Beware the CEO who goes without a reason
WHEN Steve Easterbrook left McDonald’s as its group chief executive, the British boss departed with a separation package worth $40 million.
Easterbrook, 55, born and bred in Watford and one of the most successful Brits ever in corporate America, went in November 2019 because he had exchanged sexual text messages with a colleague. Divorced with three daughters, Easterbrook insisted the relationship was non-physical.
McDonald’s said his departure was “without cause” — in other words there was no stain on his character — which meant he could receive the pay-off. Then, subsequently, after receiving an anonymous tip, McDonald’s discovered Easterbrook had been in three other sexual relationships with employees.
The fast-food giant claimed in court filings he sent “dozens” of “nude, partially nude or sexually explicit” photos and videos from his company email account to his personal email account. They were not found when his phone was searched originally because he’d deleted them.
Easterbrook was accused by McDonald’s of awarding “stock worth hundreds of thousands of dollars” to one of the women “shortly after their first sexual encounter and within days of the second”.
After protracted legal wrangling, in December 2021, Easterbrook agreed to pay back $105 million in equity awards and cash — one of the biggest corporate financial clawbacks in US history — and apologised for having “failed at times” to uphold the values of McDonald’s.
Now the Securities and Exchange Commission has had its say, fining Easterbrook $400,000 and barring him from serving as a director for five years. The SEC charged him with making “false and misleading statements to investors” when he left the company.
McDonald’s was also charged with having violated US securities law. The case should be required reading on this side of the Atlantic. How often have UK company chiefs resigned suddenly in unexplained circumstances? Often, what we’re told is that they’ve decided to pursue other avenues, it is time for them to move on, blah blah.
There’s a collective shrug — crucially, institutional investors do not demand an explanation or if they do, they do not push very far. It’s not in their interest to rock the boat, to cause the share price to fall. Subsequently, the new broom comes in and the episode is soon forgotten.
What has sometimes occurred is that scandalous behaviour has been uncovered, or at least it is heavily suspected, and the executive, advised by their lawyers, agrees they will “go quietly”. That, in effect, is what happened in the US with Easterbrook. He went “without cause”.
Again, it’s interesting to speculate how many corporates would have pursued him after the tip-off or prefer to let “bygones be bygones” and leave the ex-CEO well alone. Possibly, McDonald’s went on the attack because it was fearful the evidence against him would leak (for a start, the tipster presumably was expecting action) and investors would demand answers, in particular why Easterbrook had been allowed to keep so much wealth.
Institutional shareholders should ask themselves how often they’ve not interrogated management sufficiently hard enough as to the reasons for an unexpected change in senior personnel.
Worse is the rumour in the City of something untoward occurring but it does not develop, because the main investors, who have the power to pursue the company for a proper account, fail to do so.
Likewise, the Financial Conduct Authority should be looking at Easterbrook and asking itself, when was the last time we refused to accept an explanation and insisted on getting to the bottom of what has gone on?
There are so many vested interests against the truth being revealed — company, new leader, shareholders, watchdog which is already heavily burdened by work — that it’s hardly surprising it remains under wraps. Always, as well, there are the lawyers hovering, threatening eternal damnation and financial ruin if their client is hounded unfairly.
Easterbrook should be required reading. The next occasion a CEO departs without providing a reason that makes sense — and it won’t be long before one does — investors and regulator should seek full details, and if they do not convince, prosecutions should follow.
Chris Blackhurst is the author of Too Big To Jail: Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century (Macmillan)
