McDonald’s CEO sacked over relationship with employee

  • Corporate News
  • Tuesday, 05 Nov 2019

Easterbrook: Given the values of the company, I agree with the board that it is time for me to move on. — Bloomberg

NEW YORK: McDonald’s Corp fired chief executive officer 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 last Friday to terminate Easterbrook, 52, after investigating the relationship, which violated company policy, according to a statement on Sunday. McDonald’s policy doesn’t allow the CEO to have a relationship with anyone in the company. Chris Kempczinski, who runs US operations, was promoted to president and CEO.

“This was a mistake, ” 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.”

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 executives’ compensation to the speed and breadth of the delivery rollout, 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 CEO in the restaurant industry, ” said Michael Halen, who covers the sector for Bloomberg Intelligence. The stock closed at US$193.94 a share on Nov 1, giving it a market capitalisation of US$147.3 billion.

Along the way, 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 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.

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

Easterbrook is divorced, according to a report in the Wall Street Journal, and also sits on the board of Walmart Inc.

​At the time, the American Civil Liberties Union and the union-backed Fight For US$15 just announced a handful of new lawsuits and 20 complaints to the US Equal Employment Opportunity Commission. They accused the company of failing to prevent misconduct including groping and inappropriate comments from supervisors, as well as retaliation for speaking up.

With Easterbrook now out of the picture, it’s left to 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 Easterbrook, was deeply involved in the drive to expand online delivery.

“Chris has been an important partner to me over the last four years and is the ideal person to take on the role of CEO, ” Easterbrook said in his departure note. Joe Erlinger, who joined the company in 2002, will become president of the US business.

Kempczinski, who helped implement many of the recent changes as head of US operations, will maintain his predecessor’s focus on technology and believes the company’s investments will pay off, according to an interview with the Wall Street Journal.

“There isn’t going to be some radical, strategic shift. The plan is working, ” the new CEO told the Journal, adding that he wants to discuss any concerns with franchisees.

Kempczinski will also join McDonald’s board.

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 fueled 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 stores.

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

It hasn’t been quite as easy in its home market, where heavy discounting by rivals and more competition at breakfast has made it harder to get customers in its doors, resulting in a slowdown in customer traffic last quarter. But those who do come in are spending more and more, keeping the company on comfortable footing. — Bloomberg

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