Only a few months after Carl Icahn launched an unsuccessful proxy fight to oust two members of the McDonald’s board over the company’s suppliers’ treatment of pigs, the company implemented some board changes of its own. Other corporate directors might want to consider the benefits of the moves McDonald’s has made.
The iconic hamburger chain recently announced that it would be adding three board members while another of its directors would be retiring. Here’s what other directors should take away from McDonald’s board repositioning:
• A shake-up? Not Really… It’s more of a strategic repositioning of the board. While headlines have characterized the changes to the McDonald’s board as a “shakeup”, the truth is, a board practicing good governance will periodically make changes that are in the best interest of its shareholders. That includes “retiring” directors that may have served long tenures or adding directors with skill sets that the board lacks. Kudos to the McDonald’s directors for making this transition without a hint of internal strife.
The retiring director, Sheila Penrose, who was targeted for removal by Icahn, has served on McDonald’s board for 16 years. While she has been lauded for her service to McDonald’s, the company’s board changes were made with the future in mind. That many years of service is reaching the outer limits of typical board tenure for companies that want to exhibit best practices.
By adding Marriott International CEO Tony Capuano, Johnson & Johnson executive Jennifer Taubert and Salesforce CFO Amy Weaver to its board, McDonald’s has added tremendous experience to an already impressive board. Capuano adds the experience of having steadied a company hard hit by the pandemic at a time when an economic recession is on the horizon. Such leadership skills could be invaluable. Weaver adds financial management and human resources skills at a time when all companies are making significant cutbacks in staff and other resources. And Taubert adds international experience that will be needed to withstand the lingering effects of the Covid 19 pandemic and potential global recession. These are strategic additions that are intended to enable the board to be a better resource for McDonald’s management team now and in the future. With more experienced members, the board should be in a better position to deal with the challenges it is sure to face in the future.
• Increased board responsibilities may require an increase in board size. The McDonald’s board realized that Icahn’s proxy fight was likely the beginning of similar challenges it might face in the future. The additional scrutiny ESG issues have presented boards with means that the workload for directors has increased. It also means that new voices and new ideas may be needed to find solutions to new and emerging challenges. The board realized it might be lacking certain experience and it found capable candidates to fill those needs.
While increasing board size should not be taken cavalierly, it should be seen as out of the question either. McDonald’s increased its board size from 12 to 14 members. This has helped McDonald’s add critical skills and experience that makes its board better. It has also shown shareholders that the company is committed to gender diversity on its board—50% of the McDonald’s board members are now women.
• Stay committed to board refreshment and board evaluations. The McDonald’s board could consider these moves board refreshment on some level, but the strategic nature of the moves demonstrates the importance of being committed to evaluating the board on a regular basis. Examining the tenure of directors, their skill sets and their contributions to the board will be critical to the future growth of any company. Establishing a culture where board refreshment and board evaluations are excepted parts of the board culture will go a long way to keeping the board strong. Hiring outsiders to conduct evaluations will be needed in most cases.
Additionally, commitment to refreshment and evaluations will create an internal atmosphere where directors are encouraged to retire from the board BEFORE they are pushed out by shareholders. In most cases, there are other boards that would welcome the experience of a long-serving director. Better to leave on top than to go out in controversy.