Investors aim to oust Chipotle chairman

by Erica Shaffer
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NEW YORK –Chipotle’s Steve Ells may be the latest entrepreneur to get pushed off the board of a company he founded. On Nov. 1, Amalgamated Bank and Change to Win Investment Group (CtWIG) co-filed a shareholder resolution to install a new and independent chair of Chipotle Mexican Grill board of directors.

Steve Ells
Steve Ells, CEO of Chipotle

Amalgamated cited the company’s “highly limited corporate management structure” — which has Ells serving as co-CEO with Monty Moran in addition to his position as board chair — has prevented the  company from adequately addressing a series of food safety problems that weakened investor and consumer confidence in company.

“As we have seen for months, Chipotle’s closed off and limited governance structure is unsustainable and counterproductive, posing a direct risk to shareholders and the public at large,” Keith Mestrich, president and CEO of Amalgamated Bank, said in a statement. “It’s clear to everyone that management must improve to address the public and investors’ growing crisis of confidence. We feel strongly that by appointing an independent, outside chair to oversee company management, Chipotle will be better positioned to provide a more publicly transparent and responsive approach moving forward.”

Amalgamated Bank currently holds 5,457 shares of Chipotle stock spread out among four different funds. CtWIG works with funds that own more than 50,000 shares.

CtWIG said Chipotle’s earnings confirmed the need for change at the board level in order to begin a successful turnaround.

“An independent board chair is an essential part of curing the company’s governance and strategic failures that have become more apparent since last year’s foodborne illness crisis,” Derrick Wortes, lead analyst at CtWIG, said in a statement.

Net income in the third quarter ended Sept. 30 was $7,799,000 compared with $144,863,000, while revenue dropped 15 percent to $1,036,982,000 from $1,216,890,000.

Comparable restaurant sales declined three straight quarters — 22 percent in the third quarter, which was an improvement over a 24 percent decline in the second quarter and a 30 percent drop in comparable restaurant sales in the first quarter.

Chipotle’s troubles began in 2015 with a series of food safety incidents that included a case of norovirus in a Simi Valley, California, restaurant that sickened a reported 243 customers; a case of norovirus in a Boston area restaurant in December that sickened 143; Salmonella illnesses in 22 restaurants in Minnesota and Wisconsin that sickened 64 individuals; and E. coli infections in 11 states that sickened 60. The Atlanta-based Centers for Disease Control and Prevention announced in February this year that the E. coli outbreak appeared to be over.

Then, in July Mark Crumpacker, chief marketing and development officer, was arrested on charges of cocaine possession. Crumpacker was placed on leave following his arrest, and then reinstated three months later.

Shareholders filed a lawsuit this summer against Chipotle on claims that company executives breached their fiduciary duties and paid themselves exorbitant salaries while mismanaging the company. For New York City Comptroller Scott M. Stringer, excessive CEO pay was “the canary in the coal mine” signaling to shareholders problems with the board. Stringer said previously that “weak board oversight” had damaged the company’s reputation and wiped out billions of shareholder value.

“The onus is on Chipotle’s board of directors to move swiftly to regain public trust, restore investor confidence, and create sustainable value for shareowners,” Stringer said in a statement. “Naming new directors and an independent chair are urgently needed steps in the right direction.”

The investors plan to bring the proposal to a proxy vote during Chipotle’s 2017 annual shareholder meeting.

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