After an executive shakeup, McDonald’s new CEO is determined to erase issues that were bubbling under the surface during prior executives’ leadership.
In early November, McDonald’s announced that Steve Easterbrook was leaving the company following an investigation into his relationship with a female coworker. Chris Kempczinski, previously the head of the US business, was promoted to CEO.
In the weeks since, reports have surfaced alleging improper behavior under Easterbrook’s leadership, as have claims from black executives and franchisees about discrimination at the fast-food giant. Simultaneously, Kempczinski and McDonald’s corporate team have been working behind the scenes to repair the company’s reputation internally.
Over the last two months, Business Insider has spoken with more than a dozen current and former McDonald’s franchisees and employees. Here is the inside story of what has been happening at the fast-food giant in a time of massive change.
Top executives’ behavior was a ‘huge blemish on the company’
Last Sunday, the Wall Street Journal published a story reporting that McDonald’s “tolerated partying and fraternizing between some senior managers and rank-and-file employees” under the leadership of Easterbrook and former Chief People Officer David Fairhurst.
The Journal reported that Easterbrook and Fairhurst, who also left McDonald’s in early November, drank with employees after hours and that Easterbrook was known for flirting with employees.
Multiple people with knowledge of the situation told Business Insider that Easterbrook was known to be flirtatious, though many also said that he was well-respected in the company due his success turning around McDonald’s business. Discussion of Easterbrook’s past relationship with Denise Paleothodoros, who previously worked on McDonald’s account at public relations firm Golin, served as water-cooler gossip at McDonald’s, according to multiple sources.
At a gathering in late 2018, the Journal reported, Fairhurst and one of his subordinates were seen openly making physical contact, citing people familiar with the matter. According to the Journal, an employee filed a complaint about the late-night drinking. Following an investigation, employees who attended the gathering were told by an executive that such excessive drinking was inappropriate and should be reported.
A McDonald’s corporate employee who had heard about the gathering from multiple sources but did not attend told Business Insider that Fairhurst’s behavior was concerning to some internally, and that he considered it a “huge blemish on the company.”
The employee said that Fairhurst was known internally for attending “events where liquor gets in the way of judgment.” This employee and others who spoke with Business Insider were kept anonymous so that they could speak frankly without fear of retribution.
Fairhurst did not respond to Business Insider’s request for comment. McDonald’s declined to comment on specific allegations in the Wall Street Journal’s reporting.
Tension among franchisees and black executives
While internally Easterbrook and Fairhurst’s behavior may have sparked gossip, McDonald’s relationship with franchisees was a more public battle before Easterbrook left the company.
After Easterbrook became CEO in 2015, many franchisees pushed back against expensive initiatives led by him and Kempczinski, who was the head of the US business at the time. For example, a remodeling program that could cost up to $750,000 per location sparked significant backlash among franchisees. In 2018, franchisees formed the company’s first independent franchisee group aiming to protect their interests, called the National Owners Association.
Other franchisee groups that are recognized by the company were also concerned by McDonald’s recent decisions. The National Black McDonald’s Owners Association (NBMOA) expressed concerns to executives about how the gap between the net earnings of black franchisees and the systemwide average had doubled under Easterbrook’s leadership, according to NBMOA documents viewed by Business Insider.
“In general the trajectory of the treatment of African American Owners is moving backwards,” NBMOA CEO Larry Tripplett wrote to McDonald’s east and west zone presidents in March, in a letter obtained by Business Insider. “Through no fault of our own we lag behind the general market in all measures.”
In a statement provided in December when Business Insider published an investigation into discrepancies between McDonald’s black employees and the rest of the system, Tripplett said the NBMOA was encouraged by the progress seen at McDonald’s. The organization declined to comment on specific documents.
McDonald’s was also facing pushback from some black executives prior to Easterbrook’s departure.
One former high-ranking corporate employee who left within the past two years told Business Insider that support for black executives appeared to decline with Easterbrook’s arrival, as he replaced the company’s first black CEO, Don Thompson.
On Tuesday, two black McDonald’s executives filed a lawsuit claiming they faced discrimination, a hostile work environment, and “irrational, vile, and cruel” retaliation at the fast-food giant. According to the lawsuit, which mentions Easterbrook and Kempczinski by name, McDonald’s cut its total number of black corporate officers from 42 to seven from 2014 to 2019, between dismissals and demotions.
The executives originally brought the claims within the complaint to McDonald’s in late September, prior to Easterbrook’s departure, according to the complaint.
McDonald’s says that the decline in the number of black executives is tied to the company’s restructuring, which reduced the overall number of executives at the company. According to McDonald’s, almost half of all its US corporate officers are people of color, representing an increase of nearly 10% since 2013, and all 10 US field vice presidents are people of color. McDonald’s uses the term “officer” to describe employees at a vice-president level or above that.
“While we disagree with characterizations in the complaint, we are currently reviewing it and will respond to the complaint accordingly,” a company representative said.
McDonald’s does damage control
With tension between some black franchisees and executives quietly brewing at McDonald’s prior to Easterbrook’s abrupt and surprising departure, McDonald’s has worked over the last two months to fix its reputation internally.
Kempczinski is working to win over franchisees with the promise of collaboration. The day the news of Easterbrook’s departure broke, Kempczinski reached out to Tripplett, the head of NBMOA and a board member of the independent NOA, according to NBMOA documents. The day after the CEO shakeup, he starred in a video that aired at franchisee summits around the US, presenting optimistic financial expectations.
The Wednesday following his promotion, Kempczinski held a town hall in the company’s Chicago headquarters that was streamed to McDonald’s employees around the world. Kempczinski talked about his personal background — including that he has been married for 25 years and met his wife in college — and answered questions about the future of the company.
“The mission I’m asking you to re-enlist in is to make this company an example for the world and to do the right thing each and every day,” Kempczinski told employees, according to a McDonald’s employee who attended the town hall.
According to another McDonald’s employee, Kempczinski emphasized that he had respect for everyone on his team. Further, Kempczinski said that he would not have anyone on his team who didn’t share his values — a statement this employee saw as a clear reference to Fairhurst’s and Easterbrook’s departures.
In the weeks since, Kempczinski has continued to emphasize corporate values, according to sources with knowledge of the CEO’s actions. In November, he held a forum on ethics and culture with all corporate leaders. In late December, he held in-person town halls on the topic with employees in the United Kingdom and Germany.
Kempczinski has also worked to signal that the company is taking note of franchisees’ and executives’ concerns regarding diversity.
In late November, McDonald’s announced internally that the company would add a third operations officer in field offices in Chicago, Dallas, and Nashville, according to company documents viewed by Business Insider. All three of the new operations officers are people of color, and two are black.
In early December, the company announced it had elected Women’s