McDonald’s board of administrators faces a shareholder backlash over winding up the CEO’s overthrow

McDonald’s U.S. President Chris Kempczinski speaks about the expansion of fresh beef at a McDonald’s event in Oak Brook, Ill., March 5, 2018.

Richa Naidu | Reuters

The McDonald’s board of directors is likely to face tough questions from shareholders at its annual meeting on Thursday how it dealt with the sacking of former CEO Steve Easterbrook.

Easterbrook was ousted in November 2019 for a relationship with an employee that violated company policies. McDonald’s fired him for no reason, which allowed him to get away with a severance package currently valued at $ 56 million.

In August, McDonald’s filed a lawsuit against Easterbrook to reclaim that package, claiming it lied about having additional relationships with employees. The lawsuit opened McDonald’s to questions and criticism of the board’s original investigation into Easterbrook, such as: For example, why the third party investigation closed in a week and why investigators didn’t check the company’s servers for more evidence.

In response, the CtW Investment Group, which works with union-sponsored pension funds, and New York Comptroller Scott Stringer have campaigned against the re-election of the board chairman and chairman of the board’s compensation committee. (Stringer, who campaigns for the New York City Mayor, has been charged with sexual assault and harassment, which he has denied.)

The shareholder campaign cites the role of the two board members in the dismissal of Easterbrook in 2019 for no reason. Surprisingly, proxy advisory firm Glass has recommended Lewis vote against the re-election of Enrique Hernandez and Richard Lenny, citing similar concerns. Rival Institutional Shareholder Services said both directors should keep their positions, however, and commended the board for taking legal action rather than brushing Easterbrook’s wrongdoing under the rug.

Institutional investor Neuberger Berman said Wednesday that he would oppose Lenny’s re-election. It wasn’t said how it would vote on Hernandez. According to FactSet, the company has a 0.33% stake in McDonald’s.

“As the Chairman of the Compensation Committee, we believe Mr. Lenny failed to enforce Easterbrook’s violated company policy by not filing grounds for all stock awards and setting poor precedent for future affairs,” Neuberger Berman said in a statement disclosing his vote.

Hernandez has been on the McDonald’s board of directors since 1996 and was elected chairman in 2016. Lenny has been on the board since 2005 and chaired the Compensation Committee since May 2019, which means he played a key role in Easterbrook’s severance package.

McDonald’s, of course, recommended in its proxy filings that shareholders re-elect all board members. While it seldom happens that shareholders vote against the company’s recommendations, it is not entirely unthinkable. Investors are increasingly pushing companies to diversify boards of directors and hold directors accountable for failures in corporate governance.

For example, in March, shareholders rejected Starbucks’ executive compensation plan, even though the resolution is non-binding. Both Glass Lewis and Institutional Shareholder Services urged shareholders to vote against because the proxy advisors disagreed with Starbucks’ rationale for one-time cash rewards granted to former COO Roz Brewer and current CEO Kevin Johnson.

In addition to the shareholder campaign, McDonald’s is facing a setback for the overthrow of Easterbrook. Teamsters Local 237 Additional Security Fund and two affiliates have sued the company and board members for handling the situation, alleging they have breached their fiduciary duty.

The attention to the conduct of Easterbrook and the board of directors comes at an awkward time for McDonald’s. Under the leadership of current CEO Chris Kempczinski, the company has tried to improve its image and raise awareness of its culture. For example, McDonald’s said it will require sexual harassment training in all of its global restaurants from January 2022.

Despite these issues, McDonald’s stock is up 7% this year, bringing it to a market value of $ 177 billion.