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McDonald’s Board Covered Up ‘Rampant’ Misconduct: Suit (Correct)

April 21, 2021, 5:05 PM; Updated: April 21, 2021, 5:42 PM

A pension fund sued members of the McDonald’s Corp. board in Delaware, claiming they gave its ex-CEO millions in severance pay—instead of firing him outright over workplace affairs—in an effort to cover up the board’s “indifferent approach” to “rampant sexual harassment.”

The “decision to conduct a barebones investigation” into former chief Stephen J. Easterbrook and let him walk away with $56 million “can only be explained by the board’s desire to protect itself at the company’s expense,” according to the complaint made public Wednesday in Delaware Chancery Court.

But “the board’s indifference to C-suite sexual misconduct is just the tip of the iceberg,” the lawsuit says. “Beginning in at least 2015, McDonald’s has faced wave after wave of lawsuits, allegations, and investigations into rampant sexual misconduct, harassment, and discrimination at its restaurants.”

McDonald’s legal counsel Ron Olson of Munger, Tolles & Olson LLP told Bloomberg Law on Wednesday that there’s “no basis for any derivative claim.”

The board “took swift and decisive action to address Easterbrook’s misconduct, sending an unmistakable message that McDonald’s will not tolerate behavior inconsistent with its values at any level of the company,” Olson said in a statement.

“The Teamsters’ complaint second-guesses the board’s actions based on a fictional narrative developed in hindsight after Easterbrook’s cover-up was exposed as a result of the board and management’s reinforcement of the company’s speak-up culture,” he added.

The derivative suit was originally filed under seal April 15 by a Teamsters pension fund that previously sued McDonald’s for internal files related to Easterbrook’s departure.

It stems from an ongoing case that McDonald’s brought against Easterbrook last year in the same court seeking to claw back his severance pay. That case involves accusations that Easterbrook lied to the company about the extent of his multiple workplace dalliances.

In its suit against the board, the pension fund claims the company only brought that case after it was “forced to abandon its whitewash efforts amid mounting pressure” from the media and shareholders.

In fact, the board “turned a blind eye” to sexual misconduct by Easterbrook, another top executive, and workers at its restaurants, according to the partly redacted complaint.

Easterbrook’s “lavish” severance package “was no one-off anomaly” or “the result of sophisticated deceit” on his part, the suit says. “The board chose to pay off Easterbrook in the hopes that he would go quietly and their own misconduct would remain undetected.”

Cause of Action: Breach of fiduciary duty.

Relief: Damages, costs, and fees.

Attorneys: The pension fund is represented by Grant & Eisenhofer PA and Newman Ferrara LLP.

The case is Teamsters Local 237 Add’l Sec. Fund v. Hernandez, Del. Ch., No. 2021-0324, complaint unsealed 4/21/21.

(Corrects first paragraph to indicate that only current board members are named as defendants.)

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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