May 6 (Reuters) - An upcoming shareholder vote at

Denny's Corp could pressure the company to set targets

for reducing its use of pork from suppliers that keep pregnant

pigs in tight confinement, called gestation crates.

The Humane Society of the United States, a shareholder in

Denny's, filed the proposal ahead of the diner chain's May 15

annual investor meeting.

The proposal has been backed by Institutional Shareholder

Services, an influential proxy advisory firm which often guides

how shareholders vote on hot-button issues.

The ISS said this is the first time Denny's had received a

proposal regarding disclosing the percentage of group-housed

pork in its supply chain, and phasing out gestation crates.

The ISS said it conducted an analysis that found that

Denny's lags five rivals, including Cracker Barrel and IHOP

parent company Dine Brands, by failing to clearly lay out steps

it is taking to reduce its reliance on pork suppliers that use

gestation crates. According to ISS, Denny's has used exceptions

in its language to "significantly weaken" transparency around

its commitment to phase out gestation crates from its supply

chain.

Known for its inexpensive breakfast menu, Denny's in 2012

pledged to eliminate from its pork supply chain the use of

gestation crates, which the Humane Society describes as solitary

cages that "confine pigs so restrictively, they can't even turn

around."

But over the next decade, Denny's reported no "meaningful

progress" and made no targets for achieving its goal, putting it

at odds with other chains, according to the Humane Society's

shareholder proposal. "We think it's time shareholders step in."

In contrast, competitor Cheesecake Factory ( CAKE )

disclosed that 73 percent of its pork was gestation crate-free

at the end of 2023, and that it plans to eliminate crates from

its supply chain by 2025. The company did not respond to a

request for comment.

Denny's board recommended in an April 4 proxy filing that

shareholders vote against the proposal, saying that its

requirements would be redundant, unnecessary and inefficient.

"Unfortunately the pork supply industry has not evolved as

expected," it said.

In an April 19 statement to Reuters, Denny's said reducing

gestation crates is a "complex challenge within our industry,"

but that it acknowledges "the importance of progressing towards

more humane practices."

Walmart ( WMT ) shareholders also will be asked to vote on a

similar proposal at its upcoming annual meeting. Walmart ( WMT )

recommended that its shareholders vote against the proposal,

which it said was unnecessary. "The market does not currently

support a speedy transition away from the use of gestation

crates," the retailer said in its April 25 proxy filing.

McDonald's two years ago faced pressure from

billionaire activist investor Carl Icahn to fully eliminate

gestation crates from its pork supply chain. He lost his battle

to win board seats and shine a light on animal welfare.

McDonald's did not respond to a request for comment.

Denny's, which had roughly 1,631 locations at the end of

2023, previously sought to avoid a similar shareholder proposal

from the Humane Society from appearing before investors. A

Denny's executive hammered out a deal with the group in private,

according to emails reviewed by Reuters.

In exchange for the Humane Society's withdrawal of the 2022

proposal, Denny's published language on its website disclosing

that roughly a third of its pork came from suppliers that at

least limit the use of gestation crates. Denny's also weakened

its pledge from eliminating gestation crates to allowing

suppliers to use them before pigs are confirmed as pregnant,

which according to veterinary experts can take several weeks.

Steve Meyer, a consulting economist for the National Pork

Board and the National Pork Producers Council, said converting

from gestation crates to open pens is a significant investment

for pork farmers, but restaurant chains can get

gestation-crate-free pork if they are willing to pay more for

it.

Panera Bread in 2022 estimated it could save $3 million by

removing its commitment to suppliers that limit the use of

gestation crates, but did not choose to do so, according to

internal documents reviewed by Reuters.

Denny's amended its website's language again following the

2024 Humane Society proposal to now read that it believes half

of its pork could come from suppliers that limit gestation

crates by 2028. But the target is "dependent upon supply

constraints for some products, market conditions and elevated

costs."