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Unlike McDonald's and Yum! Brands, Chipotle Mexican Grill Doesn't Rob its Employees

Analysts can throw numbers and figures at you all day long without giving you a clear sense of how a company is run, what it values, and the sustainability of its operations. In order to take a long view and understand the story behind Chipotle Mexican Grill  (NYSE: CMG  ) , Yum! Brands (NYSE: YUM  ) , and McDonald's (NYSE: MCD  ) let's look at how each company treats its employees so we can get a clear sense of what these companies value.

There's no business like food business
A company's approach to employee engagement can tell us a lot about its core values and how it prioritizes its key stakeholders. If a company is proactive and operates in a sustainable manner, that is, it earnestly analyzes and mitigates the economic, environmental, and social risks it faces, it likely has a great deal of reverence for its shareholders, supply chain, and employees. If a company chooses to ignore these stakeholders and their concerns, it may have to take a defensive approach in order to retroactively engage with its scope of influence. Thus, it will lose out on the opportunity to build loyal relationships, which is a risky tactic indeed.

Source: Chipotle Website

Proactive engagement
Chipotle takes a clear stance when it comes to storefront expansion; it owns and operates all of its stores. In doing so, the burrito maker can focus on cultivating a "culture of top performers" by emphasizing the importance of hiring and empowering folks who have a passion for the Chipotle philosophy. A focus on maintaining high standards for its operations allows Chipotle the ability to embrace its employees' unique personalities and strengths in order to develop the full potential of each storefront.

By owning and operating each of its stores, Chipotle is able to build up a quality management base from the inside out. The burrito maker believes in the importance of empowering its employees, as it sees the value in promoting folks who are just as committed to the company as the company is to them.

In order to implement this value, Chipotle has relied on internal promotions to staff about 85% of its salaried management and about 96% of its hourly management. The company encourages a culture based on advancement through teamwork. In doing so, it provides its employees with a clear career trajectory and thus promotes loyalty and reduces turnover.

When a company takes a proactive approach to ensuring that its employees are happy and making sure that they have the option to advance their professional potential, this fosters a secure and sustainable workforce and thus mitigates risk.

Defense Mechanism
Both Yum! and McDonald's, on the other hand, take retroactive approaches to engaging with their vital groups of employee stakeholders. By opting to franchise out the majority of their operations, these fast-food moguls keep their workforces at arm's length. In doing so, both companies have been vulnerable to a number of risks such as employee dissatisfaction and high turnover.

Source: McDonald's Website

The traditional franchise model leaves little room for employee advancement, as professional growth is generally limited to store-specific management positions. With no real potential to evolve beyond the storefront, this has discouraged employee loyalty to companies like Yum! and McDonald's.

On top of limited growth opportunities, employees of franchised companies have been susceptible to wage theft. Being denied legally required breaks, doing work while off the clock, and not being paid for overtime worked are a few examples of this abhorrent practice. In fact, McDonald's franchise employers are currently being sued for exploiting corporate-provided computer systems in order to manipulate workers' hours. Practices like this run rampant in the traditional fast-food franchise model, as about 89% of fast-food workers have reported being victims of wage theft.

Source: Hart Research

Long story short
Chipotle takes a hands-on, transparent, and proactive approach to engaging with its employee stakeholders, and thus reduces its employee dissatisfaction and turnover risk.

Yum! and McDonald's both take hands-off, opaque, and retroactive approaches to dealing with their respective workforces. Thus, this opens up both companies to lawsuits and the media firestorm that likely follows.

The questions shareholders should be asking are: "Which story do I believe in? Which companies' values will fit well in my portfolio for the long term?"

If it were me
As you can see, I'm in Chipotle for the long haul and I've been able to benefit from its impressive growth. The burrito maker's potential was called into question by folks that said it couldn't be done, but David Gardner saw through all that and he has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 19, 2014, at 11:48 AM, moleque wrote:

    Seems like very serious allegations against Chipolte competitors, by an owner of Chipolte stock, with no substantation. If "wage theft" were as rampant as alleged, McDonald's and Yum's franchisees would be deluged with law suits and enforcement actions by governmental authorites. That simply has not happened. Motley Fool should have fact checked this article before posting it.

  • Report this Comment On April 19, 2014, at 2:47 PM, merCuryangel wrote:

    Hi moleque,

    You’re right, these are serious allegations , so serious, in fact, that McDonald’s employees have filed seven class-action lawsuits against company . You called it!

    I too hope that the government takes your advice and implements stricter regulations and consequences in order to strip employers of these ridiculous practices.



  • Report this Comment On April 19, 2014, at 4:37 PM, investorfreak20 wrote:

    merCuryangel or Leah,

    Nice links! Very true. I see it on media all the time, where employees @ MCD demonstrate unsatisfactory of their work/wage practices. We haven't forget the national strike against MCD from employees on raising wages a few months ago, correct?

    But when it comes to which food is better, Chipotle for me.

  • Report this Comment On April 20, 2014, at 1:38 PM, plenow wrote:

    So, lets see. A survey that was done on behalf of the unions' front organization Low Pay is Not Okay by a research firm consists of primarily democratic politicians and democratic organizations. Does that give you pause at all?

    Three lawsuits have been filed and they are attempting to get them certified as class action...key word attempting.

    Finally, to draw the conclusions that an organization does not engage its employees because it is franchised and that there is no room for promotion if you work for a franchise is simply wrong. By working for a franchise an employee is often much closer to senior leadership of the brand because the franchise organization has a smaller infrastructure. Conversely, many franchisees have become very successful and are growing creating opportunity for advancement on a regular basis.

    Do you think Steve Ells knows a lot of crew members? That is not a hit on Mr. Ells, rather the recognition that he leads an organization with 1,600 locations across the country. Now, compare that to a franchisee that owns 10 locations in a market. Do you think he/she knows most his crew members? I sure do.

    I think your premise is flawed and the efforts to legitimize union viewpoints is transparent.

  • Report this Comment On April 20, 2014, at 1:40 PM, plenow wrote:

    The so called strikes you have seen on TV consist of people paid by service unions, not quick service restaurant employees. Check out

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Leah Niu

Leah is a freelance writer for The Motley Fool. She is interested in socially responsible investing, conscious capitalism, and Tesla.

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8/28/2015 4:00 PM
CMG $721.20 Down -5.97 -0.82%
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YUM $81.82 Down -0.45 -0.55%
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