Inside McDonald's year of scandals and its race to fix its reputation as the fast-food giant sues its ex-CEO over alleged sexual relationships with employees
McDonald'sfiled a new lawsuit alleging that former CEO Steve Easterbrook had sexual relationships with three coworkers and destroyed evidence of these relationships.
- Easterbrook was ousted in November 2019 over an investigation into an intimate relationship with a coworker. He was replaced by
- Kempczinski has led McDonald's through the coronavirus pandemic, allegations of racial discrimination, and other scandals as he attempts to fix the fast-food giant's reputation.
McDonald's is suing its former chief executive. And, the lawsuit is just the latest in a list of scandals the chain has endured over the past year.
On Monday, McDonald's filed a complaint alleging that former CEO Steve Easterbrook attempted to cover up sexual relationships with three employees during his last year at the company. The complaint alleges that Easterbrook sent nude and sexually explicit photos and videos — including some featuring three McDonald's workers — to his personal email from his company email.
Easterbrook was ousted from McDonald's in November after an investigation into an intimate relationship between the CEO and an employee. At the time, Easterbrook said that he had not engaged in sexual relationships with any McDonald's employees.
In the months since, Easterbrook's replacement Chris Kempczinski has been working to clean up McDonald's reputation on multiple fronts. Kempczinski was promoted from his role as the head of the US business when Easterbrook left the company. He has emphasized the importance of values in McDonald's business strategy as he leads the company through he coronavirus pandemic.
At the same time, McDonald's has been plagued by accusations of racism and a former "party culture" amongst executives. Here is a play-by-play of what the last year has been like inside the massive fast-food chain.
This time last year, Easterbrook was widely seen as McDonald's golden boy
Easterbrook became McDonald's CEO in 2015, at a time when the company was struggling financially. The fast-food chain was still battling its "Super-Size Me" reputation as a cheap place that customers should be embarrassed to visit.
Easterbrook led McDonald's through the successful national launch of all-day breakfast, as well as fresh-beef quarter pounders. The Brit frequently said he wanted McDonald's to be known as a "modern, progressive burger chain," acquiring two tech companies in 2019. McDonald's market cap grew from $93.3 billion in March 2015, when Easterbrook took over as CEO, to $146.7 billion in November 2019.
Insiders told Business Insider that Easterbrook was generally well-liked within the company. People described him as smart, strategic, and charismatic, with a dry sense of humor.
Insiders say that there was water cooler gossip about Easterbrook's flirtations — but nothing more
McDonald's launched an investigation into Easterbrook's relationship with a coworker in October 2019, according to Monday's complaint. Easterbrook said the relationship was not physical, and that he had not engaged in a sexual relationship with any McDonald's employees.
Easterbrook's past romantic relationship with Denise Paleothodoros, who previously worked on McDonald's account at public relations firm Golin, served as water-cooler gossip at McDonald's, according to multiple sources. Easterbrook was not married.
None of the 10 current and former McDonald's employees and franchisees who spoke with Business Insider in early November said they had heard of any sexual relationships that would be considered unethical. In November, one corporate employee told Business Insider he was surprised by Easterbrook's "lack of judgment," expressing amazement that the executive could be "so smart and so stupid at the same time."
Easterbrook and McDonald's chief people officer were ousted in early November
The company terminated Easterbrook for violating company policies banning "intimate interactions," with an independent board of directors determining his actions reflected a "lack of judgment." However, McDonald's did not seek "for-cause termination," hoping for a smooth transition, according to Monday's filing.
Former chief people officer David Fairhurst started his long career at McDonald's in the UK, much like Easterbrook. Fairhurst and Easterbrook were close, according to multiple sources, with Fairhurst himself saying on LinkedIn he was "heavily involved with the CEO."
