Million Dollar Menu Options: Takeaways from McDonald’s Executive Succession

Executive departures can be high stakes, complex matters with significant business, financial and interpersonal implications. In communications around executive succession, finding the right balance between projecting continuity, meeting disclosure obligations and protecting confidential or embarrassing information has always been a challenge. The SEC’s recent case against McDonald’s, however, has fundamentally changed the game and requires that companies – and their advisors – reimagine the old playbook.

The SEC’s Action Against McDonald’s Complicates Traditional Disclosure Practices

After McDonald’s CEO Steve Easterbrook was terminated without cause in 2019, the Company discovered his misconduct went beyond what originally had been disclosed. McDonald’s sued Easterbrook to claw back more than $100 million in compensation and ultimately the SEC charged Easterbrook and McDonald’s for disclosure violations in a first-of-its kind fine from the SEC. Easterbrook was charged for misleading shareholders and McDonald’s was charged for failing to disclose that the Board exercised discretion in terminating Easterbrook “without cause.”

Shifting Legal Landscape has Implications for Executive Succession Communications

A “for cause” executive termination is not only a high bar legally, but it traditionally has been viewed as an aggressive action for bad personal or poor professional judgment. Moreover, the desire to project stability and avoid opening a window into internal hijinks has provided a powerful incentive to move on amicably. As a result, even if there may have been technical cause for termination, settlement agreements and anodyne press releases have been the norm.

This gentle offramp now appears blocked. In a post-McDonald’s world, Boards appear obligated to disclose if there was legal cause for an executive termination, even if they opt to enter into a severance agreement. This requires companies – and their counsel – to couple a resolution that is in the company’s best interest with a communications strategy that satisfies heightened disclosure requirements – all while avoiding jarring announcements that could exacerbate internal disruption, discomfit customers or rock the market.

In particular, this requires providing enough context around the rationale for the termination to assuage concerns about the company’s business, financials and culture, while also keeping confidential information secure. Further, in the McDonald’s case, the SEC scrutinized discrepancies in how McDonald’s presented Easterbrook’s departure to external and internal audiences, placing an even higher premium on consistent external and internal messaging.

The SEC’s action in McDonald’s was nothing short of a game-changer. Time will tell how companies choose to thread the needle between adequate disclosure and potential disruption, but now more than ever, executive succession communications require an experienced team of specialized advisors with outside perspectives to develop an effective strategy that supports an optimal transition.