McDonald's board faces shareholder pushback over its handling of CEO ouster

McDonald's board faces shareholder pushback over its handling of CEO ouster

May 19, 2021
  • CtW Investment Group and New York City Comptroller Scott Stringer are leading a campaign against reelecting two of McDonald's board members.
  • The shareholder campaign cites the two board members' roles in firing former CEO Steve Easterbrook without cause in 2019.
  • Months after the firing, McDonald's filed suit against Easterbrook to claw back his severance package, opening the board up to questions and criticism of its original handling of the situation.

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McDonald's board will likely face tough questions from shareholders on Thursday at its annual meeting about how it handled the firing of former CEO Steve Easterbrook.

Easterbrook was ousted in November 2019 for having a relationship with an employee in violation of company policies. McDonald's fired him without cause, which allowed him to walk away with a severance package currently valued at as much as $56 million.

In August, McDonald's filed suit against Easterbrook to claw back that package, alleging that he lied about having additional relationships with employees. The lawsuit has opened McDonald's up to questions and criticism of the board's original investigation into Easterbrook, like why the third-party inquiry was wrapped up in a week and why investigators didn't check the company's servers for more evidence.

In response, CtW Investment Group, which works with pension funds sponsored by affiliates of unions, and New York City Comptroller Scott Stringer have campaigned against reelecting the board chairman and chair of the board's compensation committee. (Stringer, who is campaigning for New York City mayor, has been accused of sexual assault and harassment, which he has denied.)

The shareholder campaign cites the two board members' roles in firing Easterbrook without cause in 2019. And surprisingly, proxy advisory firm Glass Lewis has recommended voting against reelecting Enrique Hernandez and Richard Lenny, citing similar concerns. Rival firm Institutional Shareholder Services said both directors should keep their positions, however, and praised the board for taking legal action instead of sweeping Easterbrook's misconduct under the rug.

Institutional investor Neuberger Berman said Wednesday that it intends to oppose the reelection of Lenny. It did not say how it would vote on Hernandez. The firm holds a 0.33% stake in McDonald's, according to FactSet.

"As chair of the compensation committee, we believe Mr. Lenny failed to enforce the company policy violated by Easterbrook by not applying termination for cause treatment for all equity awards and has set a poor precedent for future matters," Neuberger Berman said in a statement disclosing its vote.

Hernandez has been on McDonald's board since 1996 and was elected chairman in 2016. Lenny has been on the board since 2005 and chaired the compensation committee since May 2019, meaning that he played a key role in Easterbrook's severance package.

McDonald's, of course, recommended in its proxy filings that shareholders reelect all of its board members. While it's rare for shareholders to vote against the company's own recommendations, it's not completely unthinkable. Investors are increasingly pushing companies to diversify boards and taking directors to task on failures of corporate governance.

For example, shareholders rejected Starbucks' compensation plan for executives in March, although the resolution is nonbinding. Both Glass Lewis and Institutional Shareholder Services told shareholders to vote against it because the proxy advisors disagreed with Starbucks' rationale for one-time cash bonuses given to former COO Roz Brewer and current CEO Kevin Johnson.

Besides the shareholder campaign, McDonald's is facing pushback elsewhere for the Easterbrook ouster. Teamsters Local 237 Additional Security Fund and two affiliates have sued the company and board members for how it handled the situation, alleging that they breached their fiduciary duty.

The attention to Easterbrook's and the board's conduct comes at an awkward time for McDonald's. Under the leadership of current CEO Chris Kempczinski, the company has been trying to rehabilitate its image and improve the perception of its culture. For example, McDonald's said that it will require sexual harassment training at all of its global restaurants, starting in January 2022.

Despite these woes, McDonald's shares have risen 7% this year, giving it a market value of $177 billion.

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