McDonald’s fires star CEO over relationship with employee

New York/Chicago — McDonald’s fired CEO Steve Easterbrook because he had a consensual relationship with an employee, losing the strategist who revived sales with all-day breakfast and led the company’s charge into delivery and online ordering.

The burger chain’s board voted on Friday to terminate Easterbrook after investigating the relationship, which violated company policy, according to a statement on Sunday. McDonald’s policy does not allow the CEO to have a relationship with anyone in the company.

Chris Kempczinski, who runs US operations, was promoted to president and CEO.

“This was a mistake,” Easterbrook said of his actions in an email sent to employees on Sunday. “Given the values of the company, I agree with the board that it is time for me to move on.”

Easterbrook was seen as relentless in his push to capture a new generation of customers who would be willing to order through smartphone apps, pay online, and choose to have food delivered to home or work instead of venturing into the outlets. To stress urgency, he tied executives’ compensation to the speed and breadth of the delivery rollout, and worked with vendors including UberEats.

His strategies are paying off: Same-store sales, a key metric of success, recovered with the arrival of all-day breakfast, and he axed poorly selling items and added new ones while creating lower-priced value menus to draw in diners.

McDonald’s shares have almost doubled since he took over in March 2015, more than twice the gain in the S&P 500 index.

“You can make a very strong argument that Easterbrook was the best CEO in the restaurant industry,” said Michael Halen, who covers the sector for Bloomberg Intelligence. The stock closed at $193.94 a share on November 1, giving it a market capitalisation of $147.3bn.

Along the way, Easterbrook’s changes caused some franchisees to chafe at the expenses being pushed down from the corporate headquarters in Chicago.

McDonald’s independent group of franchisees, the National Owners Association, didn’t immediately reply to requests for comment. Store owners are scheduling a private conference call to discuss how to respond and protect the brand, according to a person familiar with their plan who asked not to be identified.

Harassment policy

Regardless of Easterbrook’s successes, the company’s board had little room for error in how it handled the British executive’s transgression at a time when even consensual relationships draw scrutiny — and especially when there’s an imbalance of power. In May, the company revamped its harassment policy after coming under pressure from employees, labour advocates and members of Congress.

In a letter responding to an inquiry from US senator Tammy Duckworth, from the chain’s home state of Illinois, Easterbrook said the company has improved its policy and is committed “to ensuring a harassment and bias-free workplace”.

At the time, the American Civil Liberties Union and the union-backed Fight For $15 just announced a handful of new lawsuits and 20 complaints to the US Equal Employment Opportunity Commission. They accused the company of failing to prevent misconduct including groping and inappropriate comments from supervisors, as well as retaliation for speaking up.

With Easterbrook now out of the picture, it’s left to Kempczinski to continue the push into delivery and electronic ordering. He joined McDonald’s in 2015 to oversee global strategy, business development and innovation. He most recently served as president of the US business and, like Easterbrook, was deeply involved in the drive to expand online delivery.

“Chris has been an important partner to me over the last four years and is the ideal person to take on the role of CEO,” Easterbrook said in his departure note.

Joe Erlinger, who joined the company in 2002, will become president of the US business.

Kempczinski’s challenge

Kempczinski is taking over a behemoth chain, with more than 38,000 locations in 100 countries, including 14,000 in the US

He’ll have to contend with stagnant customer traffic across the restaurant industry. Growth has been fuelled in recent quarters by higher prices, but chains have struggled to bring in larger volumes of diners. Competition has intensified as consumers eat out less and buy more prepared foods from grocery stores.

In recent quarters, McDonald’s has been one of the industry’s best performers, with same-store sales rising 5.9% globally in the latest quarter, more than analysts had projected.

It hasn’t been quite as easy in its home market, where heavy discounting by rivals and more competition at breakfast has made it harder to get customers in its doors, resulting in a slowdown in customer traffic last quarter. But those who do come in are spending more and more, keeping the company on comfortable footing.

The company has sought to renovate its image by remodeling its locations — but franchisees have complained about the high costs associated with changes such as building a wall to hide the kitchen operations behind the cash registers. In 2018, it slowed the pace of remodels, letting operators complete them by 2022 instead of the initial goal of 2020.

The improvements have also included self-ordering kiosks and even extra drive-thru lanes in some locations.

Bloomberg