By Heather Haddon
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 11, 2020).
McDonald's Corp. said it is suing former Chief Executive Steve
Easterbrook and seeking to recoup tens of millions of dollars it
paid in severance and benefits, alleging that he lied to the board
about sexual relationships with employees before his ouster last
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.
Investigators who conducted the review for the company didn't
find additional inappropriate communications between Mr.
Easterbrook and company employees on his mobile devices and so
limited their probe to the consensual relationship, according to a
person familiar with the inquiry.
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 additional relationships
with employees that were sexual in nature, including the one that
triggered the July inquiry. Investigators found that Mr.
Easterbrook destroyed evidence about the sexual relationships and
lied about his behavior during the initial investigation last fall,
the complaint said.
During its investigation, McDonald's found dozens of sexually
explicit photographs and videos of women including the employees
that had been sent from Mr. Easterbrook's corporate email account
to a personal Hotmail account, according to the complaint and a
person familiar with the probe. Mr. Easterbrook had deleted the
photos from his company-issued phone, and they weren't discovered
during the corporate investigation that triggered his firing,
according to the complaint.
"McDonald's does not tolerate behavior from any employee that
does not reflect our values," Chris Kempczinski, who succeeded Mr.
Easterbrook as CEO in November, wrote in a companywide message
Mr. Easterbrook didn't respond to requests to comment.
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
Patrick McGurn, special counsel to proxy-advisory firm
Institutional Shareholder Services, said such clawbacks are rarely
so sweeping or so public. "This isn't your standard clawback," he
Mr. Easterbrook, appointed CEO in 2015 helped McDonald's
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 hired outside counsel last year to investigate the
consensual relationship between Mr. Easterbrook and an employee.
Investigators found evidence of sexting, or sending explicit
content via messaging apps, between the two over several weeks.
Attorneys also searched the backup data for Mr. Easterbrook's
company-issued phone and iPad but found no evidence of improper
relationships with other employees, according to the complaint and
a person familiar with the investigation. Investigators reviewed
company email on Mr. Easterbrook's phone but not additional
messages that weren't stored on his devices, the person said.
McDonald's alleged in its suit 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 suit, 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 of his firing, Mr. Easterbrook said that 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 McDonald's.
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.
After receiving the anonymous tip in July, McDonald's brought in
outside counsel again to investigate.
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
categorize the firing as without cause despite conduct that
violated longstanding company policies forbidding relationships
with direct and indirect reports. Proxy-advisory firm Glass Lewis
advised shareholders 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. Stockholders in May approved total
compensation and equity awards for Mr. Easterbrook.
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 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
"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 email@example.com
(END) Dow Jones Newswires
August 11, 2020 02:47 ET (06:47 GMT)
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