The settlement with Steve Easterbrook, who was ousted in 2019 for an inappropriate relationship, is one of the largest ever clawbacks of executive compensation.
The former McDonald’s chief executive Steve Easterbrook, who was ousted by the company in 2019 for having an inappropriate relationship with a subordinate, has returned $105 million in cash and stock to the company in one of the largest clawbacks in the history of corporate America.
Mr. Easterbrook has been engaged in a contentious battle with McDonald’s for the past year, after the company sued him for lying to investigators at the time of his dismissal. As part of the deal announced on Thursday, McDonald’s agreed to drop its lawsuit against Mr. Easterbrook.
In a message to employees, Enrique Hernandez Jr., the McDonald’s chairman, said that the company wanted to hold Mr. Easterbrook “accountable for his lies and misconduct, including the way in which he exploited his position as C.E.O.,” and that this settlement achieved that goal.
Mr. Easterbrook was fired in 2019 after he engaged in a consensual relationship with an employee in violation of company policy, eventually setting off an unusually acrimonious fight between a wealthy executive and one of the country’s most prominent companies.
At the time, the McDonald’s board determined that Mr. Easterbrook had “demonstrated poor judgment,” but decided not to fire him “for cause” — that is, for being dishonest or committing a criminal act. That decision, the board hoped, would avoid a lengthy legal dispute. It also allowed Mr. Easterbrook to walk away with $40 million in compensation.
But according to the company’s lawsuit against Mr. Easterbrook, his contract contained a provision that would let McDonald’s recoup severance payments if it later determined the employee should have been fired for cause.
That clause became relevant in 2020, when a McDonald’s employee said that Mr. Easterbrook had a sexual relationship with another subordinate while he was chief executive. The new accusation spurred another investigation of Mr. Easterbrook’s records, and prompted the company to sue him last year, accusing its former chief of lying, concealing evidence and fraud.
During its investigation into the second accusation, McDonald’s said it found “dozens of nude, partially nude, or sexually explicit photographs and videos of various women, including photographs of these company employees, that Easterbrook had sent as attachments to messages from his company email account to his personal email account.”
The company also revealed that Mr. Easterbrook had awarded hundreds of thousands of dollars’ worth of stock to one of the women he was having a sexual relationship with. In its lawsuit, McDonald’s said that its former chief had lied to investigators in the initial investigation, and that if he had “been candid with McDonald’s investigators and not concealed evidence, McDonald’s would have known that it had legal cause to terminate him in 2019.”
Mr. Easterbrook initially decided to fight the lawsuit, and his lawyers filed a motion to dismiss, calling it “meritless and misleading.”
But with his agreement to return the huge sum of cash and stock to the company, Mr. Easterbrook has effectively conceded what was shaping up to be a long and costly legal battle. Mr. Easterbrook apologized in a statement released by the company.
“During my tenure as C.E.O., I failed at times to uphold McDonald’s values and fulfill certain of my responsibilities as a leader of the company,” he said. “I apologize to my former co-workers, the board, and the company’s franchisees and suppliers for doing so.”
Even while McDonald’s has posted robust earnings during the pandemic, some investors have been critical of how Mr. Easterbrook’s dismissal was bungled. Late this summer, some investors voted against the re-election of certain longtime board members, including Mr. Hernandez. McDonald’s also still faces myriad shareholder lawsuits over the firing of the executive.
On Thursday, the company said that “Mr. Easterbrook would return equity awards and cash, with a current value of more than $105 million, which he would have forfeited had he been truthful at the time of his termination and, as a result, been terminated for cause.” It did not specify the proportion of cash and stock. McDonald’s shares are up more than 25 percent this year.
In his more than four years on the job, Mr. Easterbrook was credited with turning around McDonald’s and reviving its languishing stock price. As chief executive, he reduced costs, introduced touch-screen ordering and established all-day breakfast. Shares in the company roughly doubled.
The clawback of his compensation, while large, is not the biggest in corporate history, although many earlier situations involved allegations of financial or accounting fraud. In 2007, the Securities and Exchange Commission recovered more than $400 million in profits made by William McGuire, the former chief executive of United Health, to settle claims related to a scheme involving the backdating of options. Later, Tyco International sued a former chief executive, Dennis Kozlowski, who had been convicted of looting the company, in an effort to collect $500 million he had received in compensation and benefits.
“While Steve’s misconduct need not be forgiven by any member of this community, he has apologized to his former co-workers, franchisees, suppliers and the board for the profound errors he made,” said Mr. Hernandez, the McDonald’s chairman. “Today’s resolution avoids a protracted court process and moves us beyond a chapter that belongs in our past.”
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