United
States Securities and Exchange Commission
Washington, D.C. 20549
NOTICE
OF EXEMPT SOLICITATION
Pursuant to Rule 14a-103
Name of the
Registrant: McDonald’s Corporation
Name of persons
relying on exemption: National Legal and Policy Center
Address of persons
relying on exemption: 107 Park Washington Court, Falls Church, VA
22046
Written materials
are submitted pursuant to Rule 14a-6(g) (1) promulgated under the
Securities Exchange Act of 1934. Submission is not required of this
filer under the terms of the Rule but is made
voluntarily in the interest of public disclosure
and consideration of these important issues.
PROXY
MEMORANDUM
TO:
Shareholders of McDonald’s Corporation
RE: The case
for voting YES on Shareholder Proposal 7 on the 2023 Proxy
Ballot (“Advisory Vote on Annual Report on ‘Communist China’”).
This is not a
solicitation of authority to vote your proxy. Please DO NOT send us
your proxy card; National Legal and Policy Center is not able to
vote your proxies, nor does this communication contemplate such an
event. NLPC urges shareholders to vote for Proposal
7 following the instructions provided on management's
proxy mailing.
The following
information should not be construed as investment advice.
Photo credits
follow at the end of the report.
National Legal and
Policy Center (“NLPC”) urges shareholders to vote
YES on Proposal 7 on the 2023 proxy ballot of McDonald’s
Corporation (“McDonald’s” or the “Company”). The Resolved clause
states:
Shareholders request that, beginning in 2023, McDonald’s
Corporation report annually to shareholders on the nature and
extent to which corporate operations depend on, and are vulnerable
to, Communist China, which is a serial human rights violator, a
geopolitical threat, and an adversary to the United States. The
report should exclude confidential business
1
information but provide shareholders with a sense of the Company’s
reliance on activities conducted within, and under control of, the
Communist Chinese government.
This report is
necessary because:
1)Doing
business with China presents a unique, substantial, and pressing
risk that warrants dedicated reporting.
2)The
potential damage from McDonald’s reliance on China affects every
aspect of its business. These China-specific risks should be
assessed and reported more comprehensively.
3)Existing
disclosures are fragmented, incomplete, and vague. As a result,
these disclosures are inadequate to assess business risks related
to China.
Doing business
with China presents a unique, substantial, and pressing risk that
warrants dedicated reporting.
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China poses a unique
challenge gives its size, strength, and track record of
constricting the freedom of its people and abusing their human
rights.
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Against this
backdrop, it’s unrealistic and irresponsible for McDonald’s to
contend that doing business with China is comparable to other
business risks disclosed in existing reports and filings
– especially given the company’s dependence on China for
revenue and supply.
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To summarize the many
challenges posed by China:
-China
is the second-largest country in the world by nominal
GDP,1 and the largest
country in the world by GDP in purchasing power parity
(PPP).2
-The
nation of China is ruled by the Chinese Communist Party (CCP),
whose stated intention is to “become a global leader in terms of
composite national strength and international
influence.”3
1 “GDP: All
countries and economies,” The World Bank, accessed April 30, 2023.
See
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?most_recent_value_desc=true&view=map.
2 “Country
comparisons – real GDP,” Central Intelligence Agency: The
World Factbook, accessed April 30, 2023. See
https://www.cia.gov/the-world-factbook/field/real-gdp-purchasing-power-parity/country-comparison.
3 Jinping, Xi.
“Full text of Xi Jinping’s report at 19th CPC National
Congress,” China Daily, November 4, 2017. See
http://www.chinadaily.com.cn/china/19thcpcnationalcongress/2017-11/04/content_34115212.htm.
2
What makes China’s
size and emerging strength particularly troubling is that it is
ruled by an authoritarian regime that abuses its own people and
antagonizes its adversaries – including the United States.
