Shareholder groups question differential treatment for former McDonald’s CEO
Photograph by Jonathan Maze
McDonald’s treated former CEO Steve Easterbrook better by sacking him at the end of 2019 than former HR director David Fairhurst for roughly similar allegations – proving the company shouldn’t have driven Easterbrook away with millions, a group of investors seeking to oust McDonald’s. the president argued on Monday.
The group, including CtW Investment Group and the California Public Employees Retirement System (CalPERS), urged shareholders to vote against company chairman Enrique Hernandez, as well as director Richard Lenny, on severance pay from Easterbrook.
McDonald’s fired Easterbrook in November 2019 for a consensual relationship with an employee, but allowed him to retain stock and other rewards now valued at well over $ 50 million. The day after his layoff, Fairhurst was laid off and the company later revealed that he had been laid off. McDonald’s has since sued Easterbrook to recover that compensation after discovering he had other relationships he had not disclosed to the board.
“There’s a bit of a disconnect in why he was treated differently,” Michael Varner, director of executive compensation research at CtW, said in a webinar Monday. “Both had fraternization issues or allegations of fraternization, so the two could have been treated the same.”
“Favoritism could be a strong word,” he added. “But it was clear that Easterbrook was a superstar and [the board] wanted to bid him a golden farewell.
McDonald’s would not comment on this story.
Meanwhile, proxy advisory firms have given mixed signals on where shareholders vote on the matter. Glass Lewis last week recommended voting against the two directors. Glass Lewis agreed with CtW that Hernandez should be held “responsible for the inadequate response of the board and its decisions regarding the dismissal of Mr. Easterbrook”. He also agreed that shareholders should vote against Lenny, who is the head of the board’s compensation committee.
But Institutional Shareholder Services has recommended that the two directors retain their positions. “Viewed holistically, board actions do not constitute risk oversight failures.” ISS also paid tribute to the board for “not sweeping these issues under the rug” and for taking legal action against Easterbrook to recover his severance pay… “
Proxy consulting firms make recommendations on shareholder votes in public companies. Institutional shareholders who own a large portion of the shares of these companies often follow their recommendations.
The shareholder group has ties to unions – which pushed McDonald’s and other restaurant companies to allow unions and raise wages to $ 15 an hour. This rate of pay is more and more common in many restaurants these days, in the face of intense demand for labor.
But groups also argue that companies need to pay more attention to “human capital” and that treating employees benefits companies and their shareholders in the long run.
“What drives the US economy these days is human capital,” said Anne Simpson, chief investment officer at CalPERS. “But we do not have information on the status of employees, contracts, we do not have information on health and safety, diversity, compensation, general conditions of employees. We do not have a picture of the condition of human capital in a company. “
The groups argue McDonald’s was wrong not to fire Easterbrook for cause immediately – they note that the board did a “limited” investigation early on and ended up paying the price.
“They embarked on a hasty and limited investigation,” Varner said. “They fired him and gave him all that money. They made a bad call.
“If they had made the right choice at the beginning, that is to say dismiss him for cause, they would not be in the situation where they are now. It is one of the [the board’s] main duties. If they can’t make good decisions that will be in the best interests of the business and save money for the business and not be in this debacle a year later, they shouldn’t be on the board. .