McDonald’s pullback from CEO Easterbrook is unusual despite the #MeToo era

Steve Easterbrook, president and chief executive officer of McDonald’s Corp., walks the campus after a morning session during the Allen & Co. Technology and Media conference. in Sun Valley, Idaho, United States, on Wednesday, July 12, 2017.

David Paul Morris | Bloomberg | beautiful pictures

$105 million recovery McDonald’s are receiving from its severance pay to former CEO Steve Easterbook stands out for its enormous size. It’s also notable because such efforts to recover payments from misbehaving company directors remain unusual despite the #MeToo Era.

“This kind of outcome is rare,” said David Larcker, a business professor at Stanford University. is a co-author of a 2016 paper titled “Scraps in the C-Suite,” examining how corporate boards should respond to CEO misconduct.

But Larcker added that such outcomes are becoming less and less rare “as the board finds that bad behavior by a CEO, such as inappropriate sexual relationships with Easterbrook,” will has an impact on shareholders, customers, and everything else “related to the company. . .

“These are the things that are going to have an impact on profitability and that are going to be serious,” he said.

Larcker also said the prevalence of social media sharing information about allegations against executives would, among other factors, lead to “more pressure” on companies. company in resisting paying CEOs fired or pressured to resign for misconduct.

Easterbrook’s deal with McDonald’s, announced Thursday, comes two years after the fast-food giant’s board fired him following an investigation that found he had a consensual relationship with a subordinates violate company policy. Despite receiving the boot, Easterbrook was also awarded a $42 million severance package.

In August 2020, McDonald’s sued Easterbrook seeking to reclaim that payment, alleging that he lied and engaged in fraud, after a person accused him of having sex with an employee pellets.

A later investigation is said to have revealed that Easterbrook destroyed information regarding his inappropriate conduct, including three additional alleged sexual relationships with employees prior to being charged. dismissal. Easterbrook fought the lawsuit before agreeing to a refund and apologized in a statement on Thursday for “sometimes being unable to uphold McDonald’s values”.

Dieter Waizenegger, chief executive officer of pension fund advisory firm CTW Group, said the McDonald’s case is “perhaps the third biggest setback we’ve ever seen” by a corporation against an individual.

“This is probably the biggest case of sexual harassment,” Waizenegger said. His firm, along with the New York City Controller’s office it advises on, called to replace President Enrique Hernandez Jr. of McDonald’s on the board of directors because the company didn’t do a poll in 2019 that might have uncovered Easterbook behavior in its entirety.

In recent years, the biggest comebacks involve previous fights Wells Fargo CEO John Stumpf and Carrie Tolstedt, who led the company’s community banking division. The pair presided over a time when Wells Fargo employees created up to two million bank accounts and credit cards without customer consent. Stumpf had to pay back $69 million, while Tolstedt paid back $67 million.

John Stumpf, CEO, Wells Fargo

Scott Mlyn | CNBC

Before that, in 2007, former UnitedHealth Group CEO William McGuire has agreed to give up a total of $618 million to settle claims by the company’s shareholders and the Securities and Exchange Commission about the delay in the expiration of stock options.

Waizenegger notes thatt Wells Fargo was able to get money back from former executives because then, New York City CEO John Liu, who is responsible for overseeing the city pension fund’s investments, in 2013 the company asked the company to expand its withdrawal policy to include executives whose conduct damaged its reputation. reputation, rather than simply cause harm to the re-adjustment of the financial statements.

Liu’s successor, Comptroller Scott Stringer, in 2016 successfully asked Wells Fargo to return payments to Stumpf and Tolstedt after Wells Fargo paid nearly $200 million to settle investigations into the scandal. account background.

Waizenegger said other companies should adopt such a policy to make it easier to recover payments to executives.

But he also said corporate boards should take steps to eliminate what is known as a “no-fault severance” agreement in contracts with CEOs, allowing them to be paid even if they are fired. or pressured to resign after violating an internal company code of conduct.

“You just have to stand your ground, when you hire a new CEO, there’s a zero-tolerance clause,” Waizenegger said.

Waizenegger says “it’s seen as the #MeToo movement and other scandals [for corporations] to say, ‘We need to take a closer look at what we’re willing to endure’ by an executive.

“The zero reward for code of conduct violations should just become the norm,” he said.

But Waizenegge also called for a change in the membership of the company’s board of directors to include newer members and replace directors who have often spent more than a decade in the position.

“I think you basically have a really frosty turnover ratio on the boards,” he said.

The #MeToo movement erupted in October 2017 when articles in The New York Times and The New Yorker allege in detail multiple women of sexual misconduct, including claims of rape, against the homeowner. Hollywood film producer Harvey Weinstein.

Articles followed by a series of allegations of misconduct by hundreds of powerful men in business, media, entertainment and politics, many of whom have lost their jobs.

One of those men, CBS CEO Les Moonves, rwas transferred in 2018 after being accused of sexual harassment and assault. He has denied the claims.

CBS’s board later refused to pay Moonves $120 million in severance he claimed was owed.

The board of directors said in a statement at the time, “For Mr. Moonves, we have determined that there are grounds to terminate the contract for reasons, including willful and serious misconduct. violations of Company policies and his employment contract, as well as willful failure to cooperate fully with the Company’s investigation.”

Moonves then filed an arbitration lawsuit seeking to get the money back.

The dispute was settled earlier this year with a deal that saw Moonves waive the severance request.

This month, President of CNN Jeff Zucker has told employees that the cable network will not pay severance pay to fired anchor Chris Cuomo.

Cuomo fired after revealing documents revealed that he was more involved than previously known in advising his brother, then New York Governor Andrew Cuomo, when Andrew was accused of sexually harassing multiple women .

Attorney Debra Katz said she informed CNN shortly before it fired Chris Cuomo alleges that he committed sexual misconduct against a Katz client.

A spokesman for Chris Cuomo has denied the allegations.

– Additional reporting by CNBC Amelia Lucas McDonald’s pullback from CEO Easterbrook is unusual despite the #MeToo era

Emma James

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