This includes:
Human trafficking
and oppression of ethnic minorities: The U.S. State
Department’s 2022 Trafficking in Persons Report declared China a
state sponsor of human trafficking, noting:
There was a government policy or pattern of widespread forced
labor, including through the continued mass arbitrary detention of
Uyghurs, ethnic Kazakhs, ethnic Kyrgyz, and members of other Turkic
and/or Muslim minority groups in the Xinjiang Uyghur Autonomous
Region (Xinjiang) under the guise of ‘vocational training’ and
‘deradicalization.’ Authorities continued to implement these
policies in other provinces; targeted other religious minorities
under their auspices; and sought the coerced repatriation and
internment of religious and ethnic minorities living abroad through
the use of surveillance, harassment, threats against them and their
family members, and extradition requests.4 5
Since many companies
in China are ultimately under the control of the CCP, they are
– voluntarily or involuntarily – complicit in this human
trafficking and oppression.
Cyber warfare:
The U.S. Cybersecurity and Infrastructure Security Agency states
that the CCP “engages in malicious cyber activities to pursue its
national interests. Malicious cyber activities attributed to the
Chinese government targeted, and continue to target, a variety of
industries and organizations in the United States.”6
Escalating
military threats: According to the U.S. Department of Defense,
China now has the largest number of naval vessels of any military
in the world; 975,000 active-duty military personnel, long-range
precision strike systems, and hypersonic weapons. The 2022 China
Military Power Report states that China’s “evolving capabilities
and concepts continue to strengthen the PLA’s [People’s Liberation
Army] ability to ‘fight and win wars’ against a ‘strong enemy’ (a
euphemism likely for the United States), counter an intervention by
a third party in a conflict along the PRC’s periphery, and project
power globally.”7
China has recently
demonstrated its intention to project power by repeatedly
conducting military operations around Taiwan8 and sending large
numbers of fighter jets into Taiwan’s Air Defense
4 “Trafficking in
Persons Report: July 2022,” United States Department of State, July
2022. See
https://www.state.gov/wp-content/uploads/2022/04/337308-2022-TIP-REPORT-inaccessible.pdf.
5 “Against their
will: the situation in Xinjiang,” U.S. Department of Labor,
accessed April 30, 2023. See
https://www.dol.gov/agencies/ilab/against-their-will-the-situation-in-xinjiang.
6 “China cyber
threat overview and advisories,” Cybersecurity & Infrastructure
Security Agency, accessed April 30, 2023. See
https://www.cisa.gov/uscert/china.
7 “Military and
security developments involving the People’s Republic of China:
2022,” U.S. Department of Defense, October 26, 2022. See
https://media.defense.gov/2022/Nov/29/2003122279/-1/-1/1/2022-MILITARY-AND-SECURITY-DEVELOPMENTS-INVOLVING-THE-PEOPLES-REPUBLIC-OF-CHINA.PDF.
8 Varandani, Suman.
“Taiwan intercepts 9 PLA military aircraft, 4 naval ships as
tensions mount with China,” International Business Times,
January 1, 2023. See
https://www.ibtimes.com/taiwan-intercepts-9-pla-military-aircraft-4-naval-ships-tensions-mount-china-3660368.
3
Zone.9 In regards to
Taiwan, China’s ruler Xi Jinping has previously said, “The
historical task of the complete reunification of the motherland
must be fulfilled, and will definitely be fulfilled.”10
China is embarking on
efforts to fully modernize its military by 2027, which according to
the U.S. Department of Defense, “could give the PLA capabilities to
be a more credible military tool for the Chinese Communist Party to
wield as it pursues Taiwan unification.”11
In addition to the
above issues, China presents other challenges, such as:
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The CCP’s crackdown
on freedoms in Hong Kong.12
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The CCP’s “social
credit” system, which monitors and punishes citizens – without
due process – for certain behaviors, leading to potential
blacklisting from travel, buying property, or taking out
loans.13
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The CCP’s monitoring
and control of the Internet in China, which prevents citizens from
having open access to uncensored information.14
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Inhumane lockdowns of
entire cities due to the CCP’s regressive Zero COVID
policy.15
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The CCP’s abusive
trade practices16 meant to
dominate key U.S. industries.17
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9 Cheung, Jozuka,
& Yeung, Jessie. “China carries out military exercises near
Taiwan and Japan, sending 47 aircraft across Taiwan Strait in
‘strike drill,’” CNN, December 26, 2022. See
https://www.cnn.com/2022/12/25/asia/taiwan-china-aircraft-incursions-intl-hnk/index.html.
