Comptroller Stringer and Institutional Investors to McDonald’s: Hold Corporate Executives Accountable for Misconduct with Robust Clawback Policies

Former McDonald’s CEO Steven Easterbrook Terminated for Inappropriate Relationship with Subordinate, Yet Allowed to Collect More Than $41 Million in Severance

  New York City Comptroller Scott M. Stringer and other institutional investors called on the McDonald’s Corporation Board of Directors to implement robust clawback provisions in light of the termination of former McDonald’s CEO Steven Easterbrook after express and unambiguous violations of McDonald’s Standards of Business Conduct. Comptroller Stringer decried the Board’s decision to provide Mr. Easterbrook with substantial post-employment benefits as “tone deaf at the top,” particularly considering the company’s painfully slow and still inadequate response to widespread sexual harassment in McDonald’s restaurants.

On November 3, 2019, Mr. Easterbrook was separated from the McDonald’s Corporation after engaging in a inappropriate relationship with a subordinate employee. The Board determined that Mr. Easterbrook’s conduct violated McDonald’s policies; however, Mr. Easterbrook’s termination was characterized as “without cause,” which allowed him to retain approximately $41.8 million in severance pay as well as equity grants.

“McDonald’s decision to insulate a powerful man from the consequences of his actions threatens to undermine the fledgling steps the company has taken to address its pervasive sexual harassment problem,” said New York City Comptroller Scott Stringer. “The board needs to remedy this situation by demonstrating that, going forward, it will set a strong tone at the top and take its responsibility for overseeing the Company’s sexual harassment prevention efforts far more seriously.”

In a letter to the Board of Directors, Comptroller Stringer, CtW Investment Group and the Local Authority Pension Fund Forum called on the McDonald’s Corporation to restore investor confidence in its judgment and the Company’s reputation by immediately taking the following steps:

• Modify McDonald’s clawback policy to empower the Board to apply it in cases where an executive’s actions violate the Company’s Standards of Business Conduct, or when those actions damage the Company’s reputation.
• Require shareholder approval for any future exemption from the general policy requiring forfeiture of unvested equity grants at termination of employment.
• Adopt the enhancements to the Company’s approach to preventing sexual harassment as described in the letter.

Cllr Doug McMurdo, chair of Local Authority Pension Fund Forum (LAPFF) said: “In order to ensure investor confidence is preserved, it is important for management decisionmaking to dependably align with company policy. McDonald’s decision to allow the departing CEO to retain equity grants appears to be inconsistent with company policy and as such is poorly judged. The company should act to remove ambiguity from the relevant contract provisions to ensure directors are not rewarded for breaching rules or company policies in future.”

Dieter Waizenegger, Executive Director of the CtW Investment Group, said: “Negotiating a separation with a CEO is an extraordinary test for any board, but McDonald’s directors have failed to send the right signals that the company will hold its executives accountable. The Board is in serious need of the right tools to assure shareholders that it’s able to provide adequate oversight over management throughout its restaurant system. A shareholder vote on severance pay, a stronger clawback policy and good reporting on the board’s oversight of human capital are critical first steps to win back investor confidence.”

In 2013, the Comptroller’s office successfully negotiated an expanded clawback policy at Wells Fargo. Three years later, following a letter from Comptroller Stringer, the board of directors used the expanded clawback policy to recoup $60 million from the company’s CEO and another executive in the aftermath of the Wells Fargo fake account scandal. Since 2014, the Comptroller’s office has filed 18 clawback-related proposals, which were enacted by 11 companies.

The Local Authority Pension Fund Forum (LAPFF), founded in 1991, is a voluntary association of 82 public sector pension funds and six pools based in the UK with combined assets of approximately $320 billion. It exists to promote the long-term investment interests of local authority pension funds, and to maximize their influence as shareholders to promote corporate responsibility and high standards of corporate governance amongst the companies in which they invest.

The CtW Investment Group works with union-sponsored pension funds to enhance long-term stockholder value through active ownership. These funds have over $250 billion in assets under management and are substantial McDonald’s shareholders.