McDonald’s claws back $105m from disgraced former chief Steve Easterbrook

Steve Easterbrook, the former McDonald's chief executive who was fired over a relationship with a subordinate, has forfeited more than $105 million (€93 million) to settle one of corporate America's most extraordinary executive pay battles.

The burger chain on Thursday revealed Mr Easterbrook’s return of awards, which far exceeded the $40 million-plus severance package he was granted on his exit in 2019, in a bluntly worded announcement that included a public apology from the British executive.

"This settlement holds Steve Easterbrook accountable for his clear misconduct, including the way in which he exploited his position as CEO," said Enrique Hernandez, chair of the McDonald's board, in a statement that said Mr Easterbrook had lied and tried to impede investigations into his actions.

The company said Mr Easterbrook had returned equity awards and cash worth more than $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”.

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Mr Easterbrook said he had “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.”

Reopened inquiry

McDonald’s terminated Mr Easterbrook’s employment “without cause” in November 2019 for violating company policy by having what he said was one consensual relationship with an employee. That allowed him to receive severance benefits estimated to be worth $40 million.

In August 2020, however, the company announced that it had reopened an investigation into the divorced executive’s conduct after an anonymous tip alleged he had had another such relationship.

That investigation led McDonald’s to sue Mr Easterbrook, alleging he had engaged in three “physical sexual relationships” with employees beyond the liaison he had admitted to, including with one woman to whom he approved a stock grant worth hundreds of thousands of dollars.

The company alleged that Mr Easterbrook had lied to the board about the relationships and deleted emails from a phone, although corporate servers retained dozens of explicit photos and videos he had sent from the account.

Mr Easterbrook’s lawyers had called the lawsuit “meritless”, challenging the Illinois-based company’s right to bring it in the Delaware Court of Chancery and saying that McDonald’s had always been in possession of the details it claimed to have uncovered because they sat on company servers.

The Delaware court had rejected Easterbrook’s motion to dismiss the lawsuit, and the case had been heading for trial.

Few precedents

Corporate lawyers and business school academics said when the allegations emerged they knew of few precedents for such a public feud, with most disputes between companies and their former executives settled away from the glare of media attention.

But the legal battle reflected the #MeToo movement’s impact on companies’ willingness to tolerate managers having intimate relationships with subordinates, they added, and came after advocacy groups had accused McDonald’s of doing too little to prevent sexual harassment in its restaurants.

The company’s handling of Mr Easterbrook’s exit package caused an investor backlash, with shareholders including Neuberger Berman and New York City pension funds publicly opposing the re-election of McDonald’s compensation committee chair at its latest annual meeting.

In a message to employees and franchisees, Mr Hernandez said the board was proud of the progress made under Mr Easterbrook's successor, Chris Kempczinski, to strengthen the McDonald's culture and re-emphasise values that "have always been our north star". – Copyright The Financial Times Limited 2021