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MarketScreener Homepage  >  Equities  >  Nyse  >  McDonald's Corporation    MCD


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McDonald : Probe Of Relationship Began Weeks Ago

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11/09/2019 | 02:48am EST

By Heather Haddon and Suzanne Vranica

McDonald's Corp., which fired its chief executive last week over a consensual relationship with a female employee, first learned of the matter roughly three weeks ago, according to people familiar with the matter.

After an internal investigation, the company's general counsel, Jerry Krulewitch, informed the burger giant's board of the matter, the people said. The board hired New York City law firm Wachtell, Lipton, Rosen & Katz to assess the legal risk from the relationship, the people said. Mr. Krulewitch didn't respond to a request for comment. Wachtell didn't immediately respond to a request for comment.

McDonald's has a longstanding policy against its employees having relationships with direct and indirect reports at all levels, which extends company-wide for McDonald's CEO, company representatives said.

The board eventually concluded that the relationship between the CEO, Steve Easterbrook, and the unidentified employee was short-term and consensual, the people said. But the situation also raised questions about Mr. Easterbrook's judgment regarding his personal affairs and corporate conduct in the board's view, one of the people said.

After Mr. Easterbrook's firing, a representative said he "acknowledges his error in judgment and supports the company's decision."

Several years ago, before Mr. Easterbook became McDonald's chief executive, he had a relationship with Denise Paleothodoros, a staffer at Golin, a public relations firm owned by Interpublic Group of Cos. that did work for McDonald's, and personally worked on the account, according to people familiar with the matter. The board was made aware of the relationship, according to some of those people.

Ms. Paleothodoros said she led Golin's relationship with McDonald's for about five and a half years.

"Steve and I were in a relationship and that ended amicably a while ago, " said Ms. Paleothodoros, currently an executive director at Golin.

Mr. Easterbrook, 52 years old, was separated from his wife at the time that he became CEO in March 2015. They are now divorced.

The board determined that the relationship didn't violate company policy, and signed off on the relationship under assurances that Ms. Paleothodoros would be removed from the McDonald's account, some of the people familiar with the matter said. She told her employer about the relationship and was moved off the account, according to a person familiar with the matter.

Golin said an employee informed it in 2015 of a relationship she said she was having with Mr. Easterbrook. The public relations firm said that, at the time, Mr. Easterbrook "had no working relationship with our firm" and didn't oversee public relations. Golin said the employee was removed from the McDonald's account to "avoid any conflict of interest," and that it advised McDonald's of the decision.

The couple dated for more than two years, some of the people said.

Mr. Easterbrook didn't immediately respond to requests for comment.

McDonald's current and former executives said they take seriously information about possible relationships between company employees, especially after the company's then-chief operating officer, Ralph Alvarez, left the firm in 1998 following a personal relationship with a female subordinate while a regional director in California.

The circumstances cemented the McDonald's policy against relationships among coworkers, some of the people said. Mr. Alvarez was later rehired and rose up the ranks before stepping down as COO in 2009. He said at the time that no issues of improper behavior prompted him to retire.

McDonald's had long prided itself on its family value image, sponsoring the Ronald McDonald House Charities that its CEO heads.

The McDonald's anonymous tip line for whistleblowers typically received hundreds of complaints yearly, about half that didn't have any merit, according to one former executive. The ones considered to have merit were investigated, and the issues determined to be credible were presented by the audit committee to the rest of the board, the person said.

No other matter had formally risen to the full board level after Mr. Easterbrook's relationship with the Golin staffer, people familiar with the matter said.

When the most recent relationship rose to their level, the board members held lengthy discussions and meetings and ultimately voted unanimously to fire Mr. Easterbrook, who never personally appeared before the board, one of the people said. Mr. Easterbrook agreed to a settlement on Oct. 31 and he was terminated the next day, according to a filing.

--Joann S. Lublin contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
MCDONALD'S CORPORATION 0.38% 193.2 Delayed Quote.8.32%
THE INTERPUBLIC GROUP OF COMPANIES, INC. -0.13% 22.19 Delayed Quote.7.85%
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