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  • Writer's pictureLloydette Bai-Marrow

What Charges Against Former McDonald’s CEO Can Teach Us About Investigations of Senior Officers

Former fast-food exec agrees to $400K SEC fine

The case of Steve Easterbrook, the former CEO of McDonald’s, is a salutary lesson in the dire consequences of failing to be fully transparent with investigators in the hope that one may be able to “get away with it,” writes Lloydette Bai-Marrow, an anti-corruption expert and economic crime lawyer. What can the failures of Easterbrook and McDonald’s teach us about internal investigations of high-ranking corporate officers?

McDonald’s fired then-CEO Steve Easterbrook in 2019 after an independent investigation revealed he’d violated company policy regarding intra-office romantic relationships. What the fast food giant’s investigation failed to uncover was that the relationship in question wasn’t a one-off; rather, Easterbrook had engaged in a number of inappropriate relationships with McDonald’s employees.

Now, both Easterbrook and McDonald’s have landed themselves in the SEC’s crosshairs, as the agency charged Easterbrook with making false and misleading statements to investors and accused the company itself of shortcomings in the public disclosures it made surrounding Easterbrook’s departure.

Easterbrook was fined $400,000 and banned from being an officer or director of an SEC-regulated entity for five years. McDonald’s did not receive a fine due to its “substantial cooperation” with the SEC and the remedial steps it had taken.

This case provides some valuable lessons about conducting investigations when the subjects are the most senior executives in an organization. It is not just another investigation; it requires the core and refined skills of investigation alongside a nuanced and thorough approach to leading and managing the process. Such an investigation involves a great deal of risk and may have very serious consequences for the individuals and the company.

It requires the experience and gravitas of an investigator who isn’t intimidated by the status of the subject but is also able to deftly navigate the breadth of complexities that come with such an investigation. When the subject of the investigation is a CEO or the president of the organization, here are some things you need to consider:

The independence of the investigator

This does not simply mean instructing outside counsel that the company already has a pre-existing relationship with, convenient as that may be. The nature of the pre-existing relationship may mean that the investigator is not as thorough as they should be, for fear of upsetting the apple cart. It is about ensuring that the investigator can deliver effectively and that the board can be confident they have the full scope of information needed for decision making. The investigator should be independent for the sake of all the parties, as there is a need for an even greater degree of thoroughness in such cases.

Emotional intelligence is essential

During a recent interview of a senior executive, I was asked why I was being so kind and whether my strategy was “killing with kindness.” The ability of the investigator to empathize and sensitively manage those involved in the investigation is an often-underrated skill. The investigation process is stressful, and witnesses and subjects may react in myriad ways. The investigator should be able to recognize, manage and possibly influence those emotions and reactions that may occur. The “bull in the China shop” approach is likely to achieve very little and could create significant difficulties for the organization once the investigation has been concluded.

The boldness to challenge

Early in my career, I recall being told that during cross-examination of a witness, I was to ask questions of the witness that I already knew the answers to. While the investigation is a process of establishing the facts, I have been able to deploy this principle during interviews. It enables the investigator to assess the truthfulness of the interviewee in respect of specific facts and circumstances. It further provides a basis on which the accounts given in an interview can be robustly challenged. The investigator should not assume that the status of the subject of the investigation means that they are more likely to be fully transparent. Every account given should be verified and carefully weighted in light of other information available.

Scope of the investigation

There are valid questions about why the first internal investigation did not identify that Easterbrook had been involved in multiple inappropriate relationships with employees. It may be that the scope of the investigation had been narrowly limited to the one relationship of which the board was aware. In the background set out in the SEC order, it notes that Easterbrook had been asked during an interview whether he had “ever engaged in a physical or non-physical sexual relationship with any other McDonald’s employee,” and that he said he hadn’t. It appears that he was taken at his word and later found not to have been completely truthful.

Be mindful of bias

The independent internal investigation was triggered by the disclosure of a former McDonald’s employee who alleged that Easterbrook had been in an inappropriate relationship with her. It is important to note that she was a former employee and this may well have influenced the approach taken by the board to handling the allegation. Maybe she was perceived as a troublemaker, that she had an ax to grind or was after money. Irrespective of the motivation of the person making the disclosure, care should be taken to eliminate bias from the process of investigating the allegations.

A hasty resolution

Most organizations that have to instruct investigators will want the matter dealt with quickly. The reality is that the pressure to conclude a probe swiftly can impact the thoroughness of the approach taken and, therefore, risk leaving vital information hidden. The first internal investigation was concluded within a month. McDonald’s had to conduct a second independent investigation after allegations about other relationships came to light in July 2020, eight months after the conclusion of its first investigation.

Maintaining confidentiality

Investigations involving senior executives require the investigator to be proactive and vigilant in maintaining confidentiality. The disclosure of an ongoing investigation could damage the reputation of those involved and negatively affect the company. The investigator should make it abundantly clear the expectations in relation to confidentiality at every stage of interactions with subjects and witnesses. The investigator should also consider the use of confidentiality agreements based on company policy.

You can also read this piece at Corporate Compliance Insights here!

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