In January 2020, the Wall Street Journal published a story reporting that McDonald's "tolerated partying and fraternizing between some senior managers and rank-and-file employees" under the leadership of Easterbrook and Fairhurst. Fairhurst reportedly was spotted making physical contact with a subordinate at a gathering in late 2018.
Fairhurst announced he was leaving the company the day after
Read the full story: Inside the chaotic aftermath of the McDonald's CEO's shocking termination and his replacement's quest to win over workers
Easterbrook was replaced by Kempczinski, who had clashed with franchisees in the past
With Easterbrook out, Kempczinski became CEO.
Joining the company in 2015, Kempczinski was a relative newcomer. Kempczinski had previously clashed with US franchisees over expensive initiatives to modernize the chain, such as expecting franchisees to spend up to $750,000 remodel locations. Franchisees responded by forming their first independent organization, the National Owners Association, dedicated to protecting franchisees' interests.
Kempczinski quickly worked to win over franchisees and corporate employees. From the start, he emphasized the importance of values in his vision for leading McDonald's.
Read the full story here: McDonald's new CEO is tackling the fast-food giant's reputation problem from the inside
Black franchisees and executives went public with allegations of disparities
In December, Business Insider published an investigation into disparities faced by Black franchisees at McDonald's.
Franchisees told Business Insider that McDonald's locations owned by Black franchisees net $68,000 less a month than the overall average. According to internal documents from McDonald's National Black McDonald's Operators Association (NBMOA), this gap grew substantially under Easterbrook's leadership.
Read the full story: McDonald's black franchisees are fighting to earn as much as their white counterparts, as dozens leave the company they once considered family
In January, two Black executives filed a lawsuit claiming that they faced discrimination and a hostile work environment at McDonald's.
"At McDonald's, our actions are rooted in our belief that a diverse, vibrant, inclusive, and respectful company makes us stronger," a McDonald's representative said in response. The company said it disagreed "with characterizations in the complaint."
Read the full story: 2 black McDonald's executives allege discrimination and 'irrational, vile, and cruel' retaliation at the fast-food giant in new lawsuit
Progressive groups used Easterbrook's ouster as ammunition
Soon after Easterbrook's exit, progressive labor organization Fight for $15 released a statement calling McDonald's culture "rotten from top to bottom." On November 12, the American Civil Liberties Union and a Michigan McDonald's worker filed a class-action lawsuit that connected the employees' claims of sexual harassment to Easterbrook's behavior, saying the company had a systematic problem.
Corporate employees and franchisees bristled against the allegations, with NOA leadership writing in an internal memo that labor groups "already started to use the news to advance their objectives," "for their own selfish reasons."
At the same time, Kempczinski and other McDonald's executives worked to address diversity concerns.
McDonald's elected Women's National Basketball Association commissioner Cathy Engelbert to its board of directors in early December, emphasizing the company's commitment to diversity in a press release. The company created a new position focused on franchisee diversity soon after Business Insider's investigation. Joe Erlinger, who replaced Kempczinski as the head of the US business, said in June that he has been working to hire diverse talent on senior levels.
Read more: Inside McDonald's quest to address claims of racial discrimination and erase former top executives' 'party culture'
Workers' rights groups targeted McDonald's amid the pandemic
As the coronavirus swept the US in March, McDonald's and other fast-food chains helped convince the Trump administration that it was crucial to remain open to serve essential workers. (Countries including Spain, France, and the UK required most restaurants to close entirely.) McDonald's closed dining rooms, but continued to do a brisk drive-thru and delivery business.
Read the full story: Fast-food giants like McDonald's and Burger King told Trump it is essential they stay open during the coronavirus outbreak. Not all workers are convinced.
As restaurant employees panicked about catching the coronavirus on the job, workers' rights groups such as the Service Employees International Union-backed Fight for $15 targeted McDonald's for its response to the pandemic. McDonald's workers protested against their employer in at least nine cities, including multi-day strikes in Los Angeles.
