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McDonald's Ex-CEO Settles SEC Case Tied to Termination

Ex-CEO Stephen Easterbrook was fired for having a relationship with a McDonald's employee but was initially allowed to keep millions in severance.

Ever since Ronald McDonald was introduced in 1963, McDonald's  (MCD) - Get Free Report has strived for a family-friendly image to appeal to adults and kids alike.

The fast-food chain has leaned on that image for the past 60 years -- although Ronald McDonald is nowhere to be seen in the company's marketing these days after claims that he was peddling unhealthy food to children. 

Clearly, this approach has worked -- many people continue to choose McDonald's over all other fast-food options when they're in need of a quick meal. As of 2021, the chain sold close to double what Starbucks  (SBUX) - Get Free Report did, its closest competitor in terms of revenue.

Of course, the bigger the company, the more likely that some less-than-angelic dealings go on somewhere within its walls. 

McDonald's is no exception -- the 2004 documentary "Super Size Me" did the chain no favors in revealing the results of a man who ate only McDonald's for a month and gained 27 pounds. This resulted in lawsuits from U.S. consumers and eventually forced McDonald's to remove the Super Size option from its menus and refocus on healthier fare.

Now, another McDonald's scandal has resurged in the form of an SEC inquiry against a former chief executive and the company.

McDonald's Ex-CEO Had Secrets

Between March 2015 and November 2019, McDonald's was led by President and Chief Executive Stephen Easterbrook, who had previously been CEO of two British dining chains, Wagamama and PizzaExpress.

His tenure was financially successful, sending the company's revenue and stock price soaring. He was considered a strong manager for the company.

But Easterbrook was fired in 2019 after having a consensual, nonphysical relationship with an employee, which violated the company's Standards of Business Conduct. 

The McDonald's board agreed not to fire Easterbrook for cause, which allowed him to keep tens of millions of dollars in severance.

But an investigation by the company found that Easterbrook wasn't telling the truth. And an SEC inquiry determined that McDonald's came up short in its required disclosures about the matter.

Easterbrook and MCD Settle SEC Case

The SEC says that McDonald's found that "Easterbrook had engaged in other undisclosed, improper relationships with additional McDonald’s employees."

An SEC statement on Jan. 9 says that by reaching the agreement that Easterbrook was fired without cause, McDonald's "exercised discretion that was not disclosed to investors."

And the agency charged that "Easterbrook knew or was reckless in not knowing that his failure to disclose these additional violations of company policy prior to his termination would influence McDonald’s disclosures to investors related to his departure and compensation."

An SEC order found that Easterbrook violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

Without admitting or denying wrongdoing, Easterbrook agreed to pay a $400,000 civil fine and to be barred from holding positions as a director or officer for five years at companies that report to the SEC.

The agency also found that McDonald's violated two provisions in the Exchange Act. McDonald's agreed to a cease-and-desist order from the SEC without admitting or denying wrongdoing.

"Public issuers, like McDonalds’s, are required to disclose and explain all material elements of their CEO’s compensation, including factors regarding any separation agreements," Mark Cave, associate director of the Division of Enforcement, said in the agency's statement.

The SEC declined to impose a financial penalty on the company, owing to its cooperation with the SEC staff and its efforts to remedy the issues, including "seeking and ultimately recovering the compensation Easterbrook received pursuant to the separation agreement." 

Easterbrook previously apologized for his conduct, saying in a statement released by McDonald's that "[during] my tenure as CEO, I failed at times to uphold McDonald's values and fulfill certain of my responsibilities as a leader of the company."