Wake Up, Chipotle Board

Investors are starting to lose patience after a series of stumbles.

If Chipotle board members weren't already on edge after a food-safety crisis that has sent the stock down 30 percent in the past year, the company's annual shareholder meeting should give them a nice little jolt. 

That's A Wrap

Chipotle's shares are down around 30 percent in the past year

Source: Bloomberg

Shareholder activists failed to oust two long-tenured directors on Chipotle's board, despite arguing they have served for so long (21 and 18 years, to be exact) they're no longer capable of adequately doing their jobs. But kicking off a board member this way is rarely successful. The fact that more than a fifth of shareholders voted to unseat the directors is a telling sign of investor unrest. 

What's more, nearly 60 percent of investors voted to approve a measure giving them more power to change the board in the future. Despite objections from Chipotle, investors passed a proposal allowing any investor or group that has owned 3 percent or more of the company's stock continuously for three years to nominate directors to the board. 

Entrenched board members are frowned on by corporate-governance types because they can prevent new ideas from taking hold and stifle the kind of independent thinking that holds management to task. Proxy advisory firm ISS said Chipotle's food-safety crisis "exposed a flawed board succession process that has not allowed the directors' skill sets to keep pace with the company's size and complexity."

Of the nine board members, two of them are co-CEOs Steve Ells and Montgomery Moran, who have served on the board for 11 and 9 years, respectively. Four others have served between 17 and 21 years, with the remainder joining over the past few years. Meanwhile, 4 of the 7 outside directors were elected to the company's board before the company went public, back when it brought in half a billion dollars in annual revenue from fewer than 500 stores. 

Free Fall

Chipotle's year-over-year change in sales at established locations

Source: Bloomberg

Such numbers might have raised questions from investors even absent a widespread food-safety crisis, criminal investigation, and sales tailspin. But with all that, and the continuing plunge in sales and the company's stock price, investors are certainly paying attention now.

Management's less-than-humble response to the company's food-safety issues certainly hasn't helped. And neither, it seems, has the $1 billion Chipotle has spent buying back its own shares. That might have been okay while the company was minting money, but not now. 

Apparently -- based on Wednesday's voting, at least (the company closed the meeting to the media and did not webcast it) -- investors are looking for change. Any board members or top executives hoping to sweep the company's problems under the rug have been put on notice.  

    This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Shelly Banjo in New York at

    To contact the editor responsible for this story:
    Mark Gongloff at

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE