Former McDonald's CEO repays company US$105m

[NEW YORK] Former McDonald's CEO Steve Easterbrook, who was ousted by the company in 2019 for having an inappropriate relationship with a subordinate, has returned US$105 million in cash and stock to the company in one of the largest clawbacks in the history of corporate America.

Easterbrook has been engaged in a contentious battle with McDonald's for the past year, after the company sued him for lying to investigators at the time of his dismissal. As part of the deal announced Thursday (Dec 16), McDonald's agreed to drop its lawsuit against Easterbrook.

In a message to employees, Enrique Hernandez Jr, the McDonald's chairman, said that the company wanted to hold Easterbrook "accountable for his lies and misconduct, including the way in which he exploited his position as CEO", and that this settlement achieved that goal.

Easterbrook was fired in 2019 after he engaged in a consensual relationship with an employee in violation of company policy, eventually setting off an unusually acrimonious fight between a wealthy executive and one of the country's most prominent companies.

At the time of his dismissal, the McDonald's board determined that Easterbrook had "demonstrated poor judgment" but decided not to fire him "for cause" - that is, for being dishonest or committing a criminal act. That decision, the board hoped, would avoid a lengthy legal dispute. It also allowed Easterbrook to walk away with a compensation package worth more than US$40 million.

But according to the company's lawsuit against Easterbrook, his contract contained a provision that would let McDonald's recoup severance payments if it later determined the employee should have been fired for cause.

That clause became relevant in 2020, when a McDonald's employee said that Easterbrook had a sexual relationship with another subordinate while he was CEO. The new accusation spurred another investigation of Easterbrook's records and prompted the company to sue him last year, accusing its former chief of lying, concealing evidence and fraud.

During its investigation into the second accusation, McDonald's said it found "dozens of nude, partially nude or sexually explicit photographs and videos of various women, including photographs of these company employees, that Easterbrook had sent as attachments to messages from his company email account to his personal email account".

The company also revealed that Easterbrook had awarded hundreds of thousands of dollars' worth of stock to one of the women with whom he was having a sexual relationship.

In its lawsuit, McDonald's said that its former chief had lied to investigators in the initial inquiry, and that if he had "been candid with McDonald's investigators and not concealed evidence, McDonald's would have known that it had legal cause to terminate him in 2019".

Easterbrook initially decided to fight the lawsuit, and his lawyers filed a motion to dismiss, calling it "meritless and misleading".

During his time as CEO, Easterbrook sold more than US$64 million in stock; when he departed in 2019, the value of the stock and options he had been awarded was worth US$41 million.

But as McDonald's stock has soared to US$264 a share from US$193 in 2019, the value of those stock and options has grown to US$89 million, according to executive compensation consulting firm Equilar. It is not clear whether Easterbrook sold any of his shares after he left the company.

Nonetheless, with his agreement to return the huge sum of cash and stock to the company, Easterbrook has effectively conceded what was shaping up to be a long and costly legal battle. Easterbrook apologised in a statement released by the company.

"During my tenure as CEO, I failed at times to uphold McDonald's values and fulfill certain of my responsibilities as a leader of the company," he said. "I apologise to my former co-workers, the board and the company's franchisees and suppliers for doing so."

Under Easterbrook's successor, Chris Kempczinski, McDonald's has emerged as a clear winner during the pandemic the past 2 years. Thanks to a combination of increased drive-thru business; a robust push of its mobile app and loyalty programmes; and meal collaborations with various celebrities and groups, including K-pop sensation BTS, revenues at McDonald's are on track to top US$23 billion this year, the highest level in 5 years.

Earlier this year, Kempczinski defended the board's handling of Easterbrook's firing. "I thought they handled it as best as they could," he said.

Still, despite the company's financial gains, a new training programme for its restaurants and efforts to improve diversity and inclusion, some critics say not enough has been done to fix other problems that run deep in McDonald's culture. The fast-food giant has faced myriad lawsuits and claims in recent years, some involving allegations of sexual harassment and others around racial discrimination.

"McDonald's should use the money it got back from the former CEO to develop a real plan to stop the rampant sexual harassment occurring from the drive-thrus to the C-suite," advocacy group Fight for $15 said in a statement.

McDonald's also still faces numerous shareholder lawsuits over Easterbrook's firing.

On Thursday, the company said that "Mr Easterbrook would return equity awards and cash, with a current value of more than US$105 million, which he would have forfeited had he been truthful at the time of his termination and, as a result, been terminated for cause". It did not specify the proportion of cash and stock. McDonald's shares are up more than 25 per cent this year.

"While Steve's misconduct need not be forgiven by any member of this community, he has apologised to his former co-workers, franchisees, suppliers and the board for the profound errors he made," said Hernandez, the McDonald's chairman. "Today's resolution avoids a protracted court process and moves us beyond a chapter that belongs in our past."

NYTIMES