Chipotle investors want to oust its founder Steve Ells as chairman

Thomson Reuters

BOSTON/LOS ANGELES (Reuters) - Two smaller investors called on Tuesday for replacing Chipotle Mexican Grill Inc Chairman Steve Ells with an independent director, signaling more pressure only weeks after prominent activist William Ackman took a stake in the burrito chain.

Amalgamated Bank and CtW Investment Group, which works with union-sponsored pension funds and has previously sparred with the company over executive pay and corporate governance, said they jointly filed a shareholder proposal and were now taking aim at Ells, who founded Chipotle and is also its co-chief executive officer.

Chipotle did not immediately respond to requests for comment. Any vote on the proposal would not occur until Chipotle's 2017 annual meeting.

In April, CtW had urged investors to remove two longtime board members, but the effort failed at the company's annual meeting in May.

Since then, investors have grown increasingly worried about the company's ability to rehabilitate a brand tarnished by a string of food-borne illness outbreaks. Shares of Chipotle, which flirted with $750 last summer, are now trading at around $360.

"Chipotle's closed-off and limited governance structure is unsustainable and counterproductive, posing a direct risk to shareholders and the public at large," Amalgamated Bank CEO Keith Mestrich said in a statement.

Amalgamated Bank and CtW are playing a far more public role in the battle for Chipotle's future than Ackman's $12 billion hedge fund, Pershing Square Capital Management, one of the industry's biggest and often most-outspoken activists.

Since disclosing Pershing Square's 9.9 percent stake in September, Ackman has been largely mum on the bet that made his firm Chipotle's second-largest owner after mutual fund company Fidelity.

People familiar with his thinking, however, suggest that Ackman also is taking aim at the board, demanding directors with more expertise in food safety. A Pershing Square spokesman declined to comment.

Six of Chipotle's nine directors, including co-CEOs Ells and Monty Moran, have spent 10 years or more on the board.

Darlene Friedman, whose re-election had been opposed by CtW, has been a director for 21 years. She is described as a retired human resources executive with expertise in compensation.

(Reporting by Svea Herbst-Bayliss in Boston and Lisa Baertlein in Los Angeles; Editing by Paul Simao and Lisa Von Ahn)