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SEC Rules McDonald's Must Let Investors Vote on Franchisee Board Seat Proposal

The SEC has rejected the request by McDonald’s management to omit a proposal to add a franchisee seat on its board from the firm’s proxy materials this year. Segal Marco Advisors, the sponsor of a trust that owns approximately 5,100 McDonald's shares, made the proposal. The vote will take place, probably in the latter part of May, at McDonald's annual meeting.

The Securities Exchange Commission has rejected the company's request to exclude the proposal from the proxy statement covering matters to be voted on at the 2017 annual meeting later this spring. Under the proposal, McDonald's would have to issue franchisees a special class of stock with the right to elect one director, but carrying no economic interest in the company. Each franchisee would get one share of stock with one vote for each restaurant the franchisee owns. — Joe Cahill, Crain's Chicago Business

The proposal apparently did not come from the franchisees themselves:

Maureen O'Brien, head of corporate governance at Segal Marco, says the firm is not working with any McDonald's franchisees on the proposal. Rather, she says the firm is acting to address what it considers a shortcoming in corporate governance at McDonald's. Noting that the vast majority of McDonald's business is conducted through franchised restaurants, she points out that "none of the board members have any previous franchising experience." Bringing such experience to the board would be "good corporate governance" she adds. — Cahill, Crain's

Considering that the majority of shares are not held by franchisees nor SMA, but rather mutual funds and other institutional investors, hitherto not known for wanting franchisees on franchisor boards, the motion does not appear on the surface to have much of a chance of passing.

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