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McDonald’s sues former CEO, accusing him of lying and fraud

                                McDonald’s CEO Steve Easterbrook was interviewed, in July 2017, at the New York Stock Exchange. McDonald’s is suing Easterbrook, the former CEO, saying he lied about relationships with employees and destroyed evidence before he was fired from the company in 2019.
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McDonald’s CEO Steve Easterbrook was interviewed, in July 2017, at the New York Stock Exchange. McDonald’s is suing Easterbrook, the former CEO, saying he lied about relationships with employees and destroyed evidence before he was fired from the company in 2019.

Eight months had passed since McDonald’s fired its chief executive, Steve Easterbrook, for sexting with a subordinate. Easterbrook had apologized and walked away with tens of millions in compensation, and the fast-food chain had moved on under a new chief executive.

Then, last month, an anonymous tipster made a fresh allegation: Easterbrook had a sexual relationship with another McDonald’s employee while he was running the company.

That accusation today ignited a rare public war between a major company and its former leader: McDonald’s filed a lawsuit against Easterbrook, accusing him of lying, concealing evidence and fraud.

The lawsuit, filed in state court in Delaware, alleges that Easterbrook carried on sexual relationships with three McDonald’s employees in the year before his ouster and that he awarded a lucrative batch of shares to one of those employees. McDonald’s said it was seeking to recoup stock options and other compensation that the company last fall allowed Easterbrook to keep — a package worth more than $40 million, according to Equilar, a compensation consulting firm.

A lawyer for Easterbrook did not immediately respond to requests for comment this morning.

The lawsuit represents an extraordinary departure from the traditional disclose-it-and-move-on decorum that American corporations have often embraced when confronted with allegations of wrongdoing by senior executives. More than a few chief executives in recent years have lost their jobs following allegations of sexual or other misconduct, but for the most part they have departed quietly and the companies have not aired the ugly details.

It also, however, raises new questions about how diligent McDonald’s was in looking into Easterbrook’s conduct before dismissing him with a generous compensation package. The lawsuit acknowledges, for instance, that the company’s initial review did not include a thorough search of the executive’s email account.

“One would think that it would be internal investigation 101 to look at all electronic records right away,” said Brandon L. Garrett, a professor who specializes in corporate criminal law at Duke University School of Law. “The concern, if an investigation doesn’t look at emails, is that it was a halfhearted investigation.”

In the #MeToo and Black Lives Matter eras, more companies are striving to position themselves as good corporate citizens, responsible not only to shareholders but also to customers, employees and society at large. Easterbrook’s successor at McDonald’s, Chris Kempczinski, has called for a new corporate emphasis on integrity, inclusion and supporting local communities.

“McDonald’s does not tolerate behavior from any employee that does not reflect our values,” Kempczinski wrote in an internal memo reviewed by The New York Times. He added, “As we recommit to our values, now, more than ever, is the time to lean in to what we stand for and act as a positive force for change.”

McDonald’s is among a tiny number of major companies to publicly — and with unconcealed anger — go after a recently departed chief executive. CBS’ firing of Leslie Moonves, in which the television company accused him of obstructing an internal investigation, is one of the few other examples. (Moonves claims he is entitled to a $120 million severance package. The dispute is now in arbitration.)

Until last fall, Easterbrook, a native of Watford, England, was regarded as something of a savior at McDonald’s. He had worked at the company for nearly two decades before taking its helm in March 2015. The fast-food chain was in a financial slump. Easterbrook streamlined its businesses, introduced technological innovations like touch-screen ordering and delighted customers by offering all-day breakfasts. The company’s shares roughly doubled during his tenure.

But in October 2019, the company was notified that Easterbrook had engaged in an inappropriate relationship with a McDonald’s employee. Easterbrook and the employee, who has not been publicly identified, told the company that the relationship was consensual and was not physical; it consisted of text messages and videos. Easterbrook assured the company’s outside investigators that he had never engaged in a sexual relationship with an employee.

The board of directors nonetheless decided to fire him. The question that the directors considered was whether he would be fired “for cause” — in other words, for an offense such as dishonesty or committing a crime. It was a crucial determination. If Easterbrook was fired for cause, he would have to relinquish previously awarded compensation, including stock options that he was not yet eligible to cash in.

McDonald’s said in its lawsuit today that its board had feared that trying to fire Easterbrook for cause would be “certain to embroil the company in a lengthy dispute with him.” Instead, the board opted to ease Easterbrook out “with as little disruption as possible.”

The company allowed Easterbrook to keep his stock options and other compensation.

But McDonald’s severance plan, which the company said applied to Easterbrook, contained an important clause: If, in the future, McDonald’s determined that an employee was dishonest and actually deserved to be fired for cause, the company had the right to recoup the severance payouts.

Last month, after McDonald’s received the anonymous tip alleging that Easterbrook had had a sexual relationship with another employee, the company opened a new investigation.

In its review last fall, McDonald’s outside lawyers had only looked at messages that were on his company-issued mobile phone. And Easterbrook, according to McDonald’s lawsuit, had deleted certain emails from his phone.

This time, McDonald’s said, its investigators conducted a more detailed search, and in Easterbrook’s email account they found evidence of him carrying on sexual relationships with three employees in the year before his firing.

“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 email account to his personal email account,” McDonald’s said in the lawsuit. The company said the emails were sent in late 2018 and early 2019.

The company said the photographs constituted “undisputable evidence” that Easterbrook violated the company’s prohibition on having sexual relationships with subordinates and that he had lied to the investigators last fall.

While Easterbrook was having a sexual relationship with one of the employees, he awarded her hundreds of thousands of dollars’ worth of shares, the company said in its lawsuit.

“Had Easterbrook 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,” the company said in its lawsuit.

In that case, Easterbrook would not have been entitled to retain his previously awarded compensation.

McDonald’s said today that it was taking action to prevent Easterbrook from cashing in his stock options or selling his shares.

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