On 3 November, McDonald’s Corporation fired its president and chief executive officer Steve Easterbrook for having a consensual relationship with a fellow employee. In classic corporate speak, the brand announced Easterbrook had “separated from the company” following its board’s view he had “violated company policy and demonstrated poor judgment.”
The severance package is likely to be eye-watering. Bloomberg estimates Easterbrook, will leave the company with more than $37m, (the bulk of which will include previously granted shares). Easterbrook, who had been CEO since 2015, was highly regarded and high performing. During his tenure the company’s share value more than doubled, while he also led McDonald’s successfully through some seismic changes – expanding food delivery and mobile payment options and championing the brand’s adherence to better quality and more ethically sourced produce.
But the wider ethical concerns of employee conduct, particularly those of such a senior executive, saw McDonald’s – which has longstanding rules against conflicts of interest – having to take action and ‘walk it like they talk it’ when it came to parting company with its CEO. “Given the values of the company, I agree with the board that it is time for me to move on,” Easterbrook said in a statement to employees.
“Brands can only rest their reputations on executing to the standards they claim to be pillars of their culture and brand promises,” says foodservice consultant Karen Malody FCSI, principal of Culinary Options, LLC.
“Values-based companies are highly valued and can only continue to be respected if they execute to their cultural mores. In a time of transparency and authenticity being so highly valued, an entire brand reputation could be compromised if they do not hold their own to the highest standards possible. By removing Mr. Easterbrook from his position, McDonald’s has made a critical public statement that they aren’t messing around with what they hold dear – and that no one is off the hook from adhering to those standards,” she says.
“Any foodservice organisation is as strong as their entry level workers. In the case of McDonald’s, with a huge preponderance of workers being entry level teenagers and Millennials, the political blowback of any issue like this, with the MeToo movement still accelerating, is huge,” says US-based consultant Bill Main FCSI, principal of Bill Main & Associates. “McDonald’s made the right decision to eliminate this executive as a sacrificial lamb; to set a tone. Early damage control, irrespective of the facts, is essential. The HR ramifications of this incident are frightening.”
William Bender FCSI, founder and principal of W.H. Bender & Associates also believes McDonald’s was right to take decisive action in this instance. “When brands and organisations, no matter what size, are creating or growing a business, it requires people to work together to achieve and reach the goal. We work to attract, recruit, hire and on-board people that are a good fit for our client team and jobs. To achieve this, we want people that share the values, beliefs and principals that we hold as important to the organisation practices, decision-making, management communication, and leadership,” he says.
“Company policies and rules are created to guide team behaviours and help us define the path. Remember the following are all part of each persons profile: work experience, education, life experience and personality profile. A brand establishes a code of ethics as a guideline for everyone in the organisation. ‘Everyone’ means just that: entry level to senior management. If anyone is allowed a pass in behaviour, we devalue everything and their are no rules or standards. Of course, this depends on the severity of the judgment infraction [but] holding to a strong code of ethics helps keep the organisation strong and from going off course, in my opinion.”
Bettina Massenbach FCSI of German consultancy OYSTER Hospitality Management agrees. “In any business or relationship it’s highly important to identify values and guidelines. As soon as companies don’t make the effort of emphasising ethical codes, it’s impossible for anybody, internal as well as external partners, to identify the personality. A company becomes meaningless without ethical guidelines,” she says.
What is actually gained?
So what does McDonald’s actually achieve in making this decision? “McDonald’s has held their esteem in the eyes of worldwide consumers as a result of this action: that we are serious about the values we have created and uphold. We are serious about what we say. No one is immune from upholding our sacred values,” says Malody.
“At a time where fierce competition and exposure to ‘authenticity’ in a brand loom large, they have taken a stance of ‘we do what we say’. Given that they have had had their own struggles with brand excellence and customer loyalty, this was an essential move to continue the trajectory of perceived honesty and integrity as a brand,” she says.
“McDonald’s shows the existence of guidelines and therefore it’s identity. If they hadn’t reacted as they did, their values would have become meaningless,” says Massenbach. “There is one important word which just came into my mind: trustworthiness.”
What the company also achieves, says Bender, is “sharing with everyone at McDonald’s that rules are important and everyone is accountable for their decisions, behaviours or actions. No-one is above ethics – the code of conduct – and all will be held accountable. It really keeps the brand standards elevated for all to see and be proud of.”
And there are parallels to be seen within industry organisations such as FCSI, too, says Bender. “FCSI works to grow our society by having members that understand what professionalism is and exhibiting professionalism in our conduct and business. Restaurant brands will see that an industry giant like McDonald’s and its directors, will take action when warranted. This showcases that the brand and company is important and stronger than anyone one person. It should ripple throughout the industry and reinforce values and having a better understanding of what ethics really means.”
Learning the lessons
In turn then, what lessons are there for other brands from this situation? “If a brand is going to expose their values to the public and ask the public to believe in their seriousness about those standards, this type of action is essential,” says Malody.
“What I admire is that no one is judging or demeaning Mr. Easterbrook’s actions from a moralistic stance. McDonald’s is simply saying, ‘We stand behind our values’. In a time where it seems to many of us that leaders are getting away with murder, this action on the part of any brand is essential for remaining trustworthy and reputable.”
Massenbach concurs. “Any brand is just as strong as their values. But they have to go for it with no compromise. Values are the backbone of each relationship. Anybody should be able to insist on these guidelines, no matter what the position or role they hold on,” she says.
Main agrees. “Front load any and all proactive steps associated with everything associated with morals, integrity, values, sexual harassment and any aspect of the female employee universe. It’s only going to get worse for all foodservice operations, big and small, in the US. Liability carriers are scrambling to re-quote all these policies,” he says.
Executing the plan
Easterbrook was replaced by Chris Kempczinski (pictured) as McDonald’s president and chief executive officer with immediate effect. Joe Erlinger, most recently president of international operated markets, was appointed president of McDonald’s USA, effective immediately. In his new role, Erlinger will be responsible for the business operations of approximately 14,000 McDonald’s restaurants in the United States, reporting to Kempczinski.
Before Easterbrook left the business, one of his last major tasks was to announce a strong third quarter performance for the company on 22 October, as “broad-based momentum continued” with McDonald’s 17th consecutive quarter of global comparable sales growth. Consolidated revenues increased $61.2 million or 1% (3% in constant currencies) to $5.4bn.
“Globally, our customers are rewarding our commitment of running better restaurants and executing our Velocity Growth Plan by visiting more often,” Easterbrook said at the time.
In taking decisive action and changing its leadership, McDonald’s – not always a company that attracts the kind of headlines it would like to – has seemingly moved swiftly to also execute its ethics plan, which has to be applauded.