Dive Brief:

• During McDonald's virtual stockholders meeting Thursday, investors voted for an independent civil rights audit. The proposal won with 52% of votes in favor of the proposal and 47% against, and goes against the company’s recommendation, Bloomberg reports.
• The vote is nonbinding, according to Bloomberg. Many of the company's largest shareholders backed the proposal excluding BlackRock, which is undergoing its own racial equity audit.
• Civil rights audits have become more common in the past few years as investors examine how major companies treat employees and execute their overall diversity, equity and inclusion (DEI) strategies. 

Dive Insight:

McDonald’s record on civil rights has been challenged several times, including by an anti-discrimination lawsuit filed by employees in 2020. A federal lawsuit in 2020 also claimed the company engaged in systemic discrimination by denying Black franchisees the same opportunities as White franchisees, and a separate suit accused the company of pushing Black executives out of senior leadership.

Advocates for civil rights audits claim they help address systemic racism, so moving forward with such an audit could help McDonald's mitigate litigation that damages its brand reputation. Companies such as Amazon, Apple, Facebook and Starbucks have conducted similar audits.

Civil rights audits also tie into broader environmental, social and governance strategies, which have become more important to shareholders and customers alike. According to a 2020 Ernst & Young report, 72% of investors assess ESG performance through a structured review, versus just 32% in 2018. Zeno Group also finds that consumers are more likely to buy from companies that present themselves as having a social purpose. 

McDonald's has taken recent steps to try and rehabilitate its image and improve operations in the wake of racial discrimination accusations. The company pledged $250 million, for example, to finance disadvantaged franchise candidates, creating regional diversity frameworks with a focus on recruitment, financing and development. The $250 million initiative is less than one year old, however, so its outcome is far from clear. 

This move came after Black franchisees filed a class action suit claiming the chain intentionally covered up a net income gap of over $400,000 annually between Black and White operators. The company filed a memorandum last summer asking that the suit be dismissed, and the parties settled late last year.

A $10 billion lawsuit alleging racial stereotyping in McDonald's advertising strategy was allowed to proceed in January after it was initially dismissed late last year. The chain pledged it would more than double investments in diverse media partners from 4% to 10% by 2024. Since that pledge, the company has launched Spotlight Dorado, a multiyear platform to showcase and advocate for Latino talent in Hollywood. It has also launched a campaign in support of the LGBTQ community, and signed an ad deal with multicultural podcasting agency Pod Digital Media.

Aside from marketing efforts, the company also recently began tying executive incentive bonuses to hiring benchmarks for women and diverse employees. In July 2021, McDonald's pledged to allocate 25% of its supply chain spend toward diverse businesses by 2025. The chain appointed Reginald Miller as vice president and global diversity, equity and inclusion officer to focus on furthering its DEI work in November 2020.