McDonald's was criticized over research showing that many franchisees — who own roughly 95% of the US locations — did not offer paid sick leave. Early in the pandemic, when health officials said people did not need to wear masks, employees said they were not allowed to wear face coverings on the job. Workers at McDonald's and other chains sought hazard pay for working during the pandemic.
McDonald's ultimately boosted workers' pay in May, began sourcing masks for employees and rolled out more than 50 new safety measures in the US. David Tovar, the vice president of US communications at McDonald's, told Business Insider in early April he was "very confident that the vast majority of employees who work for McDonald's are going to receive some type of paid sick leave."
Read the full story: Worker unrest and internal tensions are forcing a dramatic reckoning at McDonald's that could forever change the fast-food icon
The pandemic reignited tensions between franchisees and corporate leadership
While McDonald's franchisees were better positioned to weather the pandemic than many independent restaurants, the sudden loss of sales put many operators at odds with leadership.
NOA president Blake Casper slammed McDonald's for rejecting franchisees' proposed relief plan in a letter to McDonald's US president Joe Erlinger on April 7. Casper called the decision a "microcosm of a much larger leadership clash that we hope is not inevitable."
Erlinger responded by saying that the franchisees' plan failed to "recognize that the company has finite resources." Erlinger further said that franchisees needed to support paid sick leave and "hero" raises for workers, instead of asking for more financial assistance.
Tovar told Business Insider that the clash took place during the "height of uncertainty," and that relationships between franchisees and corporate have since improved. McDonald's has continued to provide financial support to struggling franchisees on a case-by-case basis.
Read the full story: 'Traumatized' McDonald's franchisees face coronavirus sales slump, as some slam the company over 'anemic' response
McDonald's has made new commitments to racial equality
Following the death of George Floyd, McDonald's donated $1 million to the National Urban League and the National Association for the Advancement of Colored People (NAACP) in early June.
In an internal webcast, NBMOA president Larry Tripplett said McDonald's needed to earn the respect of African-American customers and address disparities in its treatment of Black franchisees. Morgan Flatley, McDonald's US chief marketing officer, said in the same webcast that customers expected McDonald's to speak out to support the Black Lives Matter movement.
"We are starting to lose our younger African-American and multicultural consumers," Flatley said. "We need to make sure we are looking through the lens of our operators, our crew, and our people to better connect with African-American youth as we go forward. Today is the beginning of that journey for us."
Read the full story: 'Being silent is not an option': Inside McDonald's response to the George Floyd protests, as executives speak out and 1,100 restaurants face closures due to curfews and looting
In late July, McDonald's announced updated values and plans to launch new diversity efforts. The company said it will address hiring bias and recruit more diverse franchisees, tracking its progress annually and asking business partners to do the same.
Read the full story: McDonald's says it will recruit more diverse franchisees, suppliers, and execs, following discrimination accusations from Black franchisees and workers
Eight months in, Kempczinski has faced massive challenges
More than eight months into the job, Kempczinski has faced unimaginable challenges.
McDonald's has seen accusations of discrimination and sexual misconduct from across the system. The pandemic created problems that no one could have predicted when Kempczinski was promoted. And, as the largest fast-food chain in the US, McDonald's often serves as the face of problems restaurant workers are facing across the industry.
McDonald's reported in late July that same-store sales plummeted by 23.9% in the most recent quarter. Kempczinski said he expects the worst of the pandemic's financial repercussions to be over for the company and that McDonald's now plans to go on the attack, after months of more defensive strategies.
The latest lawsuit creates a new scandal for Kempczinski to deal with, as McDonald's attempts to force Easterbrook to essentially return his multi-million dollar severance package.
"As we recommit to our values, now, more than ever, is the time to lean in to what we stand for and act as a positive force for change," Kempczinski said in an internal message about McDonald's lawsuit against Easterbrook on Monday. "That includes working together to enhance our culture by continuing to do the things we do well while developing solutions for how we can improve. "
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