Denny's faces proxy vote over pig gestation crate pledge

[May 06, 2024]  By Waylon Cunningham

(Reuters) - An upcoming shareholder vote at Denny’s Corp could pressure the company to set targets for reducing its use of pork from suppliers that keep pregnant pigs in tight confinement, called gestation crates.

The Humane Society of the United States, a shareholder in Denny’s, filed the proposal ahead of the diner chain’s May 15 annual investor meeting.

The proposal has been backed by Institutional Shareholder Services, an influential proxy advisory firm which often guides how shareholders vote on hot-button issues.

The ISS said this is the first time Denny's had received a proposal regarding disclosing the percentage of group-housed pork in its supply chain, and phasing out gestation crates.

The ISS said it conducted an analysis that found that Denny’s lags five rivals, including Cracker Barrel and IHOP parent company Dine Brands, by failing to clearly lay out steps it is taking to reduce its reliance on pork suppliers that use gestation crates. According to ISS, Denny’s has used exceptions in its language to “significantly weaken” transparency around its commitment to phase out gestation crates from its supply chain.

Known for its inexpensive breakfast menu, Denny’s in 2012 pledged to eliminate from its pork supply chain the use of gestation crates, which the Humane Society describes as solitary cages that “confine pigs so restrictively, they can’t even turn around.”

But over the next decade, Denny’s reported no “meaningful progress” and made no targets for achieving its goal, putting it at odds with other chains, according to the Humane Society’s shareholder proposal. “We think it’s time shareholders step in.”

In contrast, competitor Cheesecake Factory disclosed that 73 percent of its pork was gestation crate-free at the end of 2023, and that it plans to eliminate crates from its supply chain by 2025. The company did not respond to a request for comment.

Denny’s board recommended in an April 4 proxy filing that shareholders vote against the proposal, saying that its requirements would be redundant, unnecessary and inefficient. “Unfortunately the pork supply industry has not evolved as expected," it said.

In an April 19 statement to Reuters, Denny’s said reducing gestation crates is a “complex challenge within our industry,” but that it acknowledges “the importance of progressing towards more humane practices.”

Walmart shareholders also will be asked to vote on a similar proposal at its upcoming annual meeting. Walmart recommended that its shareholders vote against the proposal, which it said was unnecessary. "The market does not currently support a speedy transition away from the use of gestation crates," the retailer said in its April 25 proxy filing.

A Denny's restaurant logo is pictured on a building in North Miami, Florida March 19, 2016. REUTERS/Carlo Allegri/File Photo

McDonald’s two years ago faced pressure from billionaire activist investor Carl Icahn to fully eliminate gestation crates from its pork supply chain. He lost his battle to win board seats and shine a light on animal welfare. McDonald’s did not respond to a request for comment.

Denny’s, which had roughly 1,631 locations at the end of 2023, previously sought to avoid a similar shareholder proposal from the Humane Society from appearing before investors. A Denny’s executive hammered out a deal with the group in private, according to emails reviewed by Reuters.

In exchange for the Humane Society’s withdrawal of the 2022 proposal, Denny’s published language on its website disclosing that roughly a third of its pork came from suppliers that at least limit the use of gestation crates. Denny’s also weakened its pledge from eliminating gestation crates to allowing suppliers to use them before pigs are confirmed as pregnant, which according to veterinary experts can take several weeks.

Steve Meyer, a consulting economist for the National Pork Board and the National Pork Producers Council, said converting from gestation crates to open pens is a significant investment for pork farmers, but restaurant chains can get gestation-crate-free pork if they are willing to pay more for it.

Panera Bread in 2022 estimated it could save $3 million by removing its commitment to suppliers that limit the use of gestation crates, but did not choose to do so, according to internal documents reviewed by Reuters.

Denny’s amended its website’s language again following the 2024 Humane Society proposal to now read that it believes half of its pork could come from suppliers that limit gestation crates by 2028. But the target is “dependent upon supply constraints for some products, market conditions and elevated costs.”

(Reporting by Waylon Cunningham in San Antonio, Texas. Additional reporting by Siddharth Cavale in New York; editing by Diane Craft)

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