10 “China’s Xi
vows ‘reunification’ with Taiwan, but holds off threatening force,”
CNBC, October 8, 2021. See
https://www.cnbc.com/2021/10/09/china-president-xi-jinping-on-reunification-with-taiwan.html.
11 “Military and
security developments involving the People’s Republic of China:
2022,” U.S. Department of Defense, October 26, 2022. See
https://media.defense.gov/2022/Nov/29/2003122279/-1/-1/1/2022-MILITARY-AND-SECURITY-DEVELOPMENTS-INVOLVING-THE-PEOPLES-REPUBLIC-OF-CHINA.PDF.
12 Maizland,
Lindsay. “Hong Kong’s freedoms: what China promised and how it’s
cracking down,” Council on Foreign Relations, May 19, 2022. See
https://www.cfr.org/backgrounder/hong-kong-freedoms-democracy-protests-china-crackdown.
13 Krolik, Aaron
and Mozur, Paul. “A surveillance net blankets China’s cities,
giving police vast powers,” New York Times, December 17,
2019. See
https://www.nytimes.com/2019/12/17/technology/china-surveillance.html.
14 Zhou, Quijia.
“Building the (fire) wall: internet censorship in the United States
and China,” Harvard International Review, December 28, 2020.
See https://hir.harvard.edu/building-the-fire-wall/.
15 Deng, Shawn and
Gan, Nectar. “Chinese cities rush to lockdown in show of loyalty to
Xi’s ‘zero-Covid’ strategy,” CNN, September 5, 2022. See
https://www.cnn.com/2022/09/05/china/china-covid-lockdown-74-cities-intl-hnk/index.html.
16 Blackburn, etc.
“Letter to secretaries Blinken and Yellen regarding China trips,”
United States Senate, January 31, 2023. See
https://www.rubio.senate.gov/public/_cache/files/a312bb80-3195-4837-ab5d-b0db1c63a670/AFBFFB4AC8C6D94F89D83A1F55095554.01.31.22-smr-letter-to-secretaries-blinken-and-yellen-re-china-trips.pdf.
17 “Commerce finds
dumping and countervailable subsidization of imports of steel racks
from China,” International Trade Administration, July 18, 2019. See
https://enforcement.trade.gov/download/factsheets/factsheet-prc-steel-racks-ad-cvd-final-071819.pdf.
4
-The
CCP’s wrongful detainment of U.S. citizens.18
-The
CCP’s direct contribution to the fentanyl crisis that is destroying
U.S. communities.19
It’s obvious that
doing business with such an oppressive and hostile regime has
significant risks that must be accounted for and mitigated. Any
number of diplomatic, economic, or military events could trigger
McDonald’s to be cut off from both revenue and supply from
China.
Shareholders deserve
a report focused specifically on the nature and extent to which
corporate operations depend on and are vulnerable to China.
Existing reports and
filings are not transparent or specific enough to address these
concerns.
The potential
damage from McDonald’s reliance on China affects every aspect of
its business. These China-specific risks should be assessed and
reported more comprehensively.
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While McDonald’s
generically discusses business risks in its mandatory regulatory
filings, the risks specific to China should be addressed in more
detail. The magnitude of its risk in China is not comparable to the
general business risks disclosed by McDonald’s, many of which are
indistinguishable from the disclosures made by other public
companies. China risk reaches across many parts of McDonald’s
business, including:
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Revenue
risk
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-China
is McDonald’s second-largest market, behind only the United
States.20
-McDonald’s
has 5,183 stores in China, representing 12.8% of their total
locations,21 with plans to
open an additional 900 stores and 1,000 McDonald’s-owned McCafé
concept locations throughout 2023;22 from March 31,
2022 to March 31, 2023, McDonald’s opened 550 stores in
China.23
18 Kine, Phelim.
“Families push Biden for release of jailed Americans in China,”
Politico, June 19, 2022. See
https://www.politico.com/news/2022/06/19/families-biden-administration-americans-china-00040706.
