The rise and fall of McDonalds ex-CEO Steve Easterbrook – Business Insider
McDonald’s sued Steve Easterbrook in August, alleging the former CEO covered up sexual relationships with three female employees during his last year at the helm of the fast-food giant.
Easterbrook had been fired from McDonald’s in November 2019, after the company investigated a different relationship between the then-CEO and an employee that reportedly included exchanging sexually explicit text messages and photographs, but not physical contact.
Business Insider spoke with more than half a dozen McDonald’s insiders — including corporate employees, franchisees, and Easterbrook’s ex-girlfriend — about the former CEO’s rise and fall.
Some insiders saw Easterbrook as a flirt who enjoyed his status as a bachelor, especially as he found success turning around McDonald’s business.
Easterbrook ally David Fairhurst has also faced renewed scrutiny, with employees saying he drank and flirted with female subordinates when he was McDonald’s head of HR.
“Our Board and CEO are committed to leading with integrity,” McDonald’s said in a statement. “We know actions speak louder than words. … We will continue to make changes, where necessary, to support all parts of our organization.”
Denise Paleothodoros never expected Steve Easterbrook to drag her into a sex scandal.
Paleothodoros met the McDonald’s executive while working on the company’s account for the Chicago-based public-relations firm Golin at the 2014 Winter Olympics in Sochi, Russia. When things moved from professional to a friendly flirtation over several months, she says, they both reported the relationship to their higher-ups. She was taken off the McDonald’s account, and the pair began dating.
There were a few perks of dating a fast-food millionaire — the couple took three trips on the McDonald’s private jet — but Paleothodoros, who talked to Business Insider in a recent interview, said the relationship was mostly “very, very normal.” Both had children and had recently gone through divorces. The couple spent weeknights cooking together. Easterbrook always cleaned up, Paleothodoros said. They never drank at home if they had work the next day. On weekends, they would spend time with their families or check out new restaurants around Chicago. Her friends were “always impressed by how he was so humble,” Paleothodoros said.
“He was a true gentleman, very caring and loving, at times protective and also vulnerable,” she added.
But when Easterbrook was named McDonald’s CEO in 2015, and his success in that role grew, Paleothodoros said he began to change.
Instead of quiet nights in, he began spending more time socializing with a group of men within the company’s massive network of employees, franchisees, and suppliers. A former McDonald’s employee told Business Insider that Easterbrook and his friends were known to frequent the so-called Viagra Triangle, a Chicago neighborhood filled with bars where older wealthy men go to pick up younger women. Paleothodoros said she was not included in their outings. She felt Easterbrook wanted to give the appearance he was single on these nights.
The trust just eroded.
“The trust just eroded. It’s just kind of as simple as that,” Paleothodoros said of the couple’s April 2018 breakup. “The actions say it all.”
As his relationship eroded, Easterbrook was experiencing unprecedented professional success. When he became CEO, Easterbrook promised to transform McDonald’s from a “Super Size Me”-era villain to a “modern, progressive burger company” — his oft-repeated sound bite. With Easterbrook at the helm, McDonald’s rolled out all-day breakfast, acquired two tech companies, and moved headquarters. Shares doubled in value. In exchange, the CEO made more than $21 million in 2018.
Then, he was fired.
A McDonald’s investigation found that Easterbrook and an employee had an inappropriate — though not physical — relationship. The company terminated Easterbrook in November 2019, saying the relationship indicated a lack of judgment. Nine months later, McDonald’s sued Easterbrook to claw back his severance package, estimated to be worth up to $57 million, alleging in an August lawsuit that the ex-CEO covered up sexual relationships with three additional McDonald’s employees.
Business Insider spoke with more than half a dozen current and former McDonald’s corporate employees, franchisees, and other insiders to understand how Easterbrook went from McDonald’s golden boy to a defendant in a multimillion-dollar lawsuit. Employees and franchisees spoke on the condition of anonymity.
Multiple franchisees and corporate employees told Business Insider they left the company because they believed leadership lacked a sound moral compass. A former executive, who continues to have close ties at McDonald’s, said that Easterbrook’s alleged sexual relationships with female employees signaled larger issues.
“If he didn’t have better discipline than to do that, how would we expect him to have discipline and principles in his other policies?” the former executive told Business Insider.
