Case #6a. McDonald’s and Childhood Obesity

Synopsis: Case #6a invites you to apply a property rights and social contract framework to judge
how McDonalds should respond to the NGOs who are challenging it on issues related to children’s
health.

At the 2012 annual shareholder meeting, McDonald's Corp investors soundly rejected a shareholder
proposal that would have required the world's biggest fast-food chain to assess its impact on
childhood obesity.  The shareholder proposal, which also failed the previous year, returned amid
growing concern over the social and financial costs of obesity in the United States and around the
world - not only in terms of healthcare-related expenses but also lower worker productivity and
diminished quality of life.

Nearly one-third of U.S. children are overweight or obese. America is one of the fattest nations on
earth, and the U.S. Institute of Medicine, in a 2006 report requested by U.S. Congress, said junk
food marketing contributes to an epidemic of childhood obesity that continues to rise. The
institute is the health arm of the U.S. government’s National Academy of Sciences.

McDonald's executives defended the brand and its advertising.  "We're proud of the changes we've
made to our menu. We've done more than anybody in the industry around fruits and vegetables and
variety and choice," said Skinner, who received a standing ovation from investors at the 2011
annual meeting.

As one of the largest and most influential companies in the restaurant industry, McDonald's often
bears the brunt of criticism from consumers, parents and healthcare professionals, who want it to
serve healthier food and curb its marketing to children.  While the chain has added food like
salads, oatmeal and smoothies to its menu, it has pulled ahead of rivals and delivered outsized
returns for investors with help from its core lineup of fatty food and sugary drinks.

Corporate Accountability International, a business watchdog group, for the second year in a row
backed the obesity proposal, which was endorsed by 2,500 pediatricians, cardiologists and other
healthcare professionals.  It called on the company to issue a report on its "health footprint."
The document would evaluate how diet-related illness would affect McDonald's profit.

In the time since the last shareholder vote, McDonald's has changed the contents of its popular
Happy Meals for children - reducing the “french fry” (pomme frites) portion by more than half and
automatically including apples in every meal.  It also won the dismissal of a lawsuit that sought
to stop the company from using free toys to promote its Happy Meals for children in California.

Dr Andrew Bremer, a pediatric endocrinologist and professor at Vanderbilt University School of
Medicine in Nashville, presented the proposal at the meeting and said McDonald's has chosen to
employ "countless new PR tactics" that create a perception of change while "unreasonably" exposing
shareholders to significant risk.  "It is not enough to point to so-called healthier menu items
when children are still the target of aggressive marketing of an overwhelming unhealthy brand,"
Bremer said.

McDonald's board of directors recommended a "no" vote on the proposal, calling it "unnecessary and
redundant."  Shareholders heeded that call. The proposal received 6.4 percent of votes in support,
up from 5.6 percent a year ago.

Incoming CEO Don Thompson, who said his two children eat at McDonald's, was forceful in his
response to questions from Corporate Accountability representatives.  "I would never do anything to
hurt them or any other children, nor would we as a corporation ... Do me the honor, and our entire
organization, of not associating us with doing something that is damaging to children. We have been
very responsible," Thompson said.

Source: Wall Street Journal May 24, 2012


1.      (1.5) What property rights conflicts are raised in this case:

Show conflicts in this form:

___________right to __________

versus

___________right to__________


2.      (2) Referring where appropriate to the rights issues identified in
Q1,

(a)    how does McDonalds’s define its social contract?

(b)    how does the U.S. Institute of Medicine define McDonalds’s social contract?


3.      (2) If you were McDonalds, what would be your response to Dr. Bremer?

(a)   directly?

(b)   in the media (as that is where this fight will also proceed)?

4.      (2.5) Would there be a benefit to McDonalds of trying to sit down with Corporate
Accountability International to develop a policy all could agree on, or is the adversarial nature
of their relationship inevitable?  In answering this question, you must refer to the discussion of
NGO strategy in Module 6 and the websites of the two  NGOs.

Maximum length  400 words