BY: DECLAN HARTY | 01/09/2023 11:44 AM EST
The SEC has charged former McDonald’s CEO Steve Easterbrook with misleading investors about his 2019 firing from the fast-food giant.
Following revelations about an inappropriate relationship between Easterbrook and an employee that violated corporate policy, McDonald’s fired him and launched an internal investigation during which Easterbrook failed to disclose additional relationships with other McDonald’s employees, the SEC alleged. The agency said Monday that Easterbrook “knew or was reckless in not knowing” that the disclosures would have influenced McDonald’s public statements on his departure and compensation.
“When corporate officers corrupt internal processes to manage their personal reputations or line their own pockets, they breach their fundamental duties to shareholders, who are entitled to transparency and fair dealing from executives,” SEC Enforcement Director Gurbir Grewal said in a statement. “By allegedly concealing the extent of his misconduct during the company’s internal investigation, Easterbrook broke that trust with — and ultimately misled — shareholders.”
Under the terms of a cease-and-desist order from the SEC, Easterbrook has agreed to pay a $400,000 civil penalty. He has also been barred from acting as an officer or director of any public company for five years.
McDonald’s charges: McDonald’s was also charged by the SEC for failing to disclose that it had exercised discretion in 2019 when it said Easterbrook’s termination was “without cause,” which allowed Easterbrook to hold onto unvested stock-based compensation in the company.
In 2020, McDonald’s sued Easterbrook to claw back the compensation after learning of the additional relationships, according to The New York Times. Easterbrook has since agreed to pay $105 million back to the company.
The SEC did not impose any financial penalty on McDonald’s, considering it provided “substantial cooperation” during the investigation, the agency said.
In a statement, McDonald’s said the SEC order “reinforces what we have previously said: McDonald’s held Steve Easterbrook accountable for his misconduct.”
‘A slippery slope’: SEC commissioners voted 3-2 to approve the charges, with the agency’s two Republicans, Hester Peirce and Mark Uyeda, dissenting.
In a joint statement, Peirce and Uyeda said the order “casts McDonald’s, the victim of Mr. Easterbrook’s deception, as a securities law violator through a novel interpretation of the Commission’s expansive executive compensation disclosure requirements.” The two commissioners warned that the SEC may be creating a “slippery slope” by charging McDonald’s over its failure to disclose that it had exercised discretion, saying that the rule in question does not require companies to disclose why an executive has been fired with or without cause.
“A principles-based disclosure rule does not need to expressly describe every possible factual permutation that falls within its scope; however, it also does not provide the Commission with a blank check to find violations when disclosures outside of the rule’s ambit are not made,” Peirce and Uyeda said.