McDonald’s fires chief executive over relationship with employee

Steve Easterbrook led the company’s charge into online ordering and revived sales

McDonald’s chief executive Steve Easterbrook has stepped down after violating company policy by engaging in a consensual relationship with an employee. Photograph: PA

McDonald’s chief executive Steve Easterbrook has stepped down after violating company policy by engaging in a consensual relationship with an employee. Photograph: PA

 

McDonald’s fired chief executive Steve Easterbrook because he had a consensual relationship with an employee, losing the strategist who revived sales with all-day breakfast and led the company’s charge into delivery and online ordering.

The burger chain’s board voted on Friday to terminate Mr Easterbrook (52) after investigating the relationship, which violated company policy, according to a statement on Sunday. McDonald’s policy doesn’t allow the chief executive to have a relationship with anyone in the company. Chris Kempczinski, who runs US operations, was promoted to president and chief executive.

“This was a mistake,” Mr Easterbrook said of his actions in an email sent to employees on Sunday. “Given the values of the company, I agree with the board that it is time for me to move on.”

Mr Easterbrook was seen as relentless in his push to capture a new generation of customers who would be willing to order through smartphone apps, pay online and choose to have food delivered to home or work instead of venturing into the outlets. To stress urgency, he tied executive compensation to the speed and breadth of the delivery roll-out, and worked with vendors including UberEats.

His strategies are paying off: same-store sales, a key metric of success, recovered with the arrival of all-day breakfast, and he axed poorly selling items and added new ones while creating lower-priced value menus to draw in diners. McDonald’s shares have almost doubled since he took over in March 2015, more than twice the gain in the S&P 500 Index.

“You can make a very strong argument that Easterbrook was the best [chief executive] in the restaurant industry,” said Michael Halen, who covers the sector for Bloomberg Intelligence.

Harassment policy

Along the way, Mr Easterbrook’s changes caused some franchisees to chafe at the expenses being pushed down from the corporate headquarters in Chicago.

McDonald’s independent group of franchisees, the National Owners Association, didn’t immediately reply to requests for comment. Store owners are scheduling a private conference call to discuss how to respond and protect the brand, according to a person familiar with their plan who asked not to be identified.

Regardless of Mr Easterbrook’s successes, the company’s board had little room for error in how it handled the British executive’s transgression at a time when even consensual relationships draw scrutiny – and especially when there’s an imbalance of power. In May the company revamped its harassment policy after coming under pressure from employees, labour advocates and members of Congress.

In a letter responding to an inquiry from US senator Tammy Duckworth, from the chain’s home state of Illinois, Mr Easterbrook said the company had improved its policy and was committed “to ensuring a harassment and bias-free workplace”.

McDonald’s chief executive Steve Easterbrook. Photograph: Richard Drew/AP
McDonald’s chief executive Steve Easterbrook. Photograph: Richard Drew/AP

For the first time in 19 years, more chief executives were dismissed for ethical lapses than for financial performance or board struggles in 2018, according to a study by one of the PwC units that analysed chief executive turnovers in the world’s 2,500 largest companies.

Executives who depart after violating company policy typically don’t get to collect severance and must forfeit any unvested long-term compensation. Mr Easterbrook held unvested shares and stock options worth roughly $31.3 million as of Friday’s close in New York, according to data compiled by Bloomberg.

Succession

With Mr Easterbrook now out of the picture, it’s left to Mr Kempczinski to continue the push into delivery and electronic ordering. He joined McDonald’s in 2015 to oversee global strategy, business development and innovation. He most recently served as president of the US business and, like Mr Easterbrook, was deeply involved in the drive to expand online delivery.

Mr Kempczinski is taking over a behemoth chain, with more than 38,000 locations in 100 countries, including 14,000 in the US.

He’ll have to contend with stagnant customer traffic across the restaurant industry. Growth has been fuelled in recent quarters by higher prices, but chains have struggled to bring in larger volumes of diners. Competition has intensified as consumers eat out less and buy more prepared foods from grocery shops.

In recent quarters McDonald’s has been one of the industry’s best performers, with same-store sales rising 5.9 per cent globally in the latest quarter, more than analysts had projected. – Bloomberg