(Bloomberg)—A minority group of McDonald’s Corp. investors has called for the resignation of two board members after what it calls a “bungled” independent investigation into former Chief Executive Officer Steve Easterbrook’s behavior and the board’s original decision to pay him severance that it’s now trying to claw back in “costly” litigation.
Investors holding about 4.5 million of the company’s shares—less than 1%—have signed a letter asking that Chairman Enrique Hernandez and Compensation Committee Chair Richard Lenny “be held accountable and replaced,” according to a copy viewed by Bloomberg News. The letter, dated Thursday, was organized by CtW Investment Group and signed by New York City Comptroller Scott Stringer and Connecticut Treasurer Shawn Wooden, who oversee their region’s respective retirement systems.
When asked about the letter, McDonald’s said its board “maintains an active and engaged dialog” with shareholders and other stakeholders.
“The board believes that there should be a balance of institutional knowledge and fresh perspectives among its directors and remains committed to ongoing board refreshment. With the help of outside counsel, the board is fully investigating all allegations of misconduct by Mr. Easterbrook, including his lies and deceptions, and has taken swift and unprecedented actions to address them,” the company said in an emailed statement.
The investor push for accelerated board turnover follows a year of internal turmoil at the restaurant giant—even as operations have recovered quickly from the pandemic given the chain’s strong drive-thru and take-out model. Shares are up about 56% from a March low as the virus hit the U.S.
“This year, under new leadership, we have renewed our commitment to values and launched a holistic business plan to drive our future growth. We are making strategic investments and have seen a strong recovery, as evidenced by our third-quarter results,” the company said in the emailed statement. “In a challenging year, and with the board of directors’ guidance, McDonald’s business has proven resilient.”
The saga has had several twists and turns. Then-CEO Easterbrook was fired in late 2019 over a consensual relationship with an employee, but the company later received a tip that he’d been involved in multiple affairs with workers. After later concluding he’d concealed evidence from independent counsel—including deleting explicit photos from his corporate phone that were later found on back-up servers—the company sued to claw back severance pay. Easterbrook has claimed the company had the information about his relationships when it negotiated his separation agreement.
As part of the ongoing investigation, a McDonald’s executive said in August the company was also looking into whether Easterbrook covered upimproprieties by other McDonald’s employees during his time at the helm. McDonald’s, which said nine months after his departure that former top human resources manager David Fairhurst had also been fired with cause, has also been looking into its human resources department.
Those efforts aren’t enough to appease the investor group, which alleges McDonald’s made other bad choices, including re-hiring the law firm that it says botched the internal investigation to represent it in its suit against Easterbrook.
In August, McDonald’s hired new outside counsel when it brought suit against Easterbrook. The original law firm isn’t working on the Easterbrook matter with McDonald’s anymore.
CtW has been pushing the issue of Easterbrook’s handling for months, including in April advising investors vote against Easterbrook’s pay package and the two directors who oversaw it.
“It is becoming increasingly clear to shareholders that the board is too slow to initiate investigations even when McDonald’s foundational values are at risk,” it wrote.
CTW is asking the company to announce by year-end that Hernandez, a director for nearly a quarter century, and Lenny won’t stand for re-election in 2021. They should be replaced with directors “who will fill in the glaring gaps of legal and compliance expertise,” the investors said.
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