McDonald's(MCD 0.25%) recent struggles are well known. The fast food chain saw overall sales fall for the first time in about three decades last year as comparable sales have slowed in the U.S. and plunged in Asia due to food safety scares. As a result of the poor performance, CEO Don Thompson has been forced out, and Chief Brand Officer Steve Easterbrook will take his place at the helm on March 1st.
But now an investor group is clamoring for a shake-up of the Board of Directors. Last week, union pension fund advisor CtW Investment Group sent a letter to the board calling for new blood among the directors. The pension funds that CtW advises hold about $268 million in McDonald's stock.
In the letter, Dieter Waizenegger, Executive Director of the group, said, "Returning McDonald's to a path of long-term, profitable growth requires that Mr. Steven Easterbrook's appointment as CEO is followed by a robust refreshment of the board's membership and leadership."
He called for the board to come up with a plan to change its leadership and a comprehensive board succession strategy to have new directors in place by the shareholder meeting this spring. He also wanted the company to consider input from long-term shareholders during the process.
Waiznegger also said the company has failed to "evolve in response to a changing domestic environment" and went on to criticize the board itself for failing to diversify, relying on long-tenured members who have sat on the board for an average of 13 years and who are largely drawn from the Chicago area.
Is the board to blame?
Waiznegger laid the fault at their feet, saying, "The board is ultimately accountable for McDonald's failure to successfully respond to the changing business environment." The board may play a role in the company's current predicament, but much of that fault may lie with its decision to name Thompson as CEO back in 2012. The directors seem to have taken a step toward undoing that mistake by replacing him with Easterbrook. If the new CEO can get the company back on track, all is likely to be forgiven.
He also seems to be ignoring the fact that this was the same board that presided over the company's comeback under former CEO Jim Skinner, who led McDonald's from 2005 to 2012, a recent boom period that saw shares soar almost 200%.
CtW draws comparisons to Coca-Cola and Pepsi, saying those multinationals have done a better job of refreshing their boards, while they have tackled similar challenges. And like McDonald's, Coke and Pepsi have struggled to rediscover domestic growth in their core products, largely due to health concerns and changing consumer tastes.
So, the point seems to be that McDonald's challenges are secular ones and therefore, not immediately within the scope of the board. In a rhetorical sense, Waiznegger may be correct that the board could benefit from some turnover, but in a practical sense, it is unlikely to affect financial results.
Plenty of ink has been spilled on what McDonald's can do to get back on the right track. Ideas such as cutting down menu items, allowing diners to customize orders, and improving technology have been tossed around by management and analysts alike. What is clear is that any solution will be far from easy. McDonald's is a huge company and one of the best known brands in the world. Changing its operations or its image will require time, money, and effort. Making the sale again, especially to millennials, is far from guaranteed.
However, there may be a silver lining for investors. Despite McDonald's forgettable year, the stock is trading less than 10% below its all-time high. That is a credit to its long history, huge profit margins, and 3.6% dividend yield with a 25-year track record of raising payouts every year. Investors seem to believe that McDonalds' problems are curable. If, however, the company continues to falter under incoming CEO Steve Easterbrook, the board may rightfully deserve a place on the chopping block.
