Half-Baked Turnover

Chipotle's Board Shakeup Underwhelms

The chain is working with Ackman, but new members lack some needed skills.
At Closing, April 23th
330.71 USD
At Closing, April 23th
158.99 USD

Patience is finally starting to pay off for Chipotle investors -- though they will need more of it.

After months of promising to do so, Chipotle Mexican Grill Inc. on Friday said it had appointed four new board members backed by activist investor Bill Ackman, who accumulated a nearly 10 percent stake in the burrito chain after a food-safety crisis last year pummeled its shares.

Board Bump

Investors cheered Chipotle's move to name four new directors in a pact with activist Bill Ackman

Source: Bloomberg

Intraday times are displayed in ET.

Investors cheered the move, sending shares up 3 percent. The only problem is, the new board members are short of the kind of experience I've urged the company, here and here, to seek -- namely, experience in food safety, supply chain, technology, and crisis communications. These are four key areas Chipotle needs to address soon, at the risk of further misery.

Director Scorecard

Chipotle's four new board members lack important food safety, supply chain, and digital experience

Source: Bloomberg

And other than co-CEO Monty Moran, who stepped down earlier this week, Chipotle got rid of no entrenched board members, despite more than a fifth of shareholders voting last summer to unseat them. 

The new board members and the agreement with Ackman do signal a potential turning point for the company. It's encouraging Chipotle is willing to work with Ackman, a sign the activist campaign will be forged quietly and not through a distracting public fight that could further hurt Chipotle's reputation. 

The new board members do have their strengths. Paul Cappuccio's legal expertise -- along with a stint at the U.S. Department of Justice -- will be useful as Chipotle endures an expanding federal criminal investigation into a norovirus outbreak in California. The media experience of Cappuccio and Robin Hickenlooper could also help Chipotle with branding. It probably doesn't hurt that Hickenlooper is the First Lady of Colorado, Chipotle's home base. 

As CFO of McDonald's Corp., returning board member Matthew Paull (he served on Chipotle's board when it was owned by McDonald's) also worked with Ackman a decade ago, when the activist investor built a stake in the fast-food chain and urged it to cut costs, sell restaurants, and return more cash to shareholders. He told Bloomberg news in 2007 that he met with Ackman once a quarter during that time, which helped McDonald's "move a little faster" to sell thousands of international outlets to franchisees. 

It's also interesting to note -- at a time when Chipotle founder and CEO Steve Ells remains in the hot seat -- that Paull was among the directors on Best Buy Co. Inc.'s board who pushed for an exit of founder Richard Schulze back in 2012, after Schulze failed to inform the board about allegations that then-CEO Brian Dunn had used company funds while having an affair with a female employee. 

These board changes took too long to implement and don't exactly hit the target. But they are at least aiming in the right direction. 

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 sbanjo@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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