Easterbrook isn’t McDonald’s only problem. McDonald’s is battling numerous high-profile racial-discrimination and sexual-harassment suits and has launched an investigation into its own human-resources department after the department head was fired “for cause” after making some female employees uncomfortable at company events. Some insiders believe Easterbrook’s financial success prompted leadership to ignore red flags. Insiders believe the accusations and the company’s response damaged the company’s trustworthiness in a way that could not be easily repaired.
“Our Board and CEO are committed to leading with integrity,” McDonald’s said in a statement to Business Insider. “We know actions speak louder than words. Since being appointed CEO in November, Chris [Kempczinski] has installed a new Chief People Officer, announced refreshed values with input from employees around the world, and has committed to making these values part of everything we do. We will continue to make changes, where necessary, to support all parts of our organization.”
Are you a McDonald’s employee or franchisee with a story to share? Email firstname.lastname@example.org.
McDonald’s claims Easterbrook tried to destroy evidence of dozens of nude photos, including some of McDonald’s employees
McDonald’s is suing Easterbrook.
When McDonald’s fired Easterbrook in November, the company said it knew about one relationship between Easterbrook and an employee (in addition to his relationship with Paleothodoros, who worked for an outside firm).
On July 7, McDonald’s chairman of the board Rick Hernandez received an anonymous tip about a relationship between Easterbrook and a second employee, as well as new allegations regarding the HR department, according to the company.
“As it did last October, the Board took immediate steps to investigate those allegations with the help of additional outside counsel,” Hernandez said in a statement to Business Insider. “Based on that investigation, it became clear that Easterbrook impeded the Company’s prior investigation by lying to conceal his inappropriate conduct and destroying evidence.”
McDonald’s alleges that investigators found “dozens of nude, partially nude, or sexually explicit photographs and videos of various women,” including three McDonald’s employees, when searching the company’s servers. The dozens of photos and videos — taken in late 2018 and early 2019 — were attached to messages sent from Easterbrook’s company email account to his personal email account, according to McDonald’s complaint.
The time stamps on the photos may hint at further wrongdoing. According to the complaint, Easterbrook approved an extraordinary stock grant worth hundreds of thousands of dollars to one of the women featured in the explicit photos. The approval, it said, came “shortly after their first sexual encounter and within days of their second.” (None of the female employees’ names or roles at the company have been reported or mentioned in court filings, though there has been rampant speculation about their identities among McDonald’s employees and franchisees.)
McDonald’s alleges it never would have given Easterbrook severance benefits when he was fired if it knew he had sexual relationships with three other employees.
“Had the Board been aware of this information, it would not have approved the terms of the Separation Agreement,” Hernandez said. “The Board unanimously determined to file a lawsuit to recover the money paid to Easterbrook under the Separation Agreement and to send a clear signal to shareholders and the broader McDonald’s community that his misconduct, which clearly deviated from McDonald’s values, must not be ignored.”
In a motion to dismiss the complaint, Easterbrook’s attorney argued that McDonald’s filed its lawsuit in the wrong state and already had access to the “new” information when the severance agreement was signed. In the filing, Easterbrook’s lawyers called the complaint “meritless and misleading.” Easterbrook did not respond to Business Insider’s request for comment.
The company’s new allegations against Easterbrook came as a shock to Paleothodoros. Personally and professionally, it put her in a deeply uncomfortable position. Her photo was suddenly splashed on tabloid covers, next to headlines about Easterbrook exchanging nude photos with subordinates — behavior she said she would never have expected from him. It had been months since she had spoken with Easterbrook, but this felt like a complete break in his character and values.
“This is so uncharacteristic of the gentleman that I knew,” Paleothodoros said.
Experts question how McDonald’s investigators could have missed evidence of other relationships when it first investigated Easterbrook. Laura Steinberg, a partner at Sullivan & Worcester who specializes in cases related to executive misconduct, said she could not comment on the details of the case but described it as “unusual” if McDonald’s did not fully search servers for evidence. McDonald’s said the law firm it hired to investigate the allegation and the firm’s assisting forensics team reviewed Easterbrook’s iPhone, which uncovered intimate messages but not evidence of a physical relationship or relationships with other employees.
“The very lawsuit against Mr. Easterbrook places the integrity of that first investigation into some question,” Steinberg said.
McDonald’s said in a statement that the “board will follow the facts wherever they may lead.”
