SEC to exclude the proposal for the following reasons: It concerns ordinary business operations that shareholders aren’t qualified to make decisions on, it micromanages operations concerning raw material selection, it doesn’t focus on a significant social policy, the proposals were duplicates but the investment groups were not co-signers and one of the groups may have been ineligible to submit a proposal because it didn’t own stock for the entire year.

In March, McDonald’s and the three investment groups agreed to withdraw their proposals and objections based on McDonald’s commitment to address the concerns raised by its shareholders. The corporation agreed to six items that will likely have an impact on potato growers and processors, according to a statement from Bard College, Newground Social Investments and the AFL-CIO Reserve Fund.

1. McDonald’s will develop a survey of pesticide use and practices for its potato suppliers. Other companies, including Sysco and the state of California, have similar surveys in use already. McDonald’s has said it will circulate the survey among stakeholders before it is distributed.

2. Implementation of the survey for potato growers will take place in 2009, with no further date given.

3. Collect the best practices for reducing pesticide use and share those with potato growers in the U.S. supply chain. This will include alternative pest control methods and reduction practices.

4. McDonald’s will encourage the pesticide reduction effort throughout its global supply chain. The best practices will be distributed to suppliers who work with growers worldwide.

5. The fast food company will communicate with shareholders to review updates and documents to keep them informed and for feedback.

6. McDonald’s will highlight sustainable pesticide use in one of its CSR Reports and post the findings of its pesticide survey of U.S. growers on the corporate social responsibility Web site.

McDonald’s was already working toward greater sustainability, but the action of some of its shareholders has put a great emphasis on reducing pesticides in potato production. The company said in a statement that the pesticide reduction program will support its corporate sustainability initiatives, but will directly affect growers who supply the first-tier suppliers in McDonald’s supply chain. Retailers and foodservice establishments, as well as EPA and other agencies, are moving toward reducing pesticide use in agricultural production and growers need to be aware of regulations and consumer perceptions about pesticides. University research and Extension personnel can be a valuable tool to developing a pesticide reduction program through Integrated Pest Management or better scouting programs. The National Potato Council also has been working on the pesticide issue for a number of years through its IPM survey and environmental stewardship award, part of the Pesticide Environmental Management Program that is a partnership with EPA that focuses on reducing the risk from pesticides in potato production.

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