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McDonald’s claws back $105 million from fired CEO

The settlement resolves a lawsuit in which the fast-food giant had accused Steve Easterbrook of hiding inappropriate relationships with subordinates

Former McDonald's chief executive Steve Easterbrook, seen in 2017. (Richard Drew/AP)
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McDonald’s said former chief executive Steve Easterbrook has paid back $105 million in cash and stock stemming from his 2019 ouster, resolving a lawsuit in which the fast-food giant had accused him of covering up inappropriate relationships with subordinates.

McDonald’s had sued Easterbrook over his “misconduct, lies and efforts to impede investigation into his actions,” the company said in a statement. The clawback — one of the biggest in corporate America — matches the severance and compensation package Easterbrook “would have forfeited had he been truthful at the time of his termination,” company chairman Enrique Hernandez Jr. said Thursday in a memo to employees viewed by The Washington Post.

The announcement was accompanied by a statement from Easterbrook, who acknowledged he had “failed at times” to uphold the company’s values and fulfill some of his responsibilities as a leader. “I apologize to my former co-workers, the board and the company’s franchisees and suppliers for doing so.”

The striking race gap in corporate America

Easterbrook made his exit in November 2019, after admitting to a “nonphysical, consensual” relationship with an employee involving texts and video calls, in violation of corporate policy. At the time, Easterbrook said he had not engaged in any other relationships with subordinates. McDonald’s board had terminated his contract “without cause,” allowing Easterbrook to keep millions of dollars in compensation, and replaced him with Chris Kempczinski.

But an anonymous tip in July 2020 prompted an investigation that ultimately concluded that Easterbrook had “physical sexual relationships” with three employees in the year leading up to his termination, according to the lawsuit McDonald’s filed in August 2020. Not only did Easterbrook delete photos, emails and texts to hide these relationships from the board, the complaint said, he also approved a stock grant worth hundreds of thousands of dollars for one of the employees while they were involved.

Had Easterbrook been candid and not concealed evidence, the lawsuit said, the company would not have approved his multimillion-dollar exit package. “Accordingly, McDonald’s brings this action to redress the injuries it has suffered by virtue of Easterbrook’s fiduciary breaches and deceit.”

McDonald’s has faced shareholder lawsuits and criticism from corporate governance experts over its handling of Easterbrook’s departure. The initial investigation took just eight days, prompting accusations that the company prioritized a quick resolution and minimizing reputational damage over thoroughness.

Easterbrook took over as chief executive in March 2015, a moment when McDonald’s was trying to regain its footing: U.S. sales were down, and the chain reported a 33 percent decline in global profit in the first quarter of that year. With a promise to “better address today’s consumer needs, expectations and the competitive marketplace,” he cut millions in overhead costs, introduced all-day breakfast and embraced technology such as in-store kiosks.

Hernandez once credited Easterbrook with overseeing the most comprehensive transformation of the U.S. operations of McDonald’s in its history. McDonald’s share price more than doubled during his tenure, from roughly $96 to more than $220.

The resolution comes as McDonald’s has been forced to contend with a larger questions about its workplace culture. It has faced dozens of complaints from employees in recent years alleging sexual, verbal and physical harassment, as well as some instances of retaliation by the company. A $500 million class-action suit filed in Florida accused the company of having a “systemic sexual harassment problem.” Workers have staged walkouts to draw attention to these issues.

This year, in response to growing pressure over the sexual harassment cases, as well as allegations of racial bias and violence in stores, McDonald’s announced plans for mandatory training to combat harassment, discrimination and violence for 2 million employees across 39,000 stores worldwide. McDonald’s previously made an effort to introduce anti-harassment training for supervisors and employees in October 2019, a month before Easterbrook was fired, but that training was not required.

Last week, McDonald’s committed to spending $250 million to recruit franchise owners from underrepresented communities.

“During a period of record performance, we must challenge ourselves — even more — to invest in the future,” Kempczinski said in a statement announcing the initiative. “Today’s announcement to attract franchisees who represent the diverse communities we serve is fundamental to that goal and builds on McDonald’s rich history and pride in reflecting those we serve.”

McDonald’s is the world’s biggest food service retailer, with more than 39,000 locations in more than 100 countries. Its shares edged higher Thursday following the announcement and have climbed roughly 24 percent for the year, according to MarketWatch.