McDonald’s CEO Had to Go in Era of Zero Tolerance Policy
(Bloomberg) -- McDonald’s Corp. has been working hard to fend off accusations it overlooks workplace harassment and abuse. So when it came to light that its chief executive officer was in a relationship with a colleague, the board had little room to maneuver: Steve Easterbrook had to go.
The world’s biggest restaurant chain announced Sunday it replaced Easterbrook with Chris Kempczinski, the head of U.S. operations. A day later, David Fairhurst, the company’s global people officer, was out the door. Mason Smoot, a senior vice president who oversees strategic alignment and staff, stepped into the HR role on an interim basis.
Easterbrook also resigned as director from the board of Walmart Inc., the retailer said in a Nov. 4 filing.
The rapid shake-up shows how executives’ behavior is under a microscope in the #MeToo era -- and transgressions that may once have been considered minor are no longer swept aside, even for star performers. At McDonald’s, which for years has been a target of activists because of its wage and labor practices, the scrutiny is especially intense.
“If the CEO is allowed to engage in policy violations on this topic, the message to employees and to other stakeholders is that McDonald’s is not really committed to providing those protections promised in the policies,” said Lynne Anne Anderson, a partner at Drinker Biddle who advises companies and represents them in misconduct cases. “The level of conduct that is being required from executives in this #MeToo era is to set the tone and to lead by example.”
McDonald’s shares rose as much as 0.9% in Tuesday trading as of 9:39 a.m. The previous day, they slipped 2.7% to close at the lowest level in seven months.
Easterbrook, who took the reins in 2015 amid a sales slump and oversaw market-beating share gains, put McDonald’s in an uncomfortable position -- even though the relationship was consensual. As a bellwether for the fast-food industry, McDonald’s has become a principal target of groups like Fight for $15 and the American Civil Liberties Union, who say McDonald’s has tolerated workplace harassment and ignored safety issues. They say the company has failed to prevent misconduct including groping, inappropriate comments from supervisors and retaliation for speaking up.
The announcement quickly gave fuel to critics’ arguments.
Fight for $15 said on Twitter that the company “has refused to listen to us” when it came to fighting sexual harassment. “With the firing of Steve Easterbrook, we now know why.” The group added “it’s clear McDonald’s culture is rotten from top to bottom.”
The company has countered criticism by revamping policies to include training for workers to deal with harassment and starting a hotline for victims, including other measures. But critics, including Democratic presidential candidates Bernie Sanders and Elizabeth Warren, have said McDonald’s moves “fall short” and send “the wrong message” by merely “encouraging” the franchisees who run most of the chain’s stores to adopt new policies, rather than requiring them to.
“What the research shows is basically if you’re in a position of power over somebody else, you’re really bad at recognizing the power you wield over them and how hard it is for them to say no to you,” said Vanessa Bohns, an organizational behavior professor at Cornell University. Such relationships can also undermine how the more junior employee is perceived by coworkers, she said, and fuel concern about favoritism at work.
In departing, Easterbrook acknowledged that the relationship was a mistake. McDonald’s said on Sunday that the board determined he had “demonstrated poor judgment” by engaging in the consensual relationship.
Even so, McDonald’s gave Easterbrook severance of $675,000, as well as letting him keep stock awards worth more than $37 million -- far more generous than what’s usually offered to fired employees. Anderson, at Drinker Biddle, said the reason he got severance pay was likely because he was only determined to have violated a company policy, not broken sexual harassment law.
McDonald’s declined to elaborate on Easterbrook’s severance and departure beyond its public statements and filings.
Nell Minow, vice chair of ValueEdge Advisors, a shareholder consulting firm, said the severance is problematic.
“A middle manager who did that would be escorted out with all his belongings in a shoe box, and it sends a terrible message -- not just to the employees and the investors and consumers but to society about how there are two rules: One for the powerful, one for the not,” Minow said.
Since 2012, the Service Employees International Union has mounted a high-profile “Fight For $15” campaign demanding fast food giants raise pay and let workers unionize. McDonald’s has been the top target of the multifront effort, which includes a battery of litigation, legislation and worker walkouts. The campaign has helped secure $15 wage laws in states like California, and spurred response from McDonald’s, which this year announced it would no longer lobby against across-the-board wage hikes.
McDonald’s caught a big break with the 2016 election of Donald Trump, which led to a Supreme Court ruling that squeezed unions’ finances and a slate of business-friendly appointments at the National Labor Relations Board. But the conflict has raged on nonetheless.
Keep the Heat
In a sign activists plan to keep the heat on McDonald’s, Fight for $15 and other groups plan to take out an advertisement in USA Today’s Southern California edition Wednesday to reach the Association of National Advertisers Multicultural Marketing Convention attendees to highlight issues it sees at the chain.
“If you see a McDonald’s representative at this week’s conference, ask them to meet with worker-survivors, their advocates, and experts to solve the company’s sexual harassment problem,” a copy of the planned advertisement viewed by Bloomberg News reads.
McDonald’s, which has been navigating pressure from politicians on its wages, has been trying to revamp its image. The new training and anti-harassment measures create “a clear message that we are committed to creating and sustaining a culture of trust where employees feel safe, valued and respected,” Easterbrook said in a May letter to Senator Tammy Duckworth, an Illinois Democrat, who had sent an inquiry to the company amid a rise in claims of sexual harassment and misconduct.
‘Me Too McDonald’s’
Despite McDonald’s new policies aimed at protecting workers and eliminating harassment, the pressure hasn’t relented.
At the Wall Street Journal Global Food Forum in New York last month, Kempczinski, then head of U.S. operations, was interrupted as he spoke about McDonald’s being a “responsible actor.” Protesters chanted “Me Too McDonald’s, Me Too McDonald’s,” startling Kempczinski.
“So I think that’s the MeToo movement,” he said, eliciting laughter from the audience, before referring to the company’s “whole initiative” to address safety and harassment. He said he was proud of McDonald’s work on topics like climate change and workplace safety, while acknowledging that “there’s a lot of different voices out there.”
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