New York Joins ESG Battle Against Tyson After Virus Outbreak

(Bloomberg) -- New York state has joined investors managing trillions of dollars in pressuring Tyson Foods Inc. to improve its practices after slaughterhouses became coronavirus hot spots last year.

The state’s pension fund wants America’s top meat producer to end a dual-class share structure that has effectively insulated the company from having to answer its shareholders over the coronavirus crisis, according to a proposal filed by New York State Common Retirement Fund that will be discussed next month at Tyson’s annual general meeting..

U.S. meat packers have been under pressure after thousands of workers caught the virus at processing plants last spring, with investors managing $2 trillion having written to the likes of Tyson and rival JBS SA demanding action to protect workers. Shareholders focused on environmental, social and governance issues argue that Tyson has been able to overlook their demands as family owners control the majority of voting rights.

“Shareholders should be holding Tyson’s board and management accountable for their ESG failures, but the current voting structure denies shareholders any meaningful oversight or input,” New York State Comptroller Thomas P. DiNapoli said in a statement in response to Bloomberg questions. “This must change -Tyson shareholders need equal voting rights.”

The state’s pension fund asked Tyson to hire an investment banker to develop a recapitalization plan that would result in every share being worth one vote. The Tyson family held 99.985% of Class B shares, which have a 10-to-1 voting advantage, as of Oct. 3, according to a regulatory filing. That means Class A holders can’t outvote them.

“As part of our review process, we have rigorous internal discussions about the proposals and, in some cases, talk to the groups submitting them before publishing our position in our annual proxy filing,” Gary Mickelson, a spokesman for Tyson, said in an emailed statement. “Over the years, Tyson Foods has made progress on topics previously referenced in shareholder proposals, such as land stewardship, water conservation and animal welfare.”

The Springdale, Arkansas-based company has advised shareholders to vote against New York’s proposal, arguing that the dual-class structure, in place since 1986, is in the best interest of the company and its investors. As of Dec. 31, the state’s retirement fund had 479,983 Tyson shares worth approximately $30.9 million. The fund’s most recent estimated value as of Sept. 30 was $226.4 billion.

“As an established company, Tyson Foods Inc. has benefited from the leadership and vision the Tyson family has provided over the last 85 years,” the company said in a regulatory filing. “Every investor purchasing a share of our Class A common stock is made aware of the dual-class structure.”

The state of New York isn’t alone in facing Tyson’s opposition. The company has also advised shareholders to vote against a proposal on human rights due diligence filed for a third time by the American Baptist Home Mission Society and another requiring the company to disclose in an annual report how it spends its lobbying dollars filed by the International Brotherhood of Teamsters.

“I was pretty shocked that they opposed our proposal in the way that they did just given what’s happening and the subject matter,” said Mary Beth Gallagher, executive director of Investor Advocates for Social Justice, which represents a group of investors including ABHMS. “Maybe not surprised but disappointed that they didn’t recognize the value in human rights risk management.”

More than 100 global investors in May urged meat companies to take steps including enforcing social distancing, providing protective equipment and opposing federal or state policies that deny unemployment benefits or stimulus relief to staff that refuse to go back to work due to fear of being infected.

While companies say they have taken measures that exceed government guidelines, they are still being reactive to the situation, said Nadira Narine, a senior program director at the Interfaith Center on Corporate Responsibility, the investor group that organized the May statement. ICCR members have some $2 trillion of assets under management.

“In the context of Covid, a lot of their lobbying has been around maintaining or making the line speeds faster, which is again a detriment to workers,” she said. “What they are trying to do is maintain their business operation as much as possible and then sort of just deal with the results, nothing is really changing in terms of the harm to their workers.”

Tyson said it spent $540 million in fiscal 2020 to update facilities to include temperature scanners, workstation dividers and other updates to protect against the virus. The company hired a chief medical officer and an additional 200 nurses and health staff. Currently, only about 1% of its U.S. workforce has active Covid-19 and the company is working with Matrix Medical Network to roll out vaccinations for workers, the company said in a statement.

“Our always-on testing strategy has enabled us to move from defense to offense in our efforts to search for and fight the virus,” Mickelson said.

Last month, it fired seven managers at an Iowa meatpacking plant after an investigation into accusations that they had bet on how many workers would be infected in a Covid outbreak last year.

The company also faced criticism over an advertisement in the New York Times in April where it said the food-supply chain was broken, a move that many argue was a precursor to President Donald Trump’s executive order to keep meat plants open despite outbreaks.

Click here for Bloomberg’s ESG overview function and here for the BI ESG metric screen

The Teamsters union says Tyson spent over $15.4 million on federal lobbying from 2010 to 2019, a figure the company disputes. The group is asking Tyson to publish a report annually disclosing its policy and procedures governing lobbying, payments made including the amount and the recipient, as well as payments to any tax-exempt organization that writes and endorses model legislation.

“A company’s lobbying practices and its political spending should reflect the goals of the company both long term and short term and not be anathema to their reputation,” said Louis Malizia, assistant director of the Teamsters’ capital strategies department. “The meat industry took a very short-term view, pushing for the presidential executive order for the defense fund.”

Tyson argued that the proposal brought by the union, which also manages a pension fund, would require the company to duplicate information it already discloses, incurring extra costs without added benefits for shareholders.

Investors say Tyson is hard to engage with and the company became less responsive during the pandemic. At annual general meetings, shareholders are only allowed to submit questions via paper ballot. The company then has about a week to respond to them in writing if it deems the question relevant.

Despite the meeting being virtual this year, “proponents of shareholder proposals will still be given an opportunity to speak and those attending will still have an opportunity to submit questions, which we will answer,” Mickelson said.

“Tyson’s failure to quickly address the impacts of the Covid-19 crisis reflects the company’s inadequate management of broader ESG risks,” DiNapoli said.

(Adds additional Tyson comment in 14th paragraph)