In The Matter Of Stephen J. Easterbrook And Mcdonald's Corporation SEC File No.

Facts

In October 2019, counsel for a former McDonald’s employee (Employee) alleged that D had engaged in an inappropriate personal relationship with Employee. The Board of Directors retained outside counsel to conduct an independent internal investigation. On October 22, 2019, D was asked if he had ever engaged in a physical or non-physical sexual relationship with any other McDonald’s employee. D said that he had not. In July 2020, McDonald’s learned that D had in fact engaged in other relationships with McDonald’s employees in violation of the company’s Standards of Business Conduct. As the CEO, D knew or was reckless in not knowing that misleading McDonald’s would taint continued employment and his compensation, and would influence McDonald’s disclosures to investors, including disclosures in the company’s periodic disclosures and its Definitive Proxy Statement. On November 1, 2019, McDonald’s terminated D. D’s unvested stock options, and Performance-Based Restricted Stock Units (PRSUs) were to be forfeited if the company terminated him for cause, including a termination for cause resulting from the commission of acts in violation of the Standards of Business Conduct. On October 29, 2019, the Board of Directors presented D with a draft Separation Agreement and General Release. As a condition of settlement, D was required to disseminate a letter to all McDonald’s employees explaining his departure and endorsing the new CEO. He was also given an opportunity to review McDonald’s press release regarding his termination. Both the letter to employees, which was covered in multiple mainstream media outlets, and the press release, which was attached as an exhibit to a Form 8-K filed by the company, described D’s misconduct as limited to a single consensual relationship with another McDonald’s employee. On November 1, 2019, McDonald’s and D entered into a Separation Agreement and General Release, where D was terminated without ‘Cause.’” D’s stock options and PRSUs would “continue to vest or become exercisable pursuant to the original schedule.” The total value of the Separation Agreement was $47,534,341, of which $43,999,937 was composed of outstanding stock options and PRSUs. McDonald’s Files a Form 8-K Announcing Easterbrook’s Termination. On April 9, 2020, McDonald’s filed its Definitive Proxy Statement for the fiscal year and disclosed that D was terminated “without cause” and recommended that shareholders “approve, on an advisory basis, the compensation of the named executive officers,” including, by extension, the terms of the Separation Agreement and General Release. From November 2019 to June 2020, D exercised at least 193,000 options and sold the resulting shares for net cash proceeds of $9,365,072.37. D also received a performance payment for 63,687 PRSUs valued at $7,054,291.83 after taxes. In July 2020, McDonald’s received an anonymous complaint that alleged another McDonald’s employee engaged in an inappropriate personal relationship with D. After investigation, McDonald’s sued D for a breach of fiduciary duty and fraud in the inducement. On December 16, 2021, McDonald’s publicly announced that it had reached a settlement with D. McDonald’s agreed to dismiss the suit in exchange for D’s payment to McDonald’s of his cash severance, prorated bonus, certain proceeds realized from the sale of securities that resulted from his exercise of options and PRSUs, and certain attorney’s fees incurred by the company, as well as forfeiture of all outstanding equity and awards.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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