Inside McDonald's new CEO's quest to win over the massive fast-food giant in the wake of his predecessor's shocking exit

Richa Naidu/Reuters

McDonald's Chris Kempczinski faced an uphill battle when he was abruptly promoted to CEO.

• McDonald's new CEO, Chris Kempczinski, has spent the last two weeks working to win over employees and franchisees following the abrupt and shocking departure of Steve Easterbrook.
• Kempczinski has laid out a strategic plan in line with Easterbrook's, while also emphasizing ethics and values in the face of scandal, employees and franchisees told Business Insider.
• Corporate employees have been generally on board with the change, believing Easterbrook's termination after a relationship with another McDonald's worker to be necessary.
• Despite past tension with Kempczinski, franchisees are cautiously optimistic about the shakeup - in part due to the promotion of McDonald's veteran Joe Erlinger to the head of the US business.
• Erlinger "is known as a 'system' leader with a deep understanding of the importance of the three-legged stool and mutual collaboration from his tutelage working for Charlie Bell," the National Owners Association, known for its past opposition to Kempczinski's initiatives, said in an internal memo viewed by Business Insider.
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McDonald's Chris Kempczinski faced an uphill battle when he was abruptly promoted to CEO on Sunday, November 3.

Kempczinski, previously the president of McDonald's US business, has big shoes to fill. His predecessor, Steve Easterbrook, was well-liked and respected at the company, according to McDonald's employees and franchisees. Easterbrook led McDonald's through the national launch of all-day breakfast, fresh-beef quarter pounders and the acquisitions of two tech companies this year.

Then, Easterbrook was abruptly terminated after an investigation into his relationship with a female employee. Suddenly, Kempczinski was thrust into the position as CEO, just four years after he originally joined McDonald's.

Despite his relatively short time at McDonald's, Kempczinski brought significant baggage to the position of CEO. As the former head of McDonald's US business, Kempczinski struggled to get franchisees on board with bold initiatives, such as a remodeling program that could cost up to $750,000 per location.

Despite the abrupt nature of his promotion, Kempczinski attacked the challenge with vigor. He has spent the last two weeks working to get the fast-food giant's massive web of corporate employees, franchisees, and more on board with his vision for the future of the company, according to leaked internal documents and interviews with ten current and former McDonald's corporate employees and franchisees.

Kempczinski's quest to win over McDonald's has been largely successful so far, according to these insiders. Presenting a calm and optimistic face in response to a dramatic shakeup, Kempczinski has laid out a strategic plan in line with Easterbrook's that also emphasizes ethics and values in the face of scandal.

'I'm asking you to re-enlist in us to make this company an example for the world'

Richard Drew/AP Photo; Samantha Lee/Business Insider

Steve Easterbrook was well-liked at McDonald's before his shocking departure.

When the news broke of Easterbrook's departure, Kempczinski sprang into action to reassure franchisees and employees. The core of his messaging has been that McDonald's won't change course strategically, but that misconduct of any kind will not be allowed under his leadership.

On November 6, the Wednesday following his promotion, Kempczinski and chairman Rick Hernandez Jr. held a town hall in the company's Chicago headquarters that was streamed to McDonald's employees around the world.

"The mission I'm asking you to re-enlist in is to make this company an example for the world and to do the right thing each and every day," Kempczinski told employees, according to a source who attended the town hall.

Kempczinski said that McDonald's will continue to work on its Velocity Growth Plan, generally emphasizing to employees that the company's overall strategy will remain unchanged, according to sources. He also shared personal information about himself, including that he has been married for 25 years, he met his in wife college when she offered to share her notes, and that he is the father of two children and a golden doodle.

The new CEO took time to emphasize the importance of values as the company moves forward. According to another McDonald's employee, Kempczinski emphasized in the town hall that he had would not have anyone on his team who didn't share his values - something the employee saw as a clear jab at Easterbrook's behavior.

Hernandez Jr. also alluded to Easterbrook's departure, in discussion of the company's policy around relationships between employees.

"I think [the policy] basically it tries to keep the workplace about work, an honest and open interaction with people and a place where people can believe that decisions are made or not made for personal reasons, but for professional reasons, for the best interest of the company," Hernandez Jr. said.

