Wendy’s faces supply chain safety shareholder proposal

The SEC has rejected a request by The Wendy’s Company to exclude from its AGM a shareholder proposal seeking disclosure regarding worker protections in its food supply chain, particularly during the pandemic.

The Franciscan Sisters of Allegany, NY has filed the proposal in conjunction with the group Investor Advocates for Social Justice (IASJ). The measure asks the board to issue a report ‘addressing Wendy’s supplier code of conduct and the extent to which Wendy’s quality assurance audits and third-party reviews effectively protect workers in its food supply chain from human rights violations, including harms associated with Covid-19.’

Supply-chain considerations as an aspect of risk management have come to the fore during the pandemic, as have concerns over human capital management and employee safety. Mary Beth Gallagher, executive director of IASJ, tells Corporate Secretary that the proposal was filed with the company ‘to bring attention to Wendy’s failure to protect its workers amid Covid-19.’

Gallagher adds that Wendy’s has not signed up to the Fair Food Program – a partnership between farmers, farm workers and retail food companies aimed at protecting wages and conditions for farm workers – unlike peers such as Burger King, McDonald’s and Yum! Brands, whose restaurant chains include KFC, Pizza Hut and Taco Bell.

The proposal states that the Wendy’s report should include:

• Whether the company requires its food suppliers to implement Covid-19 worker safety protocols and, if so, what those are in addition to the section(s) of Wendy’s quality assurance audit instrument relating to those protocols and/or the code’s human rights and labor practices expectations
• The number of times Wendy’s has suspended one of its meat or produce suppliers for failing to comply with those expectations or protocols
• A list of all third-party auditors approved by Wendy’s to monitor adherence to its expectations and/or protocols
• Whether Wendy’s ensures suppliers’ workers have access to a third-party grievance mechanism with the power to order a remedy for reporting violations of expectations and/or protocols and, if so, the required procedures, number of grievances filed by suppliers’ employees in the last year and outcomes of all such grievances.

NO-ACTION REQUEST
Wendy’s requested no-action relief to exclude the proposal on the basis of Rule 14a-8(i)(7) – that the proposal deals with matters relating to the company’s ordinary business operations. It also presented a detailed, almost 4,000-word argument that – as per Rule 14a-8(i)(10) – it has already substantially implemented the proposal.

In its request, the company argues that it has a ‘mandatory code that sets forth comprehensive guidelines with respect to human rights and labor practices of our suppliers, which is freely available on our corporate website [and] a substantial number of other related public disclosures on our corporate website that address various [ESG] topics.’

It adds: ‘While the code and public disclosures do not detail all of the highly specific and voluminous data requested by the proposal, the [SEC] staff has consistently concurred with the exclusion of proposals under Rule 14a-8(i)(10) where, like here, the proposal has been substantially implemented and disclosed, even if not in the precise manner prescribed by the proponent.’

Wendy’s notes that most of its suppliers operate and supply the company from the US and Canada and are therefore subject to enforcement of tough labor laws and regulations including, in some areas, particular Covid-19 protocols and mandates. It states that its code addresses human rights principles relating to global supply chain compliance such as hiring practices, healthy and safe work environment and working hours and time off.

‘Furthermore, suppliers are expected to use best practices in all aspects of their operations and conduct business in a manner consistent with the core principles and strong ethical values of the company and our franchisees… Accordingly, the code represents a codification of our ‘way of doing business’ and a pledge with suppliers to work toward continuous improvement in all aspects of company operations, including human rights,’ the company states.

Among other things, Wendy’s argues that:

• ‘The company’s public disclosures address the extent to which the company has required additional protocols for its suppliers with respect to Covid-19’

• ‘The company’s code of conduct for suppliers and public disclosures address the extent to which the company enforces compliance with the code’s human rights’
• ‘The company’s code of conduct for suppliers and public disclosures provide information regarding the extent to which the company reviews its meat and produce suppliers for compliance with the human rights expectations.’

IASJ does not agree. Gallagher writes in response that the company’s no-action request ‘fails to address the actual purpose of the proposal, which is principally about the effectiveness and record of enforcement of Wendy’s guidelines – in particular as they relate to the Covid-19 pandemic.’

She adds: ‘[T]he proposal does not ask whether Wendy’s has a code of conduct, audits or third-party reviews in place: it clearly recognizes that those exist. Rather, the proposal’s essential objective is to obtain information on whether and how Wendy’s enforces those measures to protect workers in Wendy’s meat and produce supply chain. Without that enforcement, the proponent’s position is that Wendy’s supplier code is just words on paper.’

The SEC states on its website that it was unable to concur with excluding the proposal on any of the bases asserted by the company.

A spokesperson for Wendy’s did not respond immediately to requests for comment.