The rise and fall of a golden-boy CEO
Easterbrook packing McDelivery orders.
Alyssa Schukar/AP Images
Easterbrook, 53, joined McDonald’s when he was still in his 20s, as a financing manager. He worked his way up at the company’s London office, taking a few breaks to serve as CEO for two UK-based chains, Pizza Express and Wagamama.
When Easterbrook was promoted to CEO in 2015, McDonald’s was floundering. Same-stores sales had plummeted under Don Thompson, who served as CEO from 2012 to 2015. Fast-food-wary customers had become increasingly health-conscious in the years following the 2004 documentary “Super Size Me.” Easterbrook at the time said McDonald’s management had lost any appetite for risk and was relying on old, dated methods.
Easterbrook crafted a turnaround plan, emphasizing tech, modernization, and cost cutting, including slashing hundreds of jobs as part of corporate restructuring. Easterbrook also moved the company’s headquarters from its quiet, suburban campus in Oak Park, Illinois, to the trendy West Loop neighborhood in Chicago, with an open floor plan and a bar on the ninth floor.
For Steve’s moral failings, he was a great CEO.
“For Steve’s moral failings, he was a great CEO who changed the company for the better in order to survive,” said a current McDonald’s employee, echoing the sentiments of multiple insiders who spoke with Business Insider.
McDonald’s held weekly Thursday-night happy hours at the ninth-floor bar, which Easterbrook would attend when he was in town, according to sources. Multiple current and former corporate employees said that Easterbrook had a reputation among some for dating a variety of women outside the company, which many felt at the time was perfectly acceptable behavior for the bachelor CEO.
The company opened its first investigation into Easterbrook in October 2019. According to The New York Times, an employee reported a relationship between herself and Easterbrook that included “sexually explicit text messages, photographs, and at least one FaceTime call … but was not physical.” The Times said the employee notified the company, saying she was worried she would get in trouble for the monthlong relationship.
Easterbrook admitted to the relationship but denied having sexual relationships with any other McDonald’s employees. He turned his company-issued phone over to investigators at the time. McDonald’s lawsuit accuses Easterbrook of deleting an email with explicit photos from his phone, apparently unaware the message remained on McDonald’s servers.
McDonald’s replaced Easterbrook with Chris Kempczinski, who had been serving as the head of the US business and joined McDonald’s only in 2015. The news sent shock waves through the McDonald’s system, with one corporate employee saying he was amazed Easterbrook could be “so smart and so stupid at the same time.”
Paleothodoros received a courtesy call from Easterbrook shortly before the McDonald’s announcement. She had gotten coffee with Easterbrook in October after hearing he was not doing well emotionally. Having not been in contact, Paleothodoros said she assumed the stress of the high-profile job and not seeing his children and family in the UK were wearing on Easterbrook. When they met for coffee, Paleothodoros said, Easterbrook was like a different person — emotionally shut down and unsteady.
“Whether we were in a relationship or not, he was always … emotionally consistent in demonstrating respect and care. And this felt very emotionally distant,” Paleothodoros said. “I did sense some distress signals, and I called him out on it. But … moments before he was being let go — I got the courtesy call. And it all started to make sense to me.”
McDonald’s HR department was facing its own problems
At the same time as McDonald’s now alleges Easterbrook was exchanging nudes with employees, the company’s human-resources department was facing its own rumors of misconduct.
Easterbrook promoted David Fairhurst to lead McDonald’s global HR a few months after he became CEO. Fairhurst moved from London to McDonald’s Oak Brook headquarters. The two were close, as two Brits working to reinvent the American fast-food giant.
The company’s corporate politics frustrated some, with one former employee saying different departments were like “miniature versions of Henry VIII’s court,” complete with backstabbing. Fairhurst, in particular, could be pompous and cliquey, current and former employees said, leading to accusations that those within Fairhurst’s inner circle received preferential treatment.
Fairhurst would regularly drink with a group of other HR staffers, which included women significantly subordinate to him at the company, current and former employees told Business Insider. He, like Easterbrook, was also a regular at the weekly McDonald’s happy hours when he was not traveling.
The inmates were running the asylum.
“The inmates were running the asylum,” when it came to McDonald’s HR team, one former corporate employee told Business Insider. Fairhurst — the head of HR — was creating HR problems, instead of solving them, he said. “It was no secret that this was a serious problem.”