Hernandez Jr. and Kempczinski's efforts to get workers onboard has paid off so far, according to three current and former corporate employees. Multiple employees and franchisees said that even though the details of Easterbrook's relationship remain a mystery, they agree with the board's decision to terminate the CEO.

"I think that folks trust the board," said one former corporate employee who left McDonald's earlier this year. If board members determined Easterbrook's relationship was grounds for termination, "there must have been something that was driving it."

McDonald's stock has also rebounded after the company lost $4 billion in value immediately after the CEO shakeup. When the market closed on November 1, the Friday before Easterbrook's departure, shares were trading at $193.94. When the market opened on Monday - just over two weeks after Kempczinski's promotion - shares were trading at $194.57.

Winning over franchisees

Irene Jiang / Business Insider

Kempczinski needs to win over franchisees.

Due to his past history with franchises, some analysts were wary of how Kempczinski's promotion would be received.

"The greatest pushback we expect to Mr. Kempczinski's appointment is weakened relationships with franchisees in 2018 that saw sales soften and traffic turn negative," Cowen analyst Andrew Charles wrote in a note immediately after Easterbrook's termination.

Leading McDonald's US business, Kempczinski alienated franchisees by pushing for expensive initiatives, such as remodeling locations and rolling out fresh beef quarter pounders, that cut into franchisees' profit margins. Backlash swelled to such a degree that franchisees organized McDonald's first independent franchisee group, the National Owners Association, dedicated to protecting protect franchisees' interests.

"He just put a bad taste in everybody's mouth," one franchisee who sold her locations in 2018 told Business Insider of Kempczinski. "He kept talking about the shareholders. It was never about the operators. We were just kind of listening to him talk like, who is this guy and why is he telling me that my business is not important to him?"

The relationship between McDonald's and franchisees improved over the last year, under Kempczinski's leadership. In October, Easterbrook said that franchisees' cash flow - or the amount of money they bring in a month - had growth for the prior 11 months through September. Franchisees said that Kempczinski began working to collaborate more with franchisees in the face of organized pushback, including adjusting the company's delivery policies and extending deadlines for store remodels.

Improved financials and collaboration helped pave the way for franchisees to respond to Kempczinski's promotion with cautious optimism, as opposed to outright hostility. Kempczinski also sprang into action to fully win over franchisees and smooth over past tension.

Kempczinski reached out to at least one influential franchisee on the evening of Sunday, November 3, calling National Black McDonald's Operators Association (NBMOA) CEO Larry Tripplett according to NBMOA documents. By Monday morning, a video starring Kempczinski was sent to franchisee summits around the country, presenting a narrative and financial expectations that helped franchisees get on board with the new CEO.

Tripplett said in the memo on Monday that leadership was "cautiously optimistic in some of the results we are beginning to see." He said Kempczinski called him on Sunday evening and "expressed his plans to continue to work on our cash-flow gaps," or the gap between how much African-American franchisees and overall franchisees make on average.

Joe Erlinger, who has filled Kempczinski's role as McDonald's US president, is also playing a crucial role in efforts to win over McDonald's franchisees.

The day of Easterbrook's termination, Erlinger said in an internal memo he would immediately start traveling around the country, beginning with visits to field office summits in Bethesda, Atlanta, and Dallas.

"As part of my transition into the role, I will be traveling around the country visiting restaurants and learning from all of you and your accomplishments," Erlinger said. "You can expect that I will be observing, listening and asking lots of questions - regrounding myself in our US Business."

Unlike Kempczinski, who was seen by many franchisees as an arrogant outsider when he joined the company, Erlinger has worked at McDonald's since 2002. Erlinger is seen as having a better understanding of McDonald's franchise system, due in part to his work with former McDonald's CEO Charlie Bell and understanding of the "three-legged stool," or equally balancing the needs of McDonald's franchisees, suppliers, and employees.

"We are encouraged by the decision to bring Joe Erlinger into the U.S. President position as he is known as a 'system' leader with a deep understanding of the importance of the three-legged stool and mutual collaboration from his tutelage working for Charlie Bell," the National Owners Association, known for its past opposition to Kempczinski's initiatives, said in an internal memo viewed by Business Insider.

The memo continued: "Joe is getting great reviews for his summit presentations, especially knowing he couldn't have been prepared for such developments thus making his comments and approach even more impressive."

Hayley Peterson contributed reporting for this piece.