January 2022 | Volume 13, Issue 6
According to the article, McDonald's has settled a lawsuit with former CEO Steve Easterbrook, forcing the disgraced executive to repay his severance package of more than $100 million.
Easterbrook was fired in 2019 after the fast-food giant's board determined that he violated company policy by demonstrating "poor judgment involving a recent consensual relationship with an employee."
In August 2020, McDonald's filed a lawsuit against Easterbrook for lying to the board about the extent of his relationships with employees.
In a filing to the US Securities and Exchange Commission recently, McDonald's criticized Easterbrook for his "misconduct, lies, and efforts to impede investigations into his actions" and that the settlement is the best path forward.
"This settlement holds Steve Easterbrook accountable for his clear misconduct, including the way in which he exploited his position as CEO," Enrique Hernandez, Jr., the chairman of McDonald's board of directors, said in the filing. "The resolution avoids a protracted court process and allows us to move forward."
Easterbrook admitted in the SEC filing that he "failed at times to uphold McDonald's values and fulfill certain of my responsibilities as a leader of the company." He also apologized to the board, former co-workers and the company's franchisees and suppliers.
The total amount of his severance package is $105 million in cash and stock. However, it is not clear how much of that is stock or cash.
McDonald's lawsuit states that the company was tipped off to Easterbrook's other relationships with employees in July and opened a new investigation that found proof of three sexual relationships.
The evidence for those relationships, according to the suit, came in the form of "dozens of nude, partially nude, or sexually explicit photographs and videos of various women," including photographs of the three employees. Easterbrook allegedly attached the images to emails he sent from his work to his personal account.
- As the article indicates, this case was resolved by way of settlement, meaning that both Mr. Easterbrook and McDonald’s agreed to the severance package “clawback” of $105 million. Are you surprised that Mr. Easterbrook agreed to do this without litigating the merits of McDonald’s case against him? Why or why not?
This is an opinion question, so student responses may vary. In your author’s opinion this is a surprising development, particularly since the successful “claw back” apparently represents all of Mr. Easterbrook’s severance package. One can only surmise that perhaps McDonald’s has additional evidence against Mr. Easterbrook that it has not yet disclosed.
- As the article indicates, McDonald’s fired Mr. Easterbrook after the company discovered that he had a consensual relationship with an employee. In your reasoned opinion, assuming that the relationship was indeed consensual, was McDonald’s nevertheless justified in terminating his employment? Why or why not?
This is an opinion question, so student responses may vary. In your author’s opinion, if the evidence against Mr. Easterbrook is accurate, McDonald’s was most certainly justified in terminating his employment. Even if the relationship was “consensual,” one must keep in mind that at the time, Mr. Easterbrook was CEO of McDonald’s. As the highest-ranking employee in the company, and with the power and influence associated with the position, one can legitimately question whether consent is truly consent.
- Although the focus of the article is on the circumstances surrounding Mr. Easterbrook’s termination of employment, comment on the ethics of a company paying a fired CEO $105 million in severance pay.
In your author’s opinion, this is a very significant issue associated with Mr. Easterbrook’s termination of employment. Keep in mind that this essentially represents McDonald’s paying Mr. Easterbrook to “go away,” and does not represent earned compensation. Although there might have been a clause in his employment contract that guaranteed him a certain amount of compensation regardless of whether his termination of employment was voluntary or involuntary, one must question whether it is ethical for a company to allow such a clause to be included in a CEO’s (or any other employee’s) contract of employment.
- Here is a final question to present to students regarding the ethical issues surrounding this case: What would have likely occurred if the aggressor had been an “average employee” at McDonald’s?