More happy workers, more happy meals

Every child recognises the big yellow M: the largest fast food chain in the world owns one of the most valuable brands, too. What many people don’t know is that McDonald’s doesn’t sell burgers – it sells licenses. The franchise model has made McDonald’s a global success, with self-employed entrepreneurs paying for rent and the right to run a McDonald’s restaurant. But there’s a downside to this model. All over the world, serious violations of labour rights occur time and again at McDonald’s franchises. This has prompted a dialogue with the company that has spanned several years.

Patchy monitoring

Today, 95% of McDonald’s restaurants are run by franchisees and employ around 2 million people worldwide. What makes McDonald’s so special is its high level of standardisation: no matter which store the customer steps into, they should find a familiar menu and the same level of quality. But the strict quality controls and conditions imposed on franchisees seem to be somewhat patchy in terms of safeguarding basic labour rights for employees. In recent years, there have been repeated breaches of core labour standards at numerous locations. These cannot be explained by individual «black sheep»: accidents caused by hazardous and stressful working conditions, sexual harassment by line managers, non-payment of wages and the employment of children and young people far beyond the legal limits.

Investor perspective

For us as investors, these incidents are problematic in two respects. On the one hand, they violate our normative basis, which also includes core labour standards. On the other, we firmly believe that they will damage the McDonald’s brand in the long term and function as a boomerang with respect to the increasing competition for workers. An OECD study investigated the effects of labour shortages and concluded that companies that provided good conditions for their employees before the pandemic had fewer problems and were able to fill any vacancies much faster.

Dialogue with McDonald’s

SVVK therefore asked McDonald’s for a meeting to find out how the company intends to better protect its franchisees’ employees. After initial attempts at contact were unsuccessful, we approached the Board of Directors and the new management of the Swiss subsidiary and coordinated with other investors. This proved to be expedient for both sides and resulted in a constructive dialogue.

Measures

McDonald’s has given assurances that it has recognised the problem and is prepared to revoke franchisees’ licenses in serious cases. While most directives to franchisees are of a recommendatory nature, more stringent standards are already in place in some areas, e.g. regarding the recruitment of migrant workers. In addition to better monitoring and training programs, the company also wants to give greater recognition to exemplary franchises with a good working culture and make them visible internally. We very much welcome this, but the most important aspect for us was to hear how clear the business case is in this instance. McDonald’s can use business data to demonstrate to its franchisees that satisfied employees lead to higher customer loyalty and – ultimately – higher sales.

Outlook

We now expect that McDonald’s clearly communicates these connections and drives cultural change. This case shows that economic and ethical aspects are not mutually exclusive: in the long term, they usually go hand in hand. Competition for labour will intensify against the backdrop of demographic change and the declining willingness to compensate for this through migration. Companies would be well advised to look at the issue of labour rights with an open mind. Protecting employees contributes to a good workforce and to prosperous companies – i.e. customers – in the long run. SVVK looks forward to progress on this issue and encourages the continuation of the dialogue this year.