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Chipotle Shareholders Want Steve Ells Out As Chairman

This has been a rough year for the burrito chain

Steve Ells Photo by Jason Kempin/Getty Images for Chipotle Mexican Grill

Steve Ells might be the founder of Chipotle, but he needs to go as chairman of the company. That’s the message two investors in the beleaguered burrito chain are sending, a year after the fast-casual chain first confirmed the food safety scandal that would rock the company to its core.

On Tuesday, Amalgamated Bank and CtW Investment Group (two Chipotle shareholders) filed a proposal calling on Ells to be ousted as chairman, and replaced with an independent director. In a statement, Amalgamated Bank CEO Keith Mestrich said Chipotle’s governance poses “a direct risk to shareholders and the public at large.” An independent, outside chair, he added, would allow Chipotle “to provide a more publicly transparent and responsive approach moving forward.”

To be clear, Ells would remain co-CEO with Montgomery F. Moran.

Investors has been vocal about the need for a board shakeup at Chipotle for some time now, arguing that the company’s lackluster response to its massive E. coli disaster proves it needs fresh blood on the board.

Chipotle’s downfall began in 2015, when scores of customers became sick from eating at locations in several states across the country. For a company that marketed its food as being made “with integrity,” this was an especially steep fall from grace. Since then, Chipotle saw its stock sink to the lowest level in three years. Its earnings, of course, suffered along with its reputation.

Since then, the beleaguered burrito chain has conducted a slew of experiments to get customers back in the door: adding new menus item, a loyalty program, and unveiling a pricey new marketing campaign. But it hasn’t been quite enough; sales still lag far behind where they were before the crisis.

A recent earnings report, in which Ells said the chain would work to lure back customers with desserts and a new mobile ordering system, was especially disappointing to shareholders. “The company’s recent earnings confirm that Chipotle is missing key ingredients for a successful turnaround,” said Derrick Wortes, lead analyst at CtW Investment Group in the statement. “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.”

This isn’t the first time shareholders have attempted to shake up the Chipotle board. During the company’s annual meeting in May, a group of shareholders including CtW ultimately failed to unseat two of the board's longtime directors, a move they said was critical to the company's success. A majority did, however, vote in favor of a measure that would give shareholders more power to propose new directors in the future.

Though the shareholders have so far been unsuccessful in pressuring Chipotle to make changes to its board, they might have a new ally in their fight. In September, New York-based hedge fund Pershing Square Capital Management made headlines when it became Chipotle’s second-largest shareholder. As CNBC notes, the manager of that hedge fund (billionaire William Ackman) has a reputation for “buying stakes in publicly traded companies and trying to force changes.”

His role at Chipotle will likely be no different, with Reuters reporting that Ackman would also like to see changes at the board level, and would specifically like to see board members “with more expertise in food safety.” Whether or not those rumors are true, the fast-casual chain is already attempting to defend itself against their new high-profile investor with a team of high-profile investment bankers and lawyers.

Chipotle Investors Propose Ousting Founder as Chairman [Reuters]
All Chipotle Coverage [E]