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The Restaurant Industry: Corporate Governance

By Ugonna Agbafe
5 min read
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  • Corporate Governance within the restaurant industry is surprisingly diverse!
  • Restaurant executives are spoiled with benefits.
  • The restaurant industry directly affects over 10 million people!

 

In September of 2019, MSCI ESG released the results of an analytical study completed on the restaurant industry. The study looked at corporate governance, raw material sourcing, labor management, product safety & quality, and plastic waste management. As restaurants line the streets of our cities, we thought it was important for us to analyze and breakdown this paper. Knowledge is power. This blog will be focusing on the corporate governance section of the report.

 

Corporate Governance

Corporate governance alludes to the people and groups in control of companies. In regards to restaurants, this would mostly correlate to the people on the boards and in high positions of fast-food franchises. An ideal corporate board is diverse, with a mix of men and women from various backgrounds. This diversity tends to be an indicator of positive company culture. The MSCI ESG report had a lot of good to say in regards to fast food corporate governance. Compared to other industries, the restaurant companies in the MSCI ESG had a “high proportion of companies with female board directors” and about half of the companies shad at least 3 females on their boards of directors. The restaurant group’s board of directors was 23% female whereas the rest of the MSCI companies were around 19%. Previous MSCI studies have also correlated the number of female directors with improved financial performance. The study found that companies with at least three female directors had better financial performance!

 

Where is the money?

Another important aspect of corporate governance is the distribution of pay. Companies have been known to continually increase executive pay without giving any additional payments to other workers. Therefore, MSCI analyzes equitable pay as an indicator of positive company values. In the past, the restaurant industry has been known for having unfair pay practices. This has usually been done through executives having a large amount of their salary classified as fixed pay. This unfairly benefits them as they get paid regardless of company performance. In times when shareholders love value and employee wages or benefits are being cut, executives are insulated. Other stipulations that protect executives are short-term incentives that bolster their salary. Under short periods of high performance, executives get raises while other employees aren’t rewarded at all. Unfortunately, MSCI’s report shows that out of all the companies they analyzed, including Dominos Pizza enterprises, YUM! Brands, Chipotle, and Starbucks, all of their director compensations contained short-term incentives and fixed-pay components.

 

We are all affected!

The restaurant industry contains over 14 million people. The trends and practices within it affect many people.  Anything that affects any of us should matter to all of us. Join Physis today to start investing for a better future. 

 

Sources:

YUM! Brands

Domino’s Pizza

MSCI ESG’s “Restaurants Industry Report”

 

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