Icahn vs Kroger: Will proxy fight bring change to Cincinnati's largest company?

Shareholder activism on the rise
Posted at 2:20 PM, May 26, 2022

CINCINNATI — After 40 years as a Kroger employee, Jay Thurber happily voted last spring in favor of a union contract that will boost her hourly pay by $5 over five years.

But now, she’s having voter’s remorse.

“I got a $1 raise this year, but I didn’t realize that everybody didn’t get it,” said Thurber, a Dillsboro, Ind., resident who runs the cash register at Kroger’s Whitewater Township store. “There’s people below me (in seniority) who did not get that dollar. They work just as hard as I do, side by side, and they deserve it too.”

Kroger clerk Jay Thurber plans to vote for the first time this year as company shareholder.

Thurber wonders if her union, UFCW Local 75, could have gotten a better deal if it delayed contract talks until after the COVID-19 pandemic – which produced record sales and profits for Kroger. And she is bothered by the gap between Kroger’s lowest paid employees and CEO Rodney McMullen, whose $18.2 million compensation package was 679 times greater than the company’s median pay of $25,723.

“It’s the hourly person in here who’s making the company profitable,” Thurber said. “It’s the one on one with customers. It’s the person putting the product on the shelf. It’s all of the above. It’s not just one person who made this a success.”

That’s why Thurber is eager to vote again at Kroger’s annual meeting June 23. She plans to cast her shares in favor of Carl Icahn, a Florida billionaire who is trying to claim two seats on Kroger’s board by highlighting what he calls “glaring injustices” in Kroger’s treatment of pigs in its food-supply chain and workers at the bottom of its pay scale.

The pig issue doesn’t resonate with Thurber but the pay rhetoric does.

“Change needs to come,” Thurber said. “There’s a lot of people that we work with that’s on assistance. And that could be eliminated by offering them full-time positions and offering full-time benefits and everything that goes with that.”

Thurber and Icahn are both examples of increasing shareholder activism at U.S. companies, which received a record 529 resolutions this year from shareholders pursuing various reforms, according to As You Sow, a California -based non-profit. About 200 of those resolutions, addressing environmental, social and governance issues, found their way into proxy statements – with shareholder votes taking place between April and June.

Some of Cincinnati’s largest employers are inviting shareholders to weigh in on various issues that could impact wages and advancement opportunities in the Tri-State and beyond.

Walmart Inc. shareholders will vote June 1 on whether its board should “prepare a public report on whether and how Walmart’s racial justice goals and commitments align with the starting pay for all classifications of Walmart associates.”

Amazon Inc. shareholders voted May 25 on a resolution asking the board to explain how the company is protecting “workers’ rights to freedom of association and collective bargaining,” in light of media coverage describing “anti-unionization tactics” allegedly used by the company.

And McDonald’s shareholders on Thursday rejected a proposal to conduct “a third-party audit analyzing the adverse impact of McDonald’s policies and practices on the civil rights of company stakeholders,” including employees, suppliers and franchisees.

McDonald's shareholders also rejected Icahn's bid to elect two board members at McDonald’s, in a proxy fight that's similar to Kroger's. McDonald's said only 1% of its shareholders endorsed Icahn's demands to end the use of gestation crates on breeding pigs in its food-supply chain.

Icahn’s activism at Kroger is the biggest proxy fight Cincinnati has seen since Nelson Peltz claimed a seat on Procter & Gamble Co.’s board in 2017. But this fight is unlike that one in many respects. Peltz owned 3.8 million shares when he demanded changes at P&G, compared to Icahn’s 100 shares at Kroger.

“At Kroger, amazingly, it will take an average worker 20 years to make what the CEO earns in one week,” Icahn wrote in one recent securities filing. “In my 40 years of being an activist, I have never seen anything like this.”

Kroger’s proxy touts a $1.2 billion investment in wages and training in the last four years.

“This has raised our average hourly rate of pay from $13.66 to $17, reflecting an increase of more than $3 per hour. Kroger’s average hourly rate grows to more than $22 when health care and retirement benefits are factored in, which many of our non-unionized competitors do not offer.”

Kroger expects to spend $10 million more this year on its annual meeting because of the proxy fight. It's had little trouble in recent years winning support from shareholders on its annual "say on pay" vote. Its least popular board members secured 92% yes votes last year.

But Icahn is a wild card because of his reputation for getting companies to bend to his will and his willingness to spend money soliciting votes. His McDonald's filings estimated he would spend $1.2 million on the proxy contest. He hasn't disclosed an estimate yet for Kroger.

Icahn is unlikely to win board seats and Kroger, said Josh Black, editor of Activist Insight, which tracks investor reform efforts.

“There have been shareholders that have made non-binding proposals about these topics before, but they haven’t gotten a lot of support,” Black said. “So, to see someone like Carl Icahn raising these issues and putting them at the center of a proxy fight, it’s very novel. We don’t have a lot of precedent. But we don’t have a lot of reason to think that it will suddenly break through into the public consciousness.”

But that doesn’t mean Icahn won’t have an impact at Kroger. For one thing, he is urging shareholders to vote for a resolution submitted by the Presentation Sisters of the Blessed Virgin Mary in Aberdeen, South Dakota.

“We’re strange bedfellows, right?” said Sister Pegge Boehm, socially responsible investors coordinator for the religious order. “Our belief is that all animals are to be respected because they’re all God’s creation. However, in our resolution, we’re fighting for not the feeling animal but the feeling laborer.”

Sister Pegge Boehm said Kroger executives showed interest in her reform ideas in a meeting this year.

The resolution calls for the company to prepare a report on “the risks of increasing labor market pressures to its business plan” by analyzing whether its wages are too low keep workers from leaving the company. If Icahn calls enough attention to Kroger’s pay scale that investors endorse her proposal, that would give Sister Pegge more leverage in future talks with the company.

“This is not the end game for us,” she said. “We’re going to continue to work with Kroger and be focused on our concern for the worker.”

As for Thurber, she is reading this year’s proxy statement for the first time since she started buying Kroger stock decades ago. She questions whether Kroger is still a company where “people from any walk of life can come for a job and stay for a career,” as it says in the proxy.

“Back in the day it was,” Thurber said. “I think now when they hire these people, they don’t get 20 hours, they don’t get any benefits. I don’t see what the incentive is for them to stay.”

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