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Aug 10, 2020

McDonald's accuses former CEO of lying about office affairs

Gordon Reid discusses McDonald's

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McDonald’s Corp. sued ousted leader Steve Easterbrook to recover tens of millions of dollars in severance pay after discovering evidence he had sexual relationships with multiple employees, tried to cover them up and arranged for one worker to get a lucrative stock award.

Easterbrook’s termination as chief executive officer last fall over a consensual relationship with one employee shouldn’t have included severance pay because he “concealed evidence and lied about his wrongdoing,” the company said in a filing. McDonald’s said it uncovered sexually explicit photographs in Easterbrook’s corporate email account and other evidence of the additional affairs following an anonymous tip last month.

The latest investigation also showed Easterbrook approved a special discretionary grant of restricted stock units worth hundreds of thousands of dollars to one of the employees after their first sexual encounter -- and just days before their second, the company said.

As a result, the fast-food chain filed a complaint in the Delaware Chancery Court to recover any compensation and severance benefits that he received when he left his post. The company has also taken steps to prevent Easterbrook from exercising any stock options or selling any shares.

The law firm representing Easterbrook didn’t respond to an email seeking comment.

Company Memo

The suit revives an unseemly episode for the restaurant giant, which became one of the highest profile examples of a corporation upended by inappropriate behavior during the #MeToo era. The company has tried to move on under Chris Kempczinski, who took over as CEO when Easterbrook was pushed out, and is now trying to navigate an unsteady market amid the coronavirus pandemic.

Companies and ex-executives often settle clawback matters privately to avoid negative publicity, but taking a former leader to court can be a way for boards to distance themselves from inappropriate behavior. Hertz Global Holdings Inc., for instance, sued its former CEO to recoup compensation after a federal investigation prompted the company to restate several years of financial results.

Kempczinski alerted company employees Monday about the latest action against Easterbrook.

“We recently became aware, through an employee report, of new information regarding the conduct of our former CEO, Steve Easterbrook,” he wrote in the internal memo, reviewed by Bloomberg News. “While the board made the right decision to swiftly remove him from the company last November, this new information makes it clear that he lied and destroyed evidence regarding inappropriate personal behavior and should not have retained the contractual compensation he did upon his exit.”

Easterbrook, who was fired “without cause,” got US$675,000 in severance and health insurance benefits and stock awards that Bloomberg valued at more than $37 million last November.

McDonald’s shares were little changed at 12:13 p.m. in New York. The stock rose 3.5 per cent this year through Friday, roughly in line with the S&P 500 Index.

Naked Photos

According to the complaint, the evidence against Easterbrook includes dozens of naked or explicit photographs and videos of various women, including some employees, that Easterbrook had sent as attachments to his personal email account from his work account. The time stamps on the photos of employees show they were all taken in late 2018 or early 2019, when he was CEO.

“The photographs are undisputable evidence that Easterbrook repeatedly violated the company’s prohibition of any kind of intimate relationship between employees in a direct or indirect reporting relationship,” McDonald’s said in the filing. “They are undisputable evidence that Easterbrook lied during the investigation into his behavior in October 2019.”

The company said it wasn’t aware of the photographs before July 2020, despite conducting an earlier investigation of his behavior in the fall. That’s because Easterbrook appeared to have deleted the emails and photos from his company phone before it was searched by independent counsel in late October 2019, according to the complaint.

However, the deletion of the emails from his phone didn’t also remove them from his email account stored on the company’s servers.

--With assistance from Ed Ludlow.