Shareholder Willingness to Protect Workers’ Rights May Be Growing

Lawyer explained to the client about the law that must be brought against the court case.
Letters to McDonald's and Wendy's from shareholders may indicate a broader trend regarding employee rights issues.

McDonald’s and Wendy’s shareholders who manage more than $2.5 trillion in combined assets recently sent letters to the two companies asking that they improve their efforts to stop child labor law violations at their franchised restaurants. The shareholder groups also enlisted several state treasurers and comptrollers to sign onto the letters in a show of support.

Although this effort specifically targets child labor laws, it may be an indication of a broader trend of shareholders becoming more willing to team up with government entities and regulators to get corporate boards to act on employee rights issues. Last year, the Interfaith Center on Corporate Responsibility reported that 37 shareholder proposals on workers’ rights issues including health & safety, wages, paid sick leave, workplace sexual harassment and freedom of association went to vote at annual meetings. Child labor law violations fit into this category, so boards may need to monitor this trend more closely.

An investigation by The Washington Post alerted the SOC Investment Group (which oversees pensions) that McDonald’s was responsible for 15 child labor law violations per 100 restaurants between 2020 and the third quarter of 2023. Wendy’s was found guilty of nine violations per 100 restaurants during the same period. The SOC Investment Group organized the letter campaign which asks the companies to adopt a “zero tolerance” policy for using child labor and to conduct and release the results of a third-party human rights risk assessment by the end of 2024. Treasurers from Illinois, Colorado and Massachusetts were among several that signed onto the demands in the letters.

The letters stated that shareholders felt the boards of both companies were “failing to appropriately oversee the Company’s employment practices and [are] failing to mitigate risks to the Company’s reputation.” A poor reputation can lead to a decline in stock price and difficulty recruiting top talent. McDonald’s investors that signed onto the letters account for $2.2 trillion in combined assets and Wendy’s investors represent $429.5 billion in combined assets. Using those assets to gain movement on worker rights issues appears to be the shareholder strategy. The McDonald’s and Wendy’s boards have work to do to prevent this situation from escalating. Corporate boards may want to consider the following:

Re-evaluate workers’ rights and other company policies. When there are statistics that indicate problems, companies will eventually have to address how they intend to correct those problems (or state why they will not). Are the policies that are in place now mitigating problems effectively? If not, why not? Evaluating the situation may provide insights on how companies can demonstrate that the identified problems may not be as bad as they seem—or at least demonstrate that there are measures in place to improve the situation going forward. Also, evaluations can provide information that helps the company craft a response to the situation that strengthens its position that it is complying with laws or one that can satisfy shareholders and regulators.

Meet with shareholders and regulators. When the board receives a letter from shareholders and that letter is made public, it may suggest that communication between the parties needs to improve. Responding through the media may be necessary, but sitting down with shareholders and stating the board’s position on the disputed matter will need to happen at some point. Hopefully, issues can be resolved privately, and stronger trust and better communication can be established. Meeting with regulators will also give the board a better understanding of their expectations, which will help the company prepare the proper response.

Emphasize positive aspects of company working conditions. Accusations of child labor law violations can be damaging, but most companies have positive aspects of their working environment that, if shared, can help build a more balanced picture of employee conditions. Communicating these positive factors publicly may help convince some shareholders of the boards’ intensions to address the problems and soften reputational damage that might have resulted from the shareholder campaign.

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