Chris Kempczinski was elevated to the CEO’s job in late 2019 after his predecessor, Steve Easterbrook, was fired for having affairs with employees. The aftermath was anything but clean, requiring a complete overhaul of the company’s human resources function and a lawsuit to get a severance payment after more Easterbrook affairs were discovered.
The three years since then have been filled with enough controversy and challenges to fill a book. But one thing has become clear: Kempczinski has put his mark on the Chicago-based burger giant and is in as strong a position as any other CEO of a publicly traded restaurant company.
For evidence of this, look no further to Kempczinski’s recent comments to the Economic Club of Chicago.
Kempczinski’s speech sought to push both public and private leaders to solve problems afflicting Chicago and its businesses. He called on the city to tell business leaders of plans to solve the crime problem and also urged the government to improve the business climate. “We have to face facts,” he said. “And the facts have not been kind to Chicago of late.”
McDonald’s soon took out a full-page ad in the Chicago Tribune voicing its commitment to the city. Mayor Lori Lightfoot responded that Kempczinski should “educate himself” before the speech. The comments fueled plenty of fodder on conservative media.
The comments reveal a CEO who has confidence in his position. It’s a notable level of confidence given that it came just a few months after Kempczinski ignited an even larger firestorm.
In that one, a text message Kempczinski sent to Lightfoot that was later made public appeared to blame parents for the deaths of two kids in the city. The text generated a torrent of criticism, including a call for his firing by critics. He made a particularly emotional apology.
It also provided fodder for discrimination lawsuits against the company, including one by media mogul Byron Allen, whose lawsuit against McDonald’s was allowed to proceed in part based on those texts.
Closer to corporate headquarters, Kempczinski was subject to a vote of no confidence by the National Black McDonald’s Owners Association, in part over criticism on the treatment of Black operators and also over new franchise rules being put into place early next year.
The rules have generated considerable controversy among the broader group of franchisees. Those rules, designed to bring new franchisees into the system for the first time in years, make it harder for operators to renew their franchise agreement and make it difficult for next-generation owners to take over the family business. The company denied a franchisee request recently to have those new rules delayed.
The shift in the company’s relationship with its operators followed a series of controversies and complaints from franchisees over issues such as remodels and technology fees. Franchisees in one survey said they wanted a broader no-confidence vote in the CEO.
Amid all this, franchisees are leaving the system in droves. A record number of restaurants changed hands last year and at a rate far exceeding that of most other large franchises. Among the operators who’ve left is Blake Casper, a third-generation operator who sold his family’s restaurants to the company earlier this year.
For all this controversy, however, McDonald’s has performed marvelously.
The company navigated the difficult pandemic with a quick sales recovery. Since Kempczinski took over, the chain’s U.S. same-store sales have outperformed its top rivals in all but two quarters—the second and third quarter of 2020, after Wendy’s introduced breakfast.
Cash flow hit records. The value of franchisee restaurants hit 10 times earnings before interest, taxes, depreciation and amortization, or EBITDA, an unusually high rate for a franchisee and among the industry’s highest. That was one reason for last year’s exodus.
The company’s stock price is up 21% since Kempczinski took over despite not one but two major stock price corrections. To be sure, it’s down 13% so far this year. But that still makes it one of the restaurant industry’s top performers.
That’s the kind of performance that can give an executive the confidence to do something like take on the mayor of the city in which his company is headquartered just a few months after a text message to that same mayor generated such a firestorm. And it’s the confidence of someone clearly willing to upend decades’ worth of corporate precedent on the franchise relationship.