Explained: Why McDonald’s former CEO had to repay $105 million to the fast-food chain?

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Former McDonald’s CEO Steve Easterbrook repaid $105 million, in cash and stock, settling a lawsuit that the fast-food company had filed against him accusing him of having an inappropriate relationship with subordinates and covering it up.

Easterbrook was fired by McDonald’s after he violated the company’s policy by being involved in a consensual relationship with employees.

Who is Steve Easterbrook?

Steve Easterbrook, 52, is a British Business manager. Born in Watford in England, Easterbrook graduated in natural sciences from Durham University. He joined McDonald’s in 1993. In 2006, he took over McDonald’s UK and was named the president of McDonald’s Europe. In 2007, Easterbrook was asked to take over the company’s operation in Sweden, Finland, Denmark, Norway and Ireland as well and hence became the president of McDonald’s northern European operation. In 2011, Easterbrook left the company to become the chief executive of Pizza Express and a year later of Wagamama. Easterbrook joined McDonald’s back in 2013 as senior executive vice-president and chief brand officer. In 2015, he was made the President and Chief Executive Officer of the company. He remained the CEO until he was ousted for going against company policy and having an intimate relationship with his employees.

McDonald’s released a statement on Thursday which quoted Easterbrook and said, “McDonald’s and its Board of Directors value doing the right thing and putting customers and people first. During my tenure as CEO, I failed at times to uphold McDonald’s values and fulfil certain of my responsibilities as a leader of the company. I apologise to my former co-workers, the Board, and the company’s franchisees and suppliers for doing so.”

Why did McDonald’s file a case against Steve Easterbrook?

In October 2019, McDonald’s commissioned an investigation into Easterbrook’s reported relationship with an employee. During the investigation, it was found that Easterbrook had a “non-physical, consensual relationship involving texting and video calls”.

As per the lawsuit filed by McDonald’s against Easterbrook, he had told the company’s investigators that his relationship with another McDonald’s employee was of intimate nature but he had never engaged in “a physical sexual relationship with any McDonald’s employee”.

Ousting Easterbrook as CEO, McDonald’s board had said that he had “demonstrated poor judgment”. The board concluded that Easterbrook had violated the company’s policy by engaging in an inappropriate relationship with a subordinate. The directors had also said that Easterbrook’s conduct was contradictory to the company’s culture of professionalism and integrity.

As the directors had to prove “dishonesty, fraud, illegality or moral turpitude” according to Easterbrook’s agreement to terminate him, the board had decided to fire Easterbrook in November 2019 “without cause”. The board also negotiated an agreement with him, which had let him walk away with substantial million-dollar benefits and, as reported by The New York Times, a compensation package of $40 million.

The unraveling

In July 2020, McDonald’s received an anonymous report stating that Easterbrook had engaged in a sexual relationship with another employee while he was CEO. McDonald’s conducted another internal investigation which revealed photographic evidence showing that Easterbrook had engaged in a physical sexual relationship with three employees.

The lawsuit stated, “That evidence 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 sent as attachments to messages from his Company e-mail account to his personal e-mail account. The date and time stamps on the photographs of the three Company employees show that the photographs were all taken in late 2018 or early 2019.”

Photographic evidence was “indisputable” evidence that clearly suggested that Easterbrook had lied during the previous investigation.

The evidence had also led to the conclusion that Easterbrook had approved “a special discretionary grant of restricted stock units—worth hundreds of thousands of dollars” to one of the employees shortly after their first sexual encounter.

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It was only after receiving this evidence that McDonald’s had decided to file a lawsuit against Easterbrook.

The company stated that Easterbrook’s sexual relationship with three employees, approval of a discretionary stock grant to one of the employees he was having a physical relationship with and presenting a false image of never having engaged in a sexual relationship with any employee were enough reasons to legally terminate Easterbrook for cause.

If McDonald’s had known of this while terminating Easterbrook, the company would not have agreed to sign a settlement agreement, which led to a loss of millions to the company.

McDonald’s in a press release said on Thursday, “McDonald’s Corporation today announced that the Board of Directors has approved a settlement resolving the lawsuit the Company brought against its former President and Chief Executive Officer Steve Easterbrook over his misconduct, lies, and efforts to impede investigations into his actions. Under the settlement, Mr. Easterbrook has returned equity awards and cash, with a current value of over $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.”

What were the legal breaches caused by Easterbrook?

As stated in the lawsuit, Easterbrook was accused of breaching fiduciary duties and conducting fraud in the inducement.

Easterbrook breached “fiduciary duties of candor, due care, and loyalty” by acting in his own interest and violated the standards of business conduct of the company by engaging in sexual activity and issuing a discretionary stock grant to one of his intimate partners. He further breached loyalty and candor by lying to the company about his affairs and causing a loss to the company in the settlement agreement.

“Easterbrook’s breaches of fiduciary duty have imposed costs and other harms on the Company, including (but not limited to) the benefits granted to and retained by Easterbrook under the Separation Agreement, other compensation Easterbrook obtained, and costs associated with investigating and responding to allegations of Easterbrook’s violations of McDonald’s policy.”





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