The battles currently being waged by shareholder activists at large restaurant companies could be claiming some important collateral damage: the industry’s African-American CEOs.
The restaurant industry had accomplished a rare feat—six black CEOs among its publically traded companies as of early 2014. In the latest Fortune 500 ranking (which includes McDonald’s and Darden Restaurants), there were just seven black CEOs across all sectors; in the ranking’s history, there have only ever been 13. “No other industry has gone further,” the Multicultural Foodservice & Hospitality Alliance noted earlier this year on a flyer saluting African-American leadership in foodservice and hospitality.
But when Darden Chairman and CEO Clarence Otis steps down at the end of the year amid struggling sales and traffic at Olive Garden and Red Lobster (before it was sold), there will be five. With everything from meat supplies in China to fast-food worker protests to health-minded millennials slinging arrows at the nation’s largest burger chain, McDonald’s could be the next operation forced to make changes at the top, where 51-year-old Don Thompson currently sits. And the claws are out as Bob Evans Farms, led by Chairman and CEO Steve Davis, fights back against one of its largest shareholders, Sandell Asset Management, and its attempts to force changes to the way the company is structured and led. And then there were three?
Of course, maintaining some arbitrary racial quota within the boardrooms of the industry’s high-profile companies is no way to run a business. Not even diversity advocates dispute the merits or the motivations of the high-power debates taking place at these corporations. After all, this week, McDonald’s stock price was flirting with a 52-week low, and the company reported its worst monthly sales numbers in a decade with U.S. sales dropping 3.2 percent. And Bob Evans’ performance has been lackluster while competitors such as IHOP and Denny’s have done much better. With turnaround needed, it’s only natural for analyst and shareholder attention to turn to the top. That could mean a change in leadership at these companies—and with few executives of color waiting in the ranks, it also would mean a change in the diversity of restaurant leadership.
That’s not insignificant. Study after study shows that diversity, in the C-suite and beyond, matters to employees, customers and shareholders. Diverse companies are more innovative, show strong financial performance, have better employee engagement and retention, pay higher dividends and more, researchers claim.
“Optics matter,” says Gerry Fernandez, president of MFHA, especially in the hospitality industry, which is a people business. “People want to go to work for companies where they see people like them doing well.” Furthermore, restaurants’ customer base is more diverse than ever. “The whole marketplace is multicultural,” says Fernandez. “How are you going to grow your topline if you don’t know how to engage people in a way [that resonates]?”
In the restaurant industry, the diversity issue is being complicated by other forces as well. The infiltration of private-equity firms and their laser-focused approach to snatching up, shining up and selling off restaurant concepts has little room for people issues, Fernandez points out. Developing and training a diverse workforce tends to be low on the priority list in that fix-em-and-dump-em-quick approach to making money. “That, long term, has implications for our industry,” says Fernandez.
Furthermore, if labor unions, currently preoccupied with minimum wage and franchise issues in the restaurant industry, ever shift their focus to the diversity of its workforces, the industry could be set back on its heels, Fernandez warns. “When unions start asking questions about diversity, we’re going to have a story to tell, and it’s not going to be so easy to tell the story.”