At a 2018 holiday party, Fairhurst was seen pulling a female staffer onto his lap, an employee who witnessed the incident told Business Insider. The Wall Street Journal reported that McDonald’s investigated the incident, ultimately telling employees that excessive drinking was inappropriate. Despite the investigation, Fairhurst continued to serve as the head of HR.
Two former employees questioned how McDonald’s could handle HR complaints if its own head of HR was flirting and drinking with employees. A current employee who works on the global people team said Fairhurst’s alleged behavior was not necessarily seen as something that could impede investigations at the time. Instead, she said, it was simply sad.
“We just thought he was a sad man who drank too much and weirdly didn’t have friends outside of people who worked for him,” the employee said.
We just thought he was a sad man who drank too much and weirdly didn’t have friends outside of people who worked for him.
Fairhurst stayed in his role as head of HR until the day after Easterbrook left the company. McDonald’s said the two exits were unrelated, with Fairhurst writing on LinkedIn at the time: “I have decided the time has come for me to move on to my next career challenge.”
But unlike Easterbrook, who was fired without cause, McDonald’s says Fairhurst was fired with cause. The company’s current head of HR, Heidi Capozzi, said in a recent internal meeting that Fairhurst was fired after making women at the company uncomfortable on numerous occasions.
In late August, McDonald’s declared it was investigating allegations against the HR department during Easterbrook’s time as CEO, as well as whether Easterbrook covered up other executives’ misconduct.
Fairhurst did not respond to Business Insider’s request for comment.
Renewing trust amid new allegations
Easterbrook was replaced by Chris Kempczinski.
Richard Drew/AP Photo; Samantha Lee/Business Insider
When Kempczinski replaced Easterbrook as CEO in November 2019, he made corporate values a top talking point, hosting town halls and creating new positions and initiatives focused on diversity. In July, McDonald’s even had an event unveiling “refreshed” values.
Some corporate employees called CEO Chris Kempczinski the “human equivalent of the vanilla McDonald’s ice-cream cone.”
In contrast with the bar-hopping Easterbrook, Kempczinski appeared buttoned-up and squeaky clean. A former employee said people at corporate called him the “human equivalent of the vanilla McDonald’s ice-cream cone,” thanks to his bland reputation and personal preferences. In fact, in a town hall hosted soon after his promotion, Kempczinski said that he ate a vanilla cone every day.
Still, some insiders aren’t convinced the recommitment to values carries much weight. Prime among the critics are some American McDonald’s franchisees, who run 95% of the chain’s locations in the US and frequently clashed with corporate leadership during Easterbrook’s time as CEO.
“An American company was taken over by someone from overseas who was immune to the culture at McDonald’s and said he was going to run it his way — and get those shareholder returns by any means necessary,” said a former franchisee who left the company in 2017, in part because he disagreed with Easterbrook’s strategic decisions.
Under Kempczinski, hostilities have escalated and ebbed, primarily driven by same-store sales and the company’s willingness to listen to franchisees on issues like simplifying the menu and rent relief.
But sources say there continues to be a distinct lack of trust, with some franchisees fearing that McDonald’s will force stores to prematurely open dining rooms and add less-profitable items back to the menu, such as salads and all-day breakfast. McDonald’s said franchisees have the ability to decide when they reopen dining rooms, and that corporate has worked closely with franchisees to evaluate which menu items will best drive business while minimizing disruption.
The HR department is also still trying to regroup. In March, McDonald’s announced that Capozzi, formerly the head of HR at Boeing, would replace Fairhurst as the new global chief people officer. She began a “top-to-bottom” review of the department after joining in April, according to an executive. McDonald’s said the review has included a cultural assessment of the company’s blind spots, as well as reviewing the processes for hiring, performance evaluation, and raising and investigating employee concerns.
In early July, McDonald’s announced that its head of diversity, Wendy Lewis, was retiring. Melissa Kersey, the head of HR in the US, left the company in late June and was replaced by Melanie Steinbach.
A month after Steinbach was promoted to replace Kersey, however, and soon after McDonald’s filed its lawsuit against Easterbrook, she abruptly left the company. Before Steinbach’s August departure, her corporate email auto-reply indicated she was on “medical leave.” She has not responded to Business Insider’s multiple requests for comment. McDonald’s declined to comment on Steinbach’s departure.
McDonald’s credibility is called into question as the lawsuits pile up
Kempczinski is Easterbrook’s squeaky-clean replacement.
When it sued Easterbrook in August, McDonald’s reopened itself to more questions about how seriously management, especially the HR department, actually took ethical concerns — and how seriously it would take these concerns in the future.
The fact that the original McDonald’s investigation failed to uncover key evidence opens the company up to lawsuits from shareholders, according to Steinberg, the attorney who specializes in cases related to executive misconduct.
The activist investor CtW is calling for the company’s chairman, Enrique Hernandez Jr., and compensation chair, Richard Lenny, to resign over their handling of Easterbrook’s termination. Both CtW’s executive director, Dieter Waizenegger, as well as the former McDonald’s executive who spoke with Business Insider, questioned whether the company’s financial success under Easterbrook encouraged to board to be more lenient with him.
“It sends the wrong message throughout a vast system, where we have a lot of reports about allegations of sexual harassment, of workplace violence,” Waizenegger said in an interview. “If the guy on the top gets away, obviously, I think a store manager will feel she or he has more latitude as well.”
Restaurant workers have filed numerous lawsuits against McDonald’s over the past year, including an international coalition of unions alleging a “global sexual harassment problem” at the company. In January, two Black executives filed a lawsuit alleging that they faced a hostile work environment at the fast-food giant and that discrimination at the company became overt under Easterbrook and Kempczinski. Last week, 52 Black former McDonald’s franchisees filed a $1 billion racial-discrimination lawsuit, alleging that discriminatory policies were introduced under Easterbrook and Kempczinski.
McDonald’s denied plaintiffs’ claims in both racial-discrimination lawsuits and said allegations of harassment “were investigated as soon as they were brought to our attention.” On Thursday, the company filed an answer to the teamsters’ complaint, saying the pension funds lack “a credible basis from which to infer any actual or possible mismanagement, wrongdoing, or corporate waste warranting investigation.”
“McDonald’s had been working cooperatively with the plaintiffs and had already offered to make documents available for inspection in response to their demand before they filed their lawsuit last month,” McDonald’s said in a statement on the teamsters’ lawsuit. “We are not sure why the plaintiffs saw a strategic advantage to filing a lawsuit rather than continuing our constructive discussions, but we will respond to the lawsuit through the appropriate channels.”
Can McDonald’s be trusted? Do shareholders care?
The credibility of McDonald’s is under fire.
There are some within McDonald’s who believe that the company is trying its hardest to regain trust. According to McDonald’s, the anonymous tip in July that led to the company’s second investigation into Easterbrook was provided in response to a November town hall on the importance of corporate values. The tipster said Hernandez’s declaration that McDonald’s will not tolerate misconduct, regardless of seniority, inspired them to come forward, according to the company.
“Companies are like people,” said Vicki Chancellor, a McDonald’s franchisee who serves as the head of the McDonald’s Operator’s National Advertising Fund. “Sometimes there may be a misstep, but you don’t judge them by that misstep. You judge them on how they handle the misstep.”
For most franchisees and investors, financial results are more important than ex-executives’ scandals. McDonald’s shares have gone up more than 6% since McDonald’s sued Easterbrook on August 10 and 12% since Easterbrook left the company — despite the coronavirus pandemic sending shares tanking in March. Same-stores sales have recovered, and McDonald’s has so far acquiesced to franchisees’ pleas to maintain a simplified, salad-free menu. McDonald’s paused dining room openings at the beginning of July, with the company saying there are roughly 2,100 dining rooms in the US open today, compared to roughly 2,000 dining rooms in late June.
Others see the conduct alleged against Easterbrook and Fairhurst as a sign of larger problems that continue to affect the company’s credibility and ability to make ethical business decisions.
“They say one thing constantly to the outside world,” the former executive said. “And their actions to the inside world — and by that I mean suppliers and the company — are different.”
One former corporate employee who worked at the company at the same time as Easterbrook and Fairhurst said he was disturbed by seeing and hearing of the two executives drinking with subordinates and flirting with employees, he said, without any apparent repercussions. In his view, executives’ ethics trickled down through the system, from the headquarters to relationships with franchisees.
“If you’ve got poison on one side,” the employee said, “it is going to seep into the other side in some way, shape, or form.”