By Heather Haddon
McDonald's Corp. said it is suing former Chief Executive Steve
Easterbrook and seeking to recoup tens of millions of dollars it
paid him in severance and benefits, alleging that he lied to the
board about sexual relationships with employees before his ouster
The fast-food giant dismissed Mr. Easterbrook without cause in
November 2019, following an investigation into his conduct.
Investigators found he had a short-term, consensual relationship
with an employee over text and video, but Mr. Easterbrook denied
any physical sexual relationships with McDonald's employees,
according to the complaint filed Monday.
McDonald's reopened the matter after it received an anonymous
tip in July about a relationship between Mr. Easterbrook and an
employee, according to the lawsuit. An investigation found that Mr.
Easterbrook allegedly engaged in three other relationships with
employees that were sexual in nature, including the one that
triggered the inquiry. Investigators found that Mr. Easterbrook
destroyed evidence about the sexual relationships and lied about
his behavior during the initial investigation last fall, the
Because McDonald's decided to fire Mr. Easterbrook without
cause, he received severance and benefits that he could have been
denied had the board found him at fault. Mr. Easterbrook's
compensation, benefits and stock were potentially worth nearly $42
million, according to an analysis at the time by executive-pay firm
Board efforts to recover compensation from CEOs for activities
and statements pertaining to their termination are unusual, said
Steven Hall, managing director of pay consulting firm Steven Hall
& Partners. It is more common for a board to seek to clawback a
bonus payment from an executive who reached a financial goal that
is later found to have been misstated, he said.
McDonald's also alleged that Mr. Easterbrook approved a stock
grant to an employee with whom he was having a sexual relationship.
The grant was valued at hundreds of thousands of dollars, according
to the suit.
In the complaint, McDonald's said its severance plan with Mr.
Easterbrook included a provision that it can stop payment of
benefits and require the former CEO to pay back severance if it
determined at any time that he committed an act that would have
allowed him to be fired for cause. The company said a firing for
cause could be carried out in case of a serious violation of its
standards and employment policies, along with dishonesty, fraud,
illegality, or moral depravity. At the time, board members felt
they lacked evidence to justify firing the CEO for cause, the
"McDonald's does not tolerate behavior from any employee that
does not reflect our values," Chris Kempczinski, who succeeded Mr.
Easterbrook as CEO last November, wrote in a message to the company
Mr. Easterbrook didn't respond to requests for comment.
At the time of his firing, Mr. Easterbrook said the consensual
affair was a mistake, and that he agreed with the board's decision
to dismiss him. Mr. Easterbrook also said at the time that he
hadn't engaged in other relationships with employees, according to
Mr. Easterbrook, appointed CEO in 2015, helped the company
streamline operations and modernize. He also took part in a culture
of partying and fraternizing among some senior managers and
rank-and-file employees, The Wall Street Journal previously
reported, citing some former employees and people currently
connected to the company.
McDonald's said in the suit that its investigation found dozens
of nude and sexually explicit photographs and videos of women,
including employees, sent from Mr. Easterbrook's corporate email
account to a personal one. Mr. Easterbrook had deleted the photos
from his company-issued phone, and they weren't discovered during
the company investigation that triggered his firing, according to
McDonald's said in the complaint, filed Monday in the Court of
Chancery of the State of Delaware, that Mr. Easterbrook breached
his fiduciary duties as a company officer and committed fraud. The
company said it is seeking to recover the amount it paid him in
compensation and severance benefits. It is also seeking to prevent
him from exercising stock options.
Some shareholder groups had criticized the board's decision to
fire Mr. Easterbrook without cause despite conduct that violated
longstanding company policies forbidding relationships with direct
and indirect reports. Proxy-advisory firm Glass Lewis advised
shareholders earlier this year to vote against the company's
executive pay package given the severance afforded to Mr.
That payout included $700,000 in cash severance to Mr.
Easterbrook. Total compensation, including equity awards, amounted
to $17.4 million in 2019. The company's stockholders in May
approved total compensation and equity awards for Mr. Easterbrook.
The suit doesn't specify an exact sum McDonald's seeks to recover.
The company wrote in the suit that it is seeking the annulment of
the severance agreement, damages and the return of Mr.
Easterbrook's stock and cash awards.
McDonald's said in the complaint that to have fired Mr.
Easterbrook for cause last year, it would have had to prove that
his behavior had constituted "dishonesty, fraud, illegality or
moral turpitude." At the time, board members felt they lacked
evidence to justify firing him for cause, the complaint said.
Mr. Kempczinski, who served under Mr. Easterbrook as the head of
McDonald's U.S. business, pledged to overhaul the company's culture
after assuming the job in November. He outlined his plans to renew
company values during a virtual company summit late last month.
McDonald's in March hired Heidi Capozzi, previously the senior vice
president of human resources for Boeing Co., as its new global
chief people officer.
In a message to employees on Monday, Ms. Capozzi said employees
who witness any questionable behavior should reach out through
their manager or a company hotline without fear of retaliation.
"We will thoroughly investigate any information and take serious
and decisive action to hold those accountable for wrongdoing, no
matter what, " Ms. Capozzi wrote in an email viewed by the
Write to Heather Haddon at firstname.lastname@example.org
(END) Dow Jones Newswires
August 10, 2020 14:32 ET (18:32 GMT)
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