A recent shareholder lawsuit filed against the Chipotle restaurant chain challenges the company's board members and management to (1) pay more attention to customer feedback, and (2) improve product and product quality for customers. It may serve as a reminder to carefully consider the implications of cuts to services. Organizational costs will be saved and (3) shareholders will value corporate transparency more than ever in many areas.
The class action lawsuit alleges that Chipotle, in a public disclosure, underestimated customer complaints that the quantities of burritos and rice bowls served at its more than 3,600 restaurants were “highly inconsistent,” according to a Reuters report. claims. Serving was characterized as “stingy” on social media, ultimately sparking a backlash against the company. Since July, company officials have reiterated their commitment to serving hearty meals at their restaurants, but the damage had already been done. The company's second and third quarter results declined, and as of Oct. 30, Chipotle stock's market value had fallen by about $6.5 billion.
As the stingy truth comes to light, shareholders are suing to recover losses for those who invested in the company. “As a result of Defendants' tortious acts and omissions and the precipitous decline in the market value of our common stock, Plaintiffs and other class members have suffered significant losses and damages,” CNN reported. are.
For Chipotle, the costs associated with solving the “low portion size” problem may outweigh the economic benefits it would gain by offering customers fewer portions at the same price. The company says it has “never been instructed to reduce the amount it offers to customers,” but convincing shareholders and customers that it meant no harm will take a lot of time and money. It turns out.
In the current economic environment, many businesses are faced with the challenge of finding ways to increase revenue when their customers are experiencing financial hardship. Here are some insights for corporate board members to consider if they want to avoid a situation similar to the one facing Chipotle.
Improve your system for monitoring customer feedback. Customers can provide your company with invaluable information, but you need to approach them in the right way. Many companies only want to hear good things from their customers. It may also be wise to ensure that customers have an easy way to lodge complaints. Trust is built by creating a system to listen to both good and bad things about customers. Comments on what's working well can give you hints about which products and services to expand for future revenue growth. Comments about what's going wrong can help the company get ahead of big problems and fix problems that could drive customers away and destroy shareholder value.
Passing costs on to customers may not work in an inflationary environment. Rising inflation over the past few years has caused companies to re-examine their customer base as customers experience higher costs for everything, with the unintended consequence of price increases causing customers to stop using their products. You may need to determine whether there is a possibility and service. Customer loyalty is not guaranteed, and high prices can persuade customers to try a competitor's product, squeezing market share. Boards and management teams will be challenged to find innovative ways to reduce costs while still delivering the same products and services. Hiring board members with experience managing growth through difficult economic times will be critical going forward.
Lack of transparency leads to shareholder action. Providing accurate information in proxy statements, annual reports, and other public documents is critical, as shareholders are more proactive in seeking information from company boards and management. It is essential to the operation of any company. As with Chipotle, allegations of a lack of transparency can lead to lawsuits. Shareholders may also take steps to remove directors or key executives. This can be costly for businesses and should be avoided. Board members should be diligent in ensuring that all disclosures are transparent and meet governance best practices. Expect transparency on climate targets, diversity, sustainability measures and remuneration metrics that will be at issue next year.