19 Belmonte,
Adriana. “How China flooded the U.S. with lethal fentanyl, fueling
the opioid crisis,” Yahoo Finance, February 15, 2022. See
https://finance.yahoo.com/news/chinas-role-in-the-us-fentanyl-epidemic-152338423.html.
20 “McDonald’s
Corporation 8-F,” United States Securities and Exchange Commission,
April 25, 2023. See
https://corporate.mcdonalds.com/corpmcd/investors/financial-information.html#accordion-c3f9e31fc6-item-c90fade14a.
21 Ibid.
22 Kong, Yuhui.
“McDonald’s eyes lower-tier Chinese cities with 900 stores set to
open,” Dao Insights, February 1, 2023, See
https://daoinsights.com/news/mcdonalds-eyes-lower-tier-chinese-cities-with-900-stores-set-to-open/.
23 “McDonald’s
Corporation 8-F,” United States Securities and Exchange Commission,
April 25, 2023. See
https://corporate.mcdonalds.com/corpmcd/investors/financial-information.html#accordion-c3f9e31fc6-item-c90fade14a.
5
-China
represents one-third of McDonald’s developmental license
arrangements, under which licensees provide capital for the entire
business. This segment accounts for over 10 percent of McDonald’s
total revenue.24
-Russia’s
invasion of Ukraine in early 2022 provides recent evidence of how
damaging a regional conflict can be. The loss of human life and the
need for humanitarian assistance are, of course, the foremost
concerns. However, these events also provide recent evidence of how
quickly a regional conflict can shut off revenue in the affected
region. This led to McDonald’s shutting down 855 locations in
Russia, where it derived 9 percent of its annual revenue,
25 resulting in
costs of $127 million26 and net charges
of $1.3 billion.27
-McDonald’s
reliance on China, Japan, and the rest of Asia Pacific represents a
material percentage of total revenue and restaurants, as the
Company has 25 percent of its total locations in that
region.28 McDonald’s
vulnerability to disruption from China’s stated goal of
“reunification” with Taiwan requires immediate and transparent
analysis.
-The
effects of regional conflict stemming from China’s hostility toward
Taiwan would likely have ripple effects on the global economy,
further endangering McDonald’s business.
-According
to a Federal Reserve report on the effects of war in Ukraine, “The
increased geopolitical risks induced by the Russian invasion of
Ukraine will weigh adversely on global economic conditions
throughout 2022. Such effects are estimated in our model to reduce
GDP and boost inflation significantly, exacerbating the policy
trade-offs facing central banks around the world.”29
-It’s
likely that an invasion of Taiwan would cause even more damage to
the global economy, especially given the world’s reliance on
semiconductors from Taiwan.30
Operational
risk
McDonald’s has
invested a considerable amount into its Chinese infrastructure.
Thus, potential disruptions due to political, economic, regulatory,
or health issues could negatively impact McDonald’s investments in
the region.
24 Ibid.
25 Ibid.
26 Valinsky,
Jordan and Wiener-Bronner, Danielle. “McDonald’s new brand name in
Russia could be ‘Fun and Tasty,’” CNN Business, May 27, 2022. See
https://www.cnn.com/2022/05/27/business-food/mcdonalds-russia-fun-and-tasty/index.html.
27 Moon, Brad.
“140 companies that have pulled out of Russia,” Kiplinger’s,
March 7, 2022. See
https://www.kiplinger.com/investing/stocks/604317/companies-pulled-out-of-russia.
28 “McDonald’s
Corporation 8-F,” United States Securities and Exchange Commission,
April 25, 2023. See
https://corporate.mcdonalds.com/corpmcd/investors/financial-information.html#accordion-c3f9e31fc6-item-c90fade14a.
