McDonald’s board members sued over ‘lavish’ $56 million severance for fired CEO Easterbrook

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Nine members of McDonald’s board of directors have been hit with a shareholder lawsuit over $56 million in severance and compensation paid to former CEO Steve Easterbrook, who was fired in 2019 for a consensual relationship with an employee.

The lawsuit, filed last week in Delaware Chancery Court on behalf of employee benefit funds for Teamsters Local 237 in New York, alleges the board’s failure to fully investigate Easterbrook’s misconduct allowed the “windfall” severance package that McDonald’s is now seeking to recover.

“The board permitted him to walk away with a lavish severance package worth tens of millions of dollars,” the Teamsters allege in the lawsuit. “The company simply had no business rewarding an executive who had a known history of flouting company policy with such a massive exit package.”

Easterbrook was a longtime British McDonald’s executive who took the helm of the Chicago fast-food giant in 2015, making his mark with a menu overhaul, restaurant renovations and other innovations. But his fall from corporate grace came swiftly in November 2019, when Easterbrook was fired over an intimate relationship with an employee, a violation of company policy.

After a brief investigation, the board decided to terminate Easterbrook without cause, a legal term meaning he had not engaged in significant workplace misconduct. That enabled McDonald’s to “minimize disruption” and the former CEO to collect a severance package that is now worth about $56 million in cash, bonuses, benefits and stock options, the Teamsters’ lawsuit alleges.

In August, McDonald’s filed a lawsuit against Easterbrook, seeking to claw back his severance package after subsequent evidence showed he allegedly concealed physical sexual relationships with three employees in the year before his termination.

Had McDonald’s terminated Easterbrook for cause, it would have deprived him of all of his severance benefits, the company said in its ongoing lawsuit in Delaware Chancery Court. An attorney representing Easterbrook was not immediately available for comment Tuesday.

The Teamsters’ lawsuit alleges the nine of 12 current McDonald’s directors who served during Easterbrook’s tenure breached their fiduciary duty with a “cursory” investigation and an attempt to “whitewash” his alleged sexual misconduct. The named board members include John Rogers, chairman and co-CEO of Ariel Investments; Miles White, chairman and former CEO of Abbott Laboratories; and Enrique Hernandez, who serves as McDonald’s board chairman. The directors named in the suit were on the board during Easterbrook’s tenure as CEO.

“The board saw a parade of red flags, as alleged, and failed to act,” Barbara Hart, an attorney representing the Teamsters, said Tuesday. “This created a toxic culture and allowed the CEO to leave with a very lucrative exit package that was to the detriment of the company.”

Ron Olson, an attorney representing McDonald’s, said in a statement Tuesday the Teamsters’ complaint “second-guesses” the board’s actions based on a “fictional narrative,” and that there is no basis for a shareholder lawsuit against the board.

“The McDonald’s Board took swift and decisive action to address Easterbrook’s misconduct, sending an unmistakable message that McDonald’s will not tolerate behavior inconsistent with its values at any level of the Company,” Olson said.

The Teamsters’ lawsuit says the board was notified about executive misconduct on several occasions, including an alleged inappropriate relationship between Easterbrook and a McDonald’s public relations contractor before he was named CEO in 2015.

The lawsuit also alleges “drunken and debaucherous” behavior at a 2018 company event by David Fairhurst, McDonald’s former head of human resources, which became a board matter after more than 30 employees filed complaints. Fairhurst, who is not a defendant in the lawsuit, was terminated for cause in November 2019, McDonald’s said Tuesday.

Fairhurst was not immediately available for comment Tuesday.

Beyond the C-suite, McDonald’s “turned a blind eye” to sexual harassment at restaurants nationally for years, despite facing “wave after wave” of lawsuits, allegations and investigations into sexual misconduct since 2015, the Teamsters’ lawsuit alleges.

Earlier this month, McDonald’s announced it would require worker training to combat harassment, discrimination and violence at its 39,000 restaurants worldwide starting next year. At least 50 workers have filed charges against the company over the last five years, alleging physical and verbal harassment.

“The Board’s lackadaisical attitude to these chronic issues at its restaurants demonstrates that its generous treatment of Easterbrook was no one-off anomaly,” the lawsuit alleges. “Instead, it represents the highest profile example of the Board’s companywide, dismissive approach to sexual misconduct.”

The lawsuit is seeking a judgment against the McDonald’s board members for damages and expenses related to Easterbrook’s severance package.