Updated from 1:58 p.m. with comments from a CtW analyst.
Chipotle (CMG) just can't seem to catch a break.
Mere days after announcing a massive earnings miss and seeing a new burger concept open to harsh reviews, two small investment firms -- Amalgamated Bank and CtW Investment Group -- said they jointly filed a shareholder proposal against Chipotle to remove founder and co-CEO Steve Ells as chairman and replace him with an independent director, according to Reuters. The firms work with union-sponsored pension funds. CtW Investment Group previously tangled with Chipotle on corporate governance issues in April.
"We think it's the right time to clean house. It's past time for Chipotle's board to grow up so that it reflects the size of the company," CtW Investment Group lead analyst Derrick Wortes said in a phone interview.
Wortes said CtW would like someone from outside the company with "solid" risk management skills to replace Ells. Asked whether activist investor Bill Ackman -- who owns about 9.9% of Chipotle's shares through his firm Pershing Square -- fits that description, Wortes said that a person with a longer-term view of the business may be a better fit.
Chipotle didn't immediately respond to requests for comment.
After a dreadful run of sales and earnings following health scare issues last year, the two investment firms certainly have reason to question Ells' standing as chairman. For starters, Ells welcomed back long-time friend Mark Crumpacker as chief marketing officer with open arms in September after Crumpacker was arrested and charged with cocaine possession in July. Few other publicly traded companies would have been as kind in dealing with the issue.
TheStreet takes a brief look at two other reasons to question Ells' leadership as chairman of Chipotle.
Pay for Chipotle's CEOs remains out of control.
According to a regulatory filing in March, Ells earned $13.8 million in total compensation in 2015, down from a jaw-dropping $28.9 million in 2014. Monty Moran, Chipotle's other CEO, saw his total compensation decline to $13.6 million in 2015 from a whopping $28.1 million the year before.The figures continued a theme of egregious compensation for Chipotle's top two executives. More disturbing is that the pay packages awarded last year came as Chipotle battled a plunging stock price and weak sales results in the wake of its high-profile food safety scandal.
Chipotle's board is horribly constructed.
Both Ells and Moran are on Chipotle's board. Keep in mind these are the two men who essentially created Chipotle. How could they provide objective views on what they should earn and on business steps that should be taken?
That could likely best be done if Ells steps aside as chairman or Moran leaves the company entirely.
Check out the resumes of Chipotle's existing board.
John S. Charlesworth: Charlesworth retired from McDonald's (MCD) in 2000 after 26 years, where he was mostly focused on international operations. Since then, he is the sole owner and member of a company that owns and operates car care facilities and commercial properties.
Any rational investor likely sees Charlesworth and think two things: He is far removed from what's happening in the restaurant industry and must be cozy with Moran and Ells from when Chipotle was part of McDonald's.
Patrick Flynn: Similar to Charlesworth, Flynn retired from McDonald's in 2001 after spending 39 years with the Golden Arches. There, he was in charge of strategic planning and acquisitions. The same thoughts on Charlesworth apply to Flynn.
Darlene J. Friedman: Friedman retired in 1995 from a company called Syntex, where she focused on executive compensation. How that qualifies her to sit on the board of a growing restaurant company is unclear.
Kimbal Musk: One should go easy on Musk as he is a restaurant entrepreneur and has a passion for food. (And yes, he is Elon Musk's brother.) But Musk seems to be involved in a bunch of other ventures and boards other than Chipotle. It might be wise to trade in a "name brand" such as Musk for someone who could devote more time to Chipotle.