29 Caldara, et.
al. “The effect of the war in Ukraine on global activity and
inflation,” Board of Governors of the Federal Reserve System, May
27, 2022. See
https://www.federalreserve.gov/econres/notes/feds-notes/the-effect-of-the-war-in-ukraine-on-global-activity-and-inflation-20220527.html.
30 Nee Lee, Yen.
“2 charts show how much the world depends on Taiwan for
semiconductors,” CNBC, March 15, 2021. See
https://www.cnbc.com/2021/03/16/2-charts-show-how-much-the-world-depends-on-taiwan-for-semiconductors.html.
6
-McDonald’s
sold 80 percent of its Chinese and Hong Kong businesses to CITIC
Group and the Carlyle Group in 2017 for over $2
billion.31 CITIC is a
Chinese state-owned conglomerate that, with over 52 percent
ownership in the McDonald’s China business, can exclusively control
the decisions of the business’s operations. Perhaps this has
influenced the Carlyle Group to seek buyers for its equity
ownership.32
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McDonald’s heavily
relies on China for growth opportunities, with locations increasing
in China by 11.9 percent relative to growth of 0.4 percent for the
rest of the Company.33 McDonald’s CEO,
Chris Kempczinski, stated that “long-term, our outlook on China
remains very bullish. We’re going to continue to build restaurants
at an aggressive pace.”34
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After increasing its
store count by 700 throughout 2022, the Chinese business units has
plans on expanding its store count by 900 in 2023.35
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-The
Chinese government has a history of seizing the assets of
corporations and forcing them to restructure their debt
obligations, as was the case with Anbang Insurance
Group,36 HNA
Group,37 CEFC China
Energy,38 and
others.
31 Mullen, Jethro.
“McDonald’s gives up control of its China business in $2 billion
deal,” CNN Business, January 9, 2017. See
https://money.cnn.com/2017/01/09/investing/mcdonalds-china-business-citic-carlyle/index.html.
32 Gaur, Yana and
Wu, Kane. “Carlyle eyes fresh backers for McDonald’s China arm,
Bloomberg reports,” Reuters, April 21, 2023. See
https://www.reuters.com/business/retail-consumer/carlyle-eyes-fresh-backers-mcdonalds-china-arm-bloomberg-news-2023-04-21/.
33 “McDonald’s
Corporation 8-F,” United States Securities and Exchange Commission,
April 25, 2023. See
https://corporate.mcdonalds.com/corpmcd/investors/financial-information.html#accordion-c3f9e31fc6-item-c90fade14a.
34 Cao, Dong and
Chan, Cathy. “McDonald’s China lines up $2 billion in bank loans,”
Bloomberg, November 3, 2022. See
https://www.bloomberg.com/news/articles/2022-11-04/mcdonald-s-china-is-said-to-line-up-2-billion-in-bank-loans#xj4y7vzkg.
35 Strumpf, Dan.
“From McDonald’s to Ralph Lauren, U.S. companies are planning China
expansions,” The Wall Street Journal, February 27, 2026. See
https://www.wsj.com/articles/from-mcdonalds-to-ralph-lauren-u-s-companies-are-planning-china-expansions-c1a33969.
36 Miller, Matthew
and Engen, Tham. “China seizes control of Anbang Insurance as
chairman prosecuted,” Reuters, February 22, 2018. See
https://www.reuters.com/article/us-china-anbang-regulation/china-seizes-control-of-anbang-insurance-as-chairman-prosecuted-idUSKCN1G7076.
37 “China plans to
take over HNA Group and sell its airline assets as coronavirus hits
business,” CNBC, February 19, 2020. See
https://www.cnbc.com/2020/02/19/china-to-take-over-hna-group-and-sell-its-airline-assets-report-says.html.
38 Chang, Alfred
and Lau, Dominic. “CEFC China Energy seized by Shanghai Government,
SCMP reports,” Bloomberg, March 2, 2018. See
https://www.bloomberg.com/news/articles/2018-03-02/cefc-china-energy-seized-by-shanghai-government-scmp-reports#xj4y7vzkg.
