McDonald’s is certainly pulling no punches in its ongoing battle with former CEO Steve Easterbrook.
On Monday, for instance, the company called Easterbrook’s argument in his defense “morally bankrupt” while arguing that he both lied and destroyed information about his actions before he was fired last year.
It’s an unusual level of rancor from the company while providing a rare look inside a pair of executive departures, providing details most companies prefer to keep private. At the same time, however, the emerging dispute has many inside and outside the company asking a number of questions.
We’ll take a look at the three biggest.
Why didn’t the company check its email server?
Easterbrook was under investigation in October of last year. His firing was revealed on Nov. 3. At the time, the company said it was over a single relationship with a subordinate that was described as consensual. Easterbrook apparently told the board there was no other relationship. McDonald’s saw no additional evidence of one on his email programs and allowed him to walk away with a severance worth $57 million.
Clearly, the company didn’t look too hard. McDonald’s investigators didn’t check its servers. Following a tip in July, a new investigation found evidence on Easterbrook’s company email program revealing three additional employee relationships.
It’s obvious why McDonald’s wanted this issue to go away back in early November. It was among the worst possible ways for a company to lose its CEO, one that had been credited with a strong turnaround.
At the same time, this is 2020, in the aftermath of the MeToo movement that has shed light on sexual harassment inside the workplace. There was a good chance these relationships would have been revealed sooner or later.
Not taking that extra step is already proving costly to the company. “McDonald’s admits that the ‘new’ information is not new at all,” Easterbrook’s attorney wrote in a legal filing. “Rather, since the outset of the investigation, it was in the ‘company email account stored on the company’s servers.’”
McDonald’s will surely spend millions in legal fees to get that severance back. And the dispute will remain in the headlines for some time, while providing red meat to its numerous critics.
Why the change in tone on the chief people officer?
On Nov. 4, the day after Easterbrook was fired, his handpicked chief people officer, David Fairhurst, left the company. At the time, he “departed” McDonald’s said the two moves were not related. Fairhurst himself said on LinkedIn that it was time “to move onto my next career challenge.”
The tone is a lot different now. McDonald’s now says Fairhurst was fired for cause. According to the Wall Street Journal, he was fired for making women feel uncomfortable during business trips during Easterbrook’s tenure. Fairhurst is now a focus of the company’s investigation.
In addition, the company has revealed that it began a deep look at its human resources function back in April, under Fairhurst’s replacement, Heidi Capozzi, who has made significant changes in the months since.
In other words, McDonald’s has shifted from a tone in which it was seemingly protecting a former executive who had been fired for cause to one in which it is now revealing what appears to be significant problems with his tenure at the company.
This is an unusual level of insight into the departure of an executive. Typically, companies keep these sorts of details out of the limelight as much as possible, rarely even admitting when executives get fired or pushed out.
Both of these situations lead to questions about timing. McDonald’s said that its new open-door policy led to a tip that prompted the investigation that ultimately revealed new information and then the aggressive stand.
That investigation is now centered on Fairhurst. And it could well lead to additional news and information about the previous regime’s actions.
“The board will follow the facts wherever they may lead,” the company said last.
The decision to raise these issues again, and so publicly at that, is a risk, both for current executives and the board. It makes the company look as if it initially took a “soft-handed approach” to its former CEO’s wrongdoing, using the words of investor CtW Investment Group, which has called for the resignation of board members.
What’s more, it has raised questions from franchisees, who’ve seen significant changes under Easterbrook and now question them given the company’s current allegations. “Operators are pissed,” one franchisee said.
That said, it certainly appears that McDonald’s board is pissed, too. The vitriol throughout this process is indicative of a company that is angered at the prospect that its formerly highly-paid chief executive violated the company’s principles so frequently and then lied about it—putting the board in an untenable situation.
In addition, and perhaps because of the Easterbrook situation, McDonald’s is taking a very public stand regarding values.
It held a companywide event in July stating what these values are, with a video that heavily featured the company’s entire executive team, including Easterbrook’s replacement, Chris Kempczinski, as well as Fairhurst’s, Heidi Capozzi.
That global meeting came after information about Easterbrook’s relationships were revealed to the board, and 10 days before the company sued to get its severance back.
Deliberately or not, the message from McDonald’s current dispute is that nobody is immune to its new policy on values. Not even top executives.