How many different ways can an employer end up paying for an executive’s affairs with subordinates? Wait. Is there more than one way? Apparently. McDonald’s is again in litigation over sexual misconduct by executives. Yes, that includes former CEO, Stephen Easterbrook. It’s not a disgruntled employee who sued, though. Wait. If it’s not an actual employee, then who could it be? How can someone else sue? Oh, and the lawsuit is not so much about the misconduct as it is about how McDonald’s handled –or perhaps more appropriately, didn’t handle–the allegations of misconduct. What’s going on here? What does this mean for other employers whose executives abuse their positions and their employees? Let’s explore and see what we find… The case I’m referring to, Teamsters Local 237 Additional Security Fund et al v Enrique Hernandez et al is a shareholders’ derivative suit against McDonald’s Board of Directors. What, you may ask, is a shareholder’s derivative suit. Great question–if you did ask. A shareholders’ derivative suit is brought by a company’s shareholders in which it alleges that the company breached its fiduciary duty (i.e. ethical obligation) to its shareholders. OK, but isn’t the Teamsters a union? How does it get to sue McDonald’s? The Teamsters funds are also stockholders.
Now that we’ve gotten that part out of the way, here, in a nutshell, is what allegedly went down:
In 2015 the Board promoted Stephen Easterbrook from Chief Brand to Chief Executive Officer, despite knowing that since 2014 he had been in a strictly and explicitly prohibited relationship with an independent public relations contractor. In 2016, David Fairhurst, McDonald’s’ Head of Human Resources allegedly “engaged in improper conduct at a Company event” and “faced no remedial action, other than being warned about excessive drinking at corporate functions”. Easterbrook allegedly knew of this incident and did not report it to the Board. In 2018, Fairhurst again got drunk at a company event, where his conduct reached such a “level of egregiousness that caused more than thirty McDonald’s employees to report his drunken and debaucherous behavior.” The outcry was such that Easterbrook had no choice but to report the behavior to the Board, but at Easterbrook’s suggestion, the Board merely cut a portion of Fairhurst’s 2018 bonus.
In October 2019, the Board received an anonymous complaint that Easterbrook was again engaging in an inappropriate relationship, this time with a McDonald’s employee. After “an exceedingly cursory investigation that took all of seven days to complete”, the Board terminated Easterbrook “without cause”, which allowed him to exit with a lavish severance package, worth “tens of millions of dollars”. Why did the Board provide such a lavish package in the wake of such egregious misconduct? Here’s why according to the Complaint:
[B]y allowing Easterbrook such a windfall, the Board hoped to position itself to sidestep any inquiry into what it knew (and when it knew it) about Easterbrook’s improper conduct. Had the Board terminated Easterbrook “for cause,” Easterbrook would have fought back by revealing that the Board had known of and condoned his misconduct for years—as Easterbrook currently argues in McDonald’s litigation against him. For the conflicted Board members who had turned a blind eye to Easterbrook’s and Fairhurst’s past violations, terminating Easterbrook “without cause” was an attempt to sweep Easterbrook’s misconduct and the Board’s own role in condoning that misconduct under the rug.
In July 2020 the Board received another anonymous complaint that Easterbrook had engaged in three illicit relationships in 2019 that he had on Company devices compromising pictures of the women in question, that he used a company plane for flights with one of the women and gave a special stock grant worth hundreds of thousands of dollars to another of the women. Now the Board had no choice but to try to claw back the severance payments to Easterbrook, claiming that Easterbrook misled the Board and that it wouldn’t have awarded him that severance package had it known all the facts. That lawsuit is pending.
OMG, what a mess!!! Do you know what the worst part about all of this is–in my humble opinion? Most if not all of it was avoidable. This type of scenario fits under what I frequently call “that certain brand of stupid, for which I have no patience”. It also reminds the rest of us that:
- Someone needs to be monitoring the monitor. Everyone needs to be held accountable in order to avoid liability for this type of misconduct;
- Commitment has to be from the top down. It’s not enough to see “We are an equal opportunity employer and we don’t tolerate discrimination, harassment, etc”. If the executives and the Board are not modeling the behavior they claim to expect from the employees they are asking for trouble — and deserve every bit of it when they get it.
- Policies and training are a start — but only a start. You must follow through, with everyone.
- Brushing misconduct of any type under the carpet only invites more. Cover-ups ensure that the original situation you sought to cover up will likely cause the original situation to mushroom exponentially.
Between 1967 and 1971 its slogan was “McDonald’s is your kind of place”. Is it? I sure hope not.
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