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-The
Chinese government also has a history of intimidating companies and
manipulating them, as in the cases of the Apple,39
Marriott,40 Ant
Group,41
Alibaba,42 and others.
With significant operations in China, McDonald’s could also face
similar intimidation from the Chinese government.
-A
geopolitical situation comparable to the Russian and Ukrainian war
could put pressure on McDonalds’s to cease operations in the
region, as happened in Russia.43
Reputational
and legal risk
McDonald’s has an
estimated brand value of nearly $197 billion, one of its most
valuable and important assets.44 There is a
clear correlation between brand value and firm valuation.
Reputational risks can damage a brand’s value, and thus the
valuation of a firm.
Reputational risks
from doing business with China are relevant to shareholders,
especially since the CCP’s actions frequently conflict with the
Company’s stated values and policies.
Privacy
-McDonald’s
has stated that they seek to respect customer privacy and data by
“taking appropriate measures designed to keep your personal
information secure.”45
-This
statement conflicts with the reality that McDonald’s derives a
significant portion of its revenue from a country that runs a
massive surveillance program on over one billion
citizens.46
-The
CCP tracks its citizens using facial recognition47 and
monitoring of social media posts.48 They
punish citizens using a “social credit” system that can cast out
citizens from
39 “Apple is
censoring its App Store for China,” Tech Transparency Project,
December 23, 2020. See
https://www.techtransparencyproject.org/articles/apple-censoring-its-app-store-china.
40 “Marriott’s
broken China,” The Wall Street Journal, November 19, 2021.
See
https://www.wsj.com/articles/marriotts-broken-china-hotel-prague-uighurs-11637364746.
41 Wei, Lingling.
“China blocked Jack Ma’s Ant IPO after investigation revealed
likely beneficiaries,” The Wall Street Journal, February 16m
2021. See
https://www.wsj.com/articles/china-blocked-jack-mas-ant-ipo-after-an-investigation-revealed-who-stood-to-gain-11613491292.
42 “China’s
communist government employing intimidating tactics against big
businesses, Alibaba founder Jack Ma staying in Japan: report,”
OpIndia, December 1, 2022. See
https://www.opindia.com/2022/12/alibaba-founder-jack-ma-shifts-to-japan-due-to-intimidating-tactics-of-ccp/.
43 Moon, Brad.
“140 companies that have pulled out of Russia,” Kiplinger’s,
March 7, 2022. See
https://www.kiplinger.com/investing/stocks/604317/companies-pulled-out-of-russia.
44 “McDonald’s
global brand value from 2006 to 2022,” Statista, accessed April 30,
2023. See
https://www.statista.com/statistics/326059/mcdonalds-brand-value/.
45 “McDonald’s
Global Customer Privacy Statement Overview,” McDonald’s, accessed
April 30, 2023. See
https://www.mcdonalds.com/us/en-us/privacy-overview.html.
46 Ka, You.
“Inside China’s surveillance state, built on high tech and a
billion spies,” World Crunch, November 1, 2022. See
https://worldcrunch.com/culture-society/china-surveillance-cameras.
47 Ma, Alexandra.
“China is building a vast surveillance network – here are 10
ways it could be feeding its creepy ‘social credit system,’”
Insider, April 29, 2018. See
https://www.businessinsider.com/how-china-is-watching-its-citizens-in-a-modern-surveillance-state-2018-4?op=1.
48 Krolik, Aaron
and Mozur, Paul. “A surveillance net blankets China’s cities,
giving police vast powers,” New York Times, December 17,
2019. See
https://www.nytimes.com/2019/12/17/technology/china-surveillance.html.
8
access to jobs, housing, and travel with no due process.49 They
monitor movements and suppress dissent using QR codes.50
-While
McDonald’s can’t be blamed for the CCP’s surveillance of consumer
devices, it can be held accountable for whether its technology is
empowering customers or the CCP.
Human rights and
free expression
McDonald’s website
states, “we… have a responsibility to respect human rights within
(our) sphere of influence… We take seriously our responsibility to
respect human rights throughout our value chain.”51
This statement
conflicts with McDonald’s behaviors in a number of ways:
-McDonald’s
committed “systematic and serious violations of workers’
fundamental rights protected under international labor standards
and McDonald’s own Supplier Code of Conduct to freely associate and
bargain collectively at Taylor Farms.”52 McDonald’s was
a large buyer of Taylor Farms produce and promptly cut ties after
Arche Advisors, a corporate social responsibility firm, completed
an audit of the firm. The International Labor Rights Forum said
that “McDonald’s action was destructive.”53 After this
event, McDonald’s awarded Taylor Farms with its “Self-Managed
Excellence” award for its “food safety, quality, and sustainability
efforts;” Done likely to remedy McDonald’s damaged reputation from
their actions in that relationship.54
-McDonald’s
has been accused of, and charged for, several sexual harassment and
discrimination claims, with millions of dollars paid in
settlements.55 The behavior
has become so systematic in the organization, that the Equalities
and Human Rights Commission has started a monitoring action plan
with McDonald’s in an attempt to tackle McDonald’s “inadequate
handling of sexual harassment complaints.”56
A company’s brand is
a function of customer trust. When a company operates in direct
violation of its stated values and policies, that trust can be
broken and brand value damaged, in turn lowering the company’s
market capitalization. Shareholders must have the ability to
determine how McDonald’s is specifically addressing the
reputational and legal risks related to doing business with
China.
49 Kobie, Nicole.
“The complicated truth about China’s social credit system,”
Wired, July 6, 2018. See
https://www.wired.co.uk/article/china-social-credit-system-explained.
50 Gan, Nectar.
“China’s bank run victims planned to protest. Then their Covid
health codes turned red,” CNN, June 15, 2022. See
https://www.cnn.com/2022/06/15/china/china-zhengzhou-bank-fraud-health-code-protest-intl-hnk/index.html.
51 “Human Rights,”
McDonald’s, accessed April 30, 2023. See
https://corporate.mcdonalds.com/corpmcd/our-purpose-and-impact/jobs-inclusion-and-empowerment/human-rights.html.
52 “Golden Veneer:
How McDonald’s empty CSR promises failed workers at Taylor Farms,”
International Labor Rights Forum, June 2015. See
https://laborrights.org/sites/default/files/publications/Golden%20Veneer_FINAL.pdf.
53 Ibid.
54 Vanderhorst,
Daniel. “Taylor Farms honored by McDonald’s,” The Packer, September
28, 2017. See
https://www.thepacker.com/news/foodservice/taylor-farms-honored-mcdonalds.
55 Thomas,
Gillian. “McDonald’s is serving up sexual harassment,” ACLU,
January 14, 2019. See
https://www.aclu.org/news/womens-rights/mcdonalds-serving-sexual-harassment.
56 Bernard,
Dominic. “McDonald’s under supervision from human rights watchdog,”
HR Magazine, February 8, 2023. See
https://www.hrmagazine.co.uk/content/news/mcdonalds-under-supervision-from-human-rights-watchdog/.
9
Existing
disclosures are fragmented, incomplete, and vague. As a result,
these disclosures are inadequate to assess business risks related
to China.
As
discussed in their proxy statement, McDonald’s is “guided by” the
United Nations Guiding Principles on Business and Human Rights.
That document states:
Because the risk of gross human rights abuses is heightened in
conflict-affected areas, States should help ensure that business
enterprises operating in those contexts are not involved with such
abuses. In order to identify, prevent, mitigate, and account for
how they address their adverse human rights impacts, business
enterprises should carry out human rights due diligence.
Assessing actual and potential human rights impacts, integrating
and acting upon findings, tracking responses, and communicating how
impacts are addressed… In order to account for how they address
their human rights impacts, business enterprises should be prepared
to communicate this externally, particularly when concerns are
raised by or on behalf of affected stakeholders.57
We
agree with the aforementioned statements and would argue that
McDonald’s does not currently adhere to them.
-McDonald’s
does not provide a comprehensive breakout of their operations in
China, with information provided only detailing the number of
stores open and several generic risk disclosures for the
country.58 McDonald’s
fails to detail critical information, such as their Chinese supply
chain, revenue, and infrastructure.
-SEC-mandated
disclosures of material risk do not address the Company’s
initiatives to mitigate those risks. According to SEC’s Division of
Enforcement, “It is critical that public companies accurately
disclose material business risks and timely disclose and account
for loss contingencies that can materially affect their bottom
line.”59
McDonald’s 2023 first
quarter 8-F states that “(financial) results reflected strong
operating performance across the (International Developmental
Licensed Markets & Corporate) segment, led by Brazil and
China.”60 China is a
clear driver of McDonald’s business performance, making its
reliance on China a critical risk, as there are a number of factors
that could harm the company.
57 “Guiding
principles on business and human rights,” United Nations, June 16,
2011. See
https://www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf.
58 “McDonald’s
Corporation 8-F,” United States Securities and Exchange Commission,
April 25, 2023. See
https://corporate.mcdonalds.com/corpmcd/investors/financial-information.html#accordion-c3f9e31fc6-item-c90fade14a.
59 “Mylan to pay
$30 million for disclosure and accounting failure relating to
EpiPen,” U.S. Securities and Exchange Commission, April 19, 2019.
See https://www.sec.gov/news/press-release/2019-194.
60 “McDonald’s
Corporation 8-F,” United States Securities and Exchange Commission,
April 25, 2023. See
https://corporate.mcdonalds.com/corpmcd/investors/financial-information.html#accordion-c3f9e31fc6-item-c90fade14a.
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The United Nations
calls on companies to “provide information that is sufficient to
evaluate the adequacy of an enterprise’s response to the particular
human rights impact involved.” If McDonald’s is being “guided” by
this principle and is already discussing significant risk exposures
using “robust risk management program”, then a report on the topics
discussed should be easy to deliver and provide investors with
meaningful insights.61
Conclusion
Doing
business in and with China poses unique risks for McDonald’s,
especially in light of the company’s reliance on China for revenue
and future growth. While the Company insists that existing
disclosures and voluntary reports account for these risks, that is
not the case. These disclosures and reports are vague and do not
address risks specific to doing business with China. The
information is scattered among various reports, and meaningful
information about McDonald’s assessment and response to
China-related risks is missing, leaving shareholders in the dark as
to the extent and nature of this risk.
As the
United Nations Guiding Principles on Business and Human Rights
states, “Showing involves communication, providing a measure of
transparency and accountability to individuals or groups who may be
impacted and to other relevant stakeholders, including
investors.”62 We believe this
is a reasonable standard for McDonald’s to follow.
And, having carefully considered these risks, we urge you to vote
FOR Shareholder Proposal 7 on McDonald’s 2023 Proxy,
requesting a report on the nature and extent to which corporate
operations are dependent on, and vulnerable to, Communist
China.
61 “McDonald’s,
Inc 2023 Proxy Statement,” McDonald’s, Inc., April 14, 2023. See
https://www.sec.gov/Archives/edgar/data/63908/000155837023005957/mcd-20230525xdef14a_c.pdf.
62 “Guiding
principles on business and human rights,” United Nations, June 16,
2011. See
https://www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf.
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Photo credits:
Page 2
– Xi Jinping, UN Geneva/Creative Commons
Page 4 – COVID
testing in China/QuantFoto, Creative Commons
Page 5
– McDonald’s in Shanghai, luisgosalbez/Creative Commons
Page 7 – Chris
Kempczinski, Economic Club of Chicago/YouTube
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SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE OR AS A SOLICITATION
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For questions
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Vote on Annual Report on ‘Communist China’,” sponsored by National
Legal and Policy Center, please contact Paul Chesser, director of
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