Shareholder activism can be a good thing for a company and its shareholders. Voting down ridiculous option packages or voicing shareholder anger over company practices tells the company's board and management to shape up and run things better. However, when activism is used to promote a political agenda, I get suspicious.
At Applebee's (Nasdaq: APPB ) recent annual meeting, shareholders voted by an overwhelming 19-to-1 margin to dismiss a proposal put forth by People for the Ethical Treatment of Animals (PETA). The animal-rights group wanted Applebee's to investigate and report on a more humane method of killing chickens.
Correct me if I'm wrong, but Applebee's doesn't kill chickens -- it serves them. It would seem more sensible to try to change the companies that actually do the killing, such as Tyson Foods (NYSE: TSN ) . That doesn't stop PETA, however. It has filed similar proposals with McDonald's (NYSE: MCD ) and Wendy's (NYSE: WEN ) , two other servers of chicken. PETA's goal may be to get large chicken buyers to influence chicken producers' corporate behavior.
Speaking of which, PETA also submitted similar proposals to chicken supplier Pilgrim's Pride (NYSE: PPC ) and turkey producer Hormel Foods (NYSE: HRL ) , to minimal effect. Hormel already uses the proposed new method, while Pilgrim's Pride has been investigating it. The latter's board, in its proxy statement, also pointed out questionable activities by PETA. According to Pilgrim's Pride's response, a PETA investigator, posing as a worker at a chicken-killing plant, ignored company policy about reporting inhumane treatment. The undercover worker's silence allowed that treatment to proceed unchecked for several weeks; it was subsequently highlighted in the wording of PETA's shareholder proposal.
Furthermore, PETA doesn't seem to be truly serious about its activism. A group holding only 142 shares -- about $3,200 worth -- in Applebee's, a company with more than 74 million shares outstanding, won't be taken seriously. PETA owns similarly low numbers of shares in the other companies mentioned as well. PETA has several wealthy members, including its many prominent celebrity endorsers. If it really wants to make a difference, it should get those members to contribute enough money to let the organization buy many thousands of shares of the companies it wants to influence.
Alternatively, PETA could offer to help defray the costs incurred by companies in such studies. It would be better for PETA to back its convictions with financial support when advocating a cause than to expect the other owners of the company to use company resources to fund those studies.
Using shareholder proposals to try to change a company is certainly better than using vandalism, death threats, and blackmail, as some animal rights activists have used in the past. Earlier this month, drugmaker GlaxoSmithKline (NYSE: GSK ) defied animal rights extremists in Great Britain who want the company to stop animal testing for drugs. Those extremists were threatening to reveal shareholders' personal details online unless the company halted such testing; Glaxo obtained a court order halting any such action. That threat was nothing but blackmail, and I applaud Glaxo for essentially telling the extremists to get lost. Perhaps Glaxo's example will herald a new way to handle such rude demands.
PETA is realizing that the civilized way to get companies to change behavior is through shareholder activism. At the moment, though, it does not appear to be serious about such efforts. In my opinion, Applebee's shareholders were entirely correct to vote down PETA's proposal.
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Fool contributor Jim Mueller loves teriyaki chicken, though he's glad he doesn't have to do the killing. He doesn't own shares in any company mentioned, scrupulously following the Fool's disclosure policy.
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