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McDonald’s Board Under Fire After Reversal on Ex-CEO Severance


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Steve Easterbrook, former CEO of McDonald's, was terminated last November without cause. McDonald's sued him Monday, attempting to claw back his severance package.

Back in April, CtW Investment Group issued a proposal urging shareholders to vote against the re-election of McDonald’s board Chairman Enrique Hernandez Jr. and its compensation committee Chairman Richard Lenny. Their beef was the board’s termination last November of CEO Steve Easterbrook without cause and with a severance package said to be worth $57.3 million today, according to Equilar, a compensation consulting firm.

The failed proposal is shining new light on the board’s decisions, now that McDonald’s Corp. sued Easterbrook Monday, alleging he lied about affairs with three additional employees and attempting to claw back the severance package. CtW Investment Group, which manages more than $250 billion in assets from union-backed pension funds, this week is calling for the board chairs’ resignations, according to The Wall Street Journal.

In its April letter to McDonald’s shareholders, CtW wrote, “We commend the board’s decision to hold its executives accountable to the same policies as rank-and-file employees in this instance. However, we object to the compensation committee’s use of discretion to award him a potentially massive windfall.

“Specifically, the board used its discretion to allow a large portion of Easterbrook’s outstanding options to vest years after his departure, where he will not have influence over the company’s stock price. We also note that he would not have received this equity treatment had his departure been classified as a termination ‘for cause’ or a voluntary resignation.”

New York City Comptroller Scott Stringer, who oversees the city’s pension system, also brought up concerns last November. On November 26, he issued a statement urging the McDonald’s board to implement “robust clawback provisions” in light of the termination of Easterbrook “after express and unambiguous violations of McDonald’s Standards of Business Conduct.” Stringer said at the time the board’s decision to give Easterbrook severance was “tone deaf at the top, particularly considering the company’s painfully slow and still inadequate response to widespread sexual harassment in McDonald’s restaurants.”

In a memo sent to McDonald’s employees on August 10, titled “Adhering to Our Values,” CEO Chris Kempczinski said, “We recently became aware through an employee report of new information regarding the conduct of our former CEO, Steve Easterbrook. We now know that his conduct deviated from our values in different and far more extensive ways than we were aware when he left the company last year. 

“While the board made the right decision to swiftly remove him from the company last November, this new information makes it clear that he lied and destroyed evidence regarding inappropriate personal behavior and should not have retained the contractual compensation he did upon his exit.”

In its complaint filed August 10 in Chancery Court in Delaware, McDonald’s alleged Easterbrook “had physical sexual relationships with three McDonald’s employees in the year before his termination; that he approved an extraordinary stock grant, worth hundreds of thousands of dollars, for one of those employees in the midst of their sexual relationship; and that he was knowingly untruthful with McDonald’s investigators in 2019.”

Evidence of the alleged misconduct, the complaint claimed, consisted of “dozens of nude, partially nude, or sexually explicit photographs and videos of various women, including photographs of these company employees, that Easterbrook had send as attachments to messages from his company e-mail account to his personal e-mail account.”

Last November, Easterbrook said in a statement about his departure, “I engaged in a recent consensual relationship with an employee, which violated McDonald’s policy. This was a mistake. Given the values of the company, I agree with the board that it is time for me to move on. Beyond this, I hope you can respect my desire to maintain my privacy.”

Easterbrook has not yet issued a statement about the latest allegations.

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The latest news, opinions and commentary on what's happening in the franchise arena that could affect your business.

Laura MichaelsLaura Michaels is editor of Franchise Times. She can be reached at 612.767.3210, or send story ideas to lmichaels@franchisetimes.com.
 
Beth EwenBeth Ewen is senior editor of Franchise Times. She can be reached at 612.767.3212, or send story ideas to bewen@franchisetimes.com.
 
Nicholas UptonNicholas Upton is restaurants editor at Franchise Times. He can be reached at 612.767.3226, or send story ideas to nupton@franchisetimes.com.
 
Mary Jo LarsonMary Jo Larson is the publisher of Franchise Times Magazine and the Restaurant Finance Monitor.  You can find her on Twitter at
 twitter.com/mlarson1011.
 

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