How Does Chipotle CEO Ells Keep His Job?

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Under almost any circumstances, the board of a company as badly troubled as Chipotle Mexican Grill Inc. (NYSE: CMG) would fire its chief executive officer. Yet founder, CEO and Chairman Steve Ells has kept his job. Lead director Neil Flanzraich and the balance of the board have done a disservice to the shareholders.

Chipotle released another round of bad earnings, and its shares suffered. After hours its stock dropped 9% to $292, near its 52-week low. Its stock already was down 49% in the past two years, before the new collapse.

Chipotle announced third-quarter revenue of $1.13 billion, up from $1.04 billion in the same quarter a year ago. Net income was $19.6 million, compared to $7.8 million in the same comparable quarter. Margins were razor thin. Wall Street was shocked by poor guidance:

For the full year 2017, management expects:

  • Comparable restaurant sales increases of about 6.5%
  • New restaurant openings slightly below the low end of the previously-disclosed range of 195 to 210
  • An estimated effective full year tax rate of approximately 39.1%

Ells has presided over a number of disasters. The company has had a series of food poisoning outbreaks, which include norovirus, salmonella and E. coli in 2015. Store traffic plunged. Another norovirus outbreak happened earlier this year. Chipotle announced that the “recent norovirus outbreak in Virginia was the result of lax sick policy enforcement by store managers.” Hardly a comfort to future customers.

Earlier this year, Chipotle suffered a data breach that affected as many as 2,200 stores in 27 states and may have caused the exposure of hundreds of thousands of transaction records.

The board’s actions are particularly surprising since Ells owns only 1.1% of the company’s shares. Therefore, he has no leverage to keep his job beyond his position as founder. And that is hardly enough for investors who have watched repeated train wrecks at Chipotle.