Delayed Call: SEC Whacks Former McDonald’s CEO and Company, Transparency Prevails

Usually, stories are written about how companies handle PR crises well or botch them as they're occurring or shortly after they end. Yet a 2019 McDonald's crisis has provided years of news, including some today (Jan. 9, 2023), well after the crisis ostensibly was finished.

Indeed, the Securities and Exchange Commission (SEC) today added an exclamation point to the McDonald's-Stephen Easterbrook sexual brouhaha. It was a significant addition, emphasizing the importance of transparency in corporate communication, even years after a crisis and its legalities are finished.

The Background

In Aug. 2020, McDonald’s re-wrote the playbook for corporate America about dealing with a crisis months after its board fired CEO Easterbrook, in Nov. 2019. That's when it learned about Easterbrook's consensual, non-physical relationship with an employee.

At the time, Easterbrook acknowledged the relationship. He admitted it went against corporate rules. Easterbrook agreed he should leave. He apologized and was fired. His payout was estimated at $40+ million.

Later, after receiving a tip about other Easterbrook relationships, McDonald’s began a second investigation. It uncovered “undisputable evidence” of three sexual relationships.

Investigators found nude photographs from Easterbrook’s McDonald’s email account. In addition, they discovered he'd granted company shares worth hundreds of thousands of dollars for one of the employees “shortly after their first sexual encounter.”

Swift Action

When McDonald’s fired Easterbrook in 2019 “without cause,” it said evidence pointed to a single, non-physical, consensual relationship, consisting of intimate text messages and video calls.

After learning of the other relationships during the second probe, the fast-food giant took an unprecedented step. It sued the now-former CEO, seeking millions from the lucrative departure package it provided him. The company charged Easterbrook hadn't come clean in 2019. Moreover, he destroyed evidence, it alleged.

In 2021, the former CEO and McDonald's settled. Easterbrook returned more than $105 million in equity awards and cash to McDonald’s.

SEC Drops Hammer

Today the SEC provided a third burst of news about the incident. The SEC put corporate America on notice, announcing it charged the disgraced CEO with misrepresenting his November 2019 firing. Moreover, Easterbrook, the SEC said today, agreed to a $400,000 fine. In addition, he agreed to forego serving as an officer or director for any SEC-reporting company for 5 years.

“When corporate officers corrupt internal processes to manage their personal reputations or line their own pockets, they breach their fundamental duties to shareholders, who are entitled to transparency and fair dealing from executives,” said Gurbir Grewal, director of the SEC’s Division of Enforcement.

McDonald’s Faulted, Spared

McDonald's didn't escape blame. It violated the Exchange Act, which prohibits companies from material misrepresentations and omissions in proxy statements sent to shareholders, the SEC said.

However, Washington spared the Golden Arches. It did not impose a financial penalty on the company. McDonald’s provided “substantial cooperation” during the SEC's probe, the agency said. On top of that, the fast-food giant implemented "remedial measures," including clawing back millions from Easterbrook, the SEC said.

Neither Easterbrook nor McDonald’s admitted or denied the SEC’s findings.

In a statement, McDonald's said the SEC’s actions reinforce what it's communicated about Easterbrook’s misconduct. “The Company continues to ensure our values are part of everything we do, and we are proud of our strong ‘speak up’ culture that encourages employees to report conduct by any employee, including the CEO, that falls short of our expectations."

Model for Handling Crisis

It is noteworthy how quickly and resolutely McDonald’s handled this crisis. Leadership was transparent from the beginning and took swift, decisive action. It got ahead of the story and put itself in line with societal expectations.

The changes in its corporate culture did not go unnoticed. Indeed the SEC approved of how the board promptly handled the Easterbrook matter. Without explicitly saying so, the SEC appreciated how McDonald’s set the tone of accountability in corporate America.

Eric W. Rose is a partner at EKA