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 (September 9, 2020).

Among American businesses, McDonald's Corp.'s record on race has stood out: The burger giant was one of the first to back Black restaurant owners half a century ago, and later it elevated numerous African-Americans into top management, including as chief executive.

More recently, though, that progress seems to have stalled. The number of Black officers in the company's uppermost ranks of its U.S. business fell to six this year from 42 in 2014, according to company figures and those cited in a lawsuit. Black ownership of McDonald's restaurants has slipped to 11.6% of U.S. franchises, down from 12.7% in 2010, an analysis of records shows; another count suggests the number of Black franchisees has fallen by half since peaking in 1998.

McDonald's says that the total number of store owners and top managers has shrunk over time amid reorganizations, but Black employees and franchisees remain represented in the same proportions as before. Still, McDonald's Chief Executive Chris Kempczinski says the company must do more to boost minority representation.

"We absolutely have more work to do," Mr. Kempczinski said in an interview in late July.

McDonald's says it has begun to assess diversity across its ranks, and is trying new initiatives, such as creating diverse panels of employees to evaluate candidates for officer-level jobs. It has also restored funding for its African-American employee council, along with other internal diversity networks, after a dropoff in support. The company said it would report on its diversity goals annually.

Diversity and inclusion have become major topics of discussion and soul-searching in corporate America in the past decade, but Black professionals continue to have a harder time advancing than other racial groups in white-collar professions. Despite some bright spots, such as recent improvement in minority representation on corporate boards, there are just three Black CEOs in the Fortune 500, and only 8% of people employed in professional roles are Black, according to the nonprofit Center for Talent Innovation.

McDonald's was long ahead of other companies on Black advancement. It bet on urban neighborhoods during the white flight of the Civil Rights era and first sold a restaurant to a Black operator in 1968. It offered Black entrepreneurs an opportunity to build wealth and advance in American society at a time when they were often shut out of ownership in other professions, according to Marcia Chatelain, a history professor at Georgetown University and author of the book "Franchise: The Golden Arches in Black America."

"Black franchisees are some of their strongest forces with the brand," she said of McDonald's.

At one point in the late 1990s, McDonald's came close to reaching a goal of having the percentage of Black owners equal the percentage of the Black population in the U.S., said Reggie Webb, a former chairman of the National Black McDonald's Operator Association, whose family owns 16 stores in Southern California.

That focus included headquarters, then in Oak Brook, Ill., too. The company, now based in Chicago, backed internal networking groups for minorities, eventually hosting more than a half-dozen groups including the McDonald's African-American Council. Around 23% of McDonald's 200 U.S. officers were minorities in 2006.

One former U.S. McDonald's executive recalled feeling surprise on his first day meeting with senior leaders for the U.S. business in 2009, because the number of fellow Black officers was rare in a big company at the time.

One of those leaders was Don Thompson, an engineer recruited to the company in 1990, who rose to become CEO in 2012. One of the few Black CEOs to run a major U.S. company, Mr. Thompson boasted about McDonald's commitment to diversity. Restaurant sales fell under Mr. Thompson, who was replaced by Steve Easterbrook, then the company's chief brand officer, in 2015.

When Mr. Easterbrook became CEO, he aimed to cut $500 million in administrative expenses, largely through hundreds of buyouts. McDonald's legal department oversaw the buyouts to prevent bias, one former executive said, but the number of minorities working in McDonald's corporate offices dropped as a result of the cuts. One former manager said she and about a half-dozen Black colleagues at similar levels left or retired from the company during that period, and some felt they no longer had the same access to opportunities as their white counterparts.

Vicki Guster-Hines and Domineca Neal, two McDonald's senior directors from the Dallas office who filed a lawsuit against McDonald's in January, allege in that suit that they were discriminated against during the buyout years, citing demotions during restructuring and what they describe as a hostile work environment.

"It became clear that African-American stakeholders and their priorities were no longer a strategic priority," Ms. Neal said in an interview.

McDonald's is defending itself against the discrimination allegations filed in the U.S. District Court for the Northern District of Illinois.

The company says six out of 34 of U.S. corporate officers are Black and all 10 regional field-office heads are minorities--figures that Mr. Kempczinski said he was proud of amid the company's continuing efforts. "Beyond just numbers, it's how we make people feel included," he said in the interview.

Funding for the company's diversity networks shrank during Mr. Easterbrook's tenure, hurting the pipeline of minority candidates, two former executives said. A photo from the McDonald's African-American Council meeting in 2013 showed around two dozen Black members at the level of vice-president and higher from the U.S. business and headquarters; the majority have since left the company, one former executive said.

Mr. Thompson, who founded a venture-capital fund in Chicago, declined to comment for this article but has criticized the falling numbers of diverse executives and franchisees since his departure. "The focus got off of it. I will not say it was mal-intent, I will just say it's no intent," Mr. Thompson said of McDonald's diversity during a 2018 talk.

Some former human-resources department managers and one former company executive told The Wall Street Journal they raised the need for more emphasis on diversity in hiring with supervisors beginning around 2015, but said they felt their concerns were ignored or dismissed. McDonald's declined to comment.

Last month, McDonald's recently hired human-resources chief Heidi Capozzi told employees to contact her directly if they felt concerns weren't being addressed.

Mr. Webb said the push for franchisees to pay for expensive store upgrades beginning in late 2016 disproportionately hurt Black operators, since their sales are lower than those at the average McDonald's in the U.S. McDonald's in 2017 offered to pay 55% of all U.S. owners' costs associated with the upgrades.

"A lot of things done during that time were insensitively done," Mr. Webb said in an interview.

In a lawsuit filed Aug. 31, dozens of Black former franchisees accused McDonald's of selling them stores in locations that they say were destined to fail, as part of a "pattern of systematic and covert racial discrimination." Citing figures from the company and the National Black McDonald's Operators Association, the lawsuit said the number of Black restaurant franchisees has fallen by half, to 186 from a high of 377 in 1998.

The company has denied the allegations of discrimination and is defending itself against the lawsuit. In the U.S., nearly 30% of McDonald's franchisees are ethnically diverse, the company said. McDonald's said that cash flow at Black-owned restaurants has improved recently and it aims to help all of its franchisees succeed, including through financial help. McDonald's said that in recent months executives have held discussions with the National Black McDonald's Operators Association about how to improve member cash flow.

Write to Heather Haddon at heather.haddon@wsj.com

 

(END) Dow Jones Newswires

September 09, 2020 02:47 ET (06:47 GMT)

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