SECTION-B CASE STUDY Firing McDonald's Easterbrook: What Could the Board Have Done Differently? Letting a senior leader go is one of the biggest and most fraught-decisions for a corporate board. Consider the recent CEO scandal and legal wrangling at McDonald's, says lames Heskett Neon Adana https:mifestucan apply.com/annexam/publicstudentistesamsetypicWYSONFESSID KOHUSIVELTINOV 215 20 PM GPS-EXMARKETING MANAGEMENT Chat Sand A corporate board's most important decision is selecting the organization's CEO one could argue that a board's most distasteful decision concerns firing a CEO Once directors agree to release the CEO, the next step is determining whether it or not. Each situation is different. It may depend on the nature of the CEO's terms of their contract. Was the problem merely poor company performance "cause"), poor judgment la borderline case for "cause", negligence or-e activity? As a board member, I've unfortunately had to confront these issues The McDonald's board faced these issues in October 2019. The company's CE Easterbrook, was found to have engaged in a consensual relationship with an en company policy" It had to be disappointing to board members who witnes Easterbrook had led at the company since his promotion to CEO four years earlie The board's investigation found that Easterbrook's consensual relationship Type your message here involved inappropriate texting and video calls, which were confirmed by the en denied having had relationships with other employees The board concluded that he had "demonstrated poor judgment but since he had cooperated in its investigation and agreed to issue a public apology, it decided to fire him without cause. That meant that he would be able to keep $64 million in proceeds from stock that he had sold while CEO and 541 million in stock and options to which he was entitled at the time It's quite likely that the board hoped to avoid a protracted legal dispute and negative publicity at a precarious time Employee sexual harassment allegations at McDonald's were reaching the media along with efforts to get McDonald's and its franchisees to raise starting pay to 515 per hour. The board's dilemma? Pay now or pay later McDonald's could pay off the offender and hope that he would apologize and go quietly sparing the company bad publicity in the long run. Perhaps investors employees, and others would forget the entire matter. Alternatively, the company could fire for cause and fight it out in court The verdict at McDonald's? The board decided to fire Easterbrook without cause and allow him to keep $105 million in stock and options Easterbrook fulfilled his promise, saying publicly that he "acknowledges his error in judgment and that he was "deeply grateful for his time at McDonald's The problem, however, didn't go away. In July 2020, an employee offered more details about Easterbrook's conduct. (Paraphrasing Warren Buffett. "How often do you find just one cockroach?") As a result, "dozens of nudes, partially nude, or sexually explicit photographs and videos of various women were found in Easterbrook's emails, which he had transferred to a personal account from his corporate email account The board also was able to allege that Easterbrook had actually had physical sexual relationships with three other McDonald's employees in 2018. In other words, Easterbrook had lied to the board Easterbrook's contract with the company prepared for such an event. It contained a provision that would let McDonald's recoup severance payments it flater determined the employee should have been fired for cause." After a year of legal wrangling we recently learned how the case finally played out. But as we remind our students at Harvard Business School, the outcome doesn't mean the decision made was a good one. Knowing doesn't lessen the value of discussing the issues. And the issues here are interesting Executives fired for cause rarely go quietly. They usually sue to keep the money they received and they often win. Situations in which a board changes its decision from firing without cause to with cause" are relatively rare. The odds of winning such a case are uncertain. And it would guarantee that the McDonald's name would be draged through the media and the court of public opinion again. If you were a McDonald's board member, what would you have done differently? Why? What do you think? Share your thoughts in the comments below panne.camera WINDPRTINO 32102.1 PM OP-TEXMARKETING MANAGEMENT Chat Answer any two of the following Q No 1. Win from Within: Build Organizational Culture for Competitive 11 Advantage, did the board act appropriately in firing Easterbrook wi cause in the first place? 2. As a board member, would you support a decision to reopen the seek termination with cause? If so, how much would you seck to 3. executives fired for cause rarely go quietly, they usually soe tok money they received-and they often win." Do you think it is cons in right directions? Send Type your message here