McDonald’s has sued its former chief executive Steve Easterbrook, alleging that he hid details of three sexual relationships with employees when the board fired him last November over a separate relationship with a subordinate.
In a securities filing and a lawsuit on Monday, the burger chain said it was seeking to recover the compensation and severance payments it allowed Mr Easterbrook to leave with. Equilar, the executive pay consultancy, reported at the time that his severance deal was worth about $40m.
McDonald’s would not have approved the separation agreement had it known the extent of his “inappropriate personal behaviour”, the company said, but would instead have terminated him for cause.
Mr Easterbrook could not immediately be reached for comment.
According to the lawsuit, new evidence showed that the British executive had “physical sexual relationships” with three employees in the year before his termination, that he approved an extraordinary stock grant worth hundreds of thousands of dollars for one of them “in the midst of their sexual relationship”, and that he was “knowingly untruthful” with investigators.
McDonald’s said it had also taken steps to prevent Mr Easterbrook from selling stock it had granted to him or exercising his remaining share options.
“The company’s complaint alleges that Mr Easterbrook breached his fiduciary duties as an officer and director of the company and committed fraud in the inducement,” the company told investors in its filing. It is seeking compensatory damages “for all the amounts paid to Mr Easterbrook under the separation agreement and other costs and expenses incurred by the Company by virtue of his misconduct”, it added.
The lawsuit, filed with the Delaware court of chancery, is thought to be without precedent at a company of the size of McDonald’s. It followed an investigation by an external law firm after an employee came forward with fresh allegations about Mr Easterbrook’s behaviour in July.
The relationship for which Mr Easterbrook was fired consisted only of texting and video calls, the filing says, and he assured the company at the time that he had not had other intimate relationships with employees.
“Based on the results of the investigation, the board concluded that Mr Easterbrook lied to the company and the board and destroyed information regarding inappropriate personal behaviour and in fact had been involved in sexual relationships with three additional company employees prior to his termination, all in violation of company policy,” McDonald’s said.
“McDonald’s does not tolerate behavior from any employee that does not reflect our values,” Chris Kempczinski, who replaced Mr Easterbrook as chief executive, told franchisees and employees in a separate message seen by the Financial Times.
“We now know that his conduct deviated from our values in different and far more extensive ways than we were aware when he left the company last year,” he said of his predecessor.
Lawyers for McDonald’s had already searched Mr Easterbrook’s company-issued mobile phone when the first alleged relationship came to light. But after the latest allegations they found “dozens of nude, partially nude, or sexually explicit photographs and videos of various women, including photographs of these company employees” that he had sent from his company email account to his personal email account.
While these had been deleted from his phone, they were still stored on the company’s servers, the lawsuit says.
It is alleged that the time stamps show that Mr Easterbrook approved a grant of restricted stock units to one of the employees “shortly after their first sexual encounter and within days of their second”.
The fast-food company had been under pressure over allegations of workplace sexual harassment before Mr Easterbrook’s termination, and Mr Kempczinski emphasised the importance of staff and franchisees feeling able to blow the whistle on “any behaviour that doesn’t align with our values”.
The lawsuit invokes Ray Kroc, founder of McDonald’s, who said that being “ethical, truthful and dependable” was the foundation of the company. It reiterates that the company’s code of business conduct requires employees to “avoid any situation in which . . . personal or financial interests might cause . . . business loyalties to be divided” and to disclose any potential conflict of interests to the company.
McDonald's drew some criticism over the terms of Mr Easterbrook’s departure. He was let go on a “without cause” basis, which made him eligible for a series of lucrative benefits to which he would have
otherwise not have been entitled.
On top of a separation payment worth $700,000 and pro-rated incentive
plan shares worth $3m, his leaving package included a right to exercise options that were due to vest over the following three years and a share of restricted stock units the board had granted him.
Glass Lewis, the proxy adviser, said it had “substantial concerns” about the deal but shareholders ultimately approved the remuneration plan, with 20 per cent of votes cast against it.
A cricket-playing Watford Grammar schoolboy credited with turning around McDonald’s business in Europe before getting the top job in 2015, Mr Easterbrook was known as a strident defender of the company. In 2006, while running its UK operations, he asked the Oxford English Dictionary to change its definition of the phrase McJob from “an unstimulating, low-paid job”.
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