McDonald’s Settles Lawsuit With Former CEO

The ex-CEO has returned company stock and cash currently valued at more than $105 million that was allotted to him after he was dismissed in November 2019 when he acknowledged having a consensual relationship with an unnamed employee, McDonald’s said. Less than a year later, the company sought to recoup the severance through legal action. The settlement avoids a trial against the former top executive that was slated to begin in Delaware Court of Chancery in May.

Mr. Easterbrook said in a statement: “McDonald’s and its Board of Directors value doing the right thing and putting customers and people first. During my tenure as CEO, I failed at times to uphold McDonald’s values and fulfill certain of my responsibilities as a leader of the company.”

“I apologize to my former co-workers, the Board, and the company’s franchisees and suppliers for doing so,” he said. A representative for Mr. Easterbrook said he wouldn’t be commenting further.

Board chairman Enrique Hernandez Jr. said that the settlement, which was approved by the board, holds Mr. Easterbrook accountable for misconduct, “including the way in which he exploited his position as CEO.” He added that the settlement avoids a protracted court process and allows the company to move forward.

The company’s decision to sue Mr. Easterbrook in August 2020 exposed the chain and its board to a rare public fight over compensation awarded to a former CEO. McDonald’s hired outside counsel to pursue the case, and had to cover Mr. Easterbrook’s legal expenses as part of the company’s indemnification policies for executives.

When McDonald’s fired him, Mr. Easterbrook apologized for conduct that he said violated company values and rules. McDonald’s fired Mr. Easterbrook without cause, allowing the former CEO to receive severance and benefits that he could have been denied had the board found him at fault.

Mr. Easterbrook’s compensation, benefits and stock were valued at nearly $42 million when issued in 2019, according to an analysis at the time by executive-pay firm Equilar. The company’s stock has risen since; it was at nearly $265 at Wednesday’s close, up from around $194 in November 2019.

Last year, McDonald’s said Mr. Hernandez, the board chairman, received a tip about Mr. Easterbrook having an alleged sexual relationship with an employee. The company conducted an internal probe, and said its investigators unearthed email messages with attachments that contained dozens of nude and sexually explicit photos and videos of Mr. Easterbrook with company employees and other women between late 2018 and early 2019.

In its lawsuit, McDonald’s said it had concluded that Mr. Easterbrook lied to investigators and its board to cover up relationships with employees to secure the multimillion-dollar severance package. It said Mr. Easterbrook had breached his fiduciary duties as a company officer and committed fraud.

In his legal responses, Mr. Easterbrook said the company had information about his relationships with other employees when it negotiated his multimillion-dollar severance package. The ex-CEO said McDonald’s admitted it had his email account stored on company servers when it first investigated his conduct in 2019.

The court had scheduled both sides to finish discovery by the end of this year, and to begin identifying witnesses next month.

With the settlement, McDonald’s is trying to move past a controversy that drew widespread attention.

Investor groups called for the resignation of some McDonald’s board members based on its initial handling of Mr. Easterbrook’s conduct. Chief Executive Chris Kempczinski, who replaced Mr. Easterbrook immediately after his firing, has pledged to restore a more professional culture at McDonald’s and boost diversity and inclusion at the company.

Write to Heather Haddon at [email protected]