December 17, 2021

McDonald’s claws back $143 million from fired CEO Steve Easterbrook

By ellen

NEW YORK (NYTIMES) – Former McDonald’s chief executive Steve Easterbrook, who was ousted by the company in 2019 for having an inappropriate relationship with a subordinate, has returned US$105 million (S$143 million) in cash and stock to the company in one of the largest clawbacks in the history of corporate America.

Mr Easterbrook has been engaged in a contentious battle with McDonald’s for the past year, after the company sued him for lying to investigators at the time of his dismissal.

As part of the deal announced on Thursday (Dec 16), McDonald’s agreed to drop its lawsuit against Mr Easterbrook.

In a message to employees, McDonald’s chairman Enrique Hernandez said that the company wanted to hold Mr Easterbrook “accountable for his lies and misconduct, including the way in which he exploited his position as CEO”, and that this settlement achieved that goal.

Mr Easterbrook was fired in 2019 after he engaged in a consensual relationship with an employee in violation of company policy, eventually setting off an unusually acrimonious fight between a wealthy executive and one of the country’s most prominent companies.

At the time of his dismissal, the McDonald’s board determined that Mr Easterbrook had “demonstrated poor judgment” but decided not to fire him “for cause” – that is, for being dishonest or committing a criminal act.

That decision, the board hoped, would avoid a lengthy legal dispute. It also allowed Mr Easterbrook to walk away with a compensation package worth more than US$40 million.

But according to the company’s lawsuit against Mr Easterbrook, his contract contained a provision that would let McDonald’s recoup severance payments if it later determined the employee should have been fired for cause.

That clause became relevant in 2020, when a McDonald’s employee said that Mr Easterbrook had a sexual relationship with another subordinate while he was CEO.

The new accusation spurred another investigation of Mr Easterbrook’s records and prompted the company to sue him last year, accusing its former chief of lying, concealing evidence and fraud.

During its investigation into the second accusation, McDonald’s said it found “dozens of nude, partially nude or sexually explicit photographs and videos of various women, including photographs of these company employees, that Mr Easterbrook had sent as attachments to messages from his company e-mail account to his personal e-mail account”.

The company also revealed that Mr Easterbrook had awarded hundreds of thousands of dollars’ worth of stock to one of the women with whom he was having a sexual relationship.

The clawback of his compensation, while large, is not the biggest in corporate history, although many earlier situations involved allegations of financial or accounting fraud.

In 2007, the Securities and Exchange Commission recovered more than US$400 million in profits made by former United Health CEO William McGuire to settle claims related to a scheme involving the backdating of options.

Later, Tyco International sued former CEO Dennis Kozlowski, who had been convicted of looting the company, in an effort to collect US$500 million he had received in compensation and benefits.

Under Mr Easterbrook’s successor, Mr Chris Kempczinski, McDonald’s has emerged as a clear winner during the pandemic the past two years.

Thanks to a combination of increased drive-through business; a robust push of its mobile app and loyalty programmes; and meal collaborations with various celebrities and groups, including K-pop sensation BTS, revenues at McDonald’s are on track to top US$23 billion this year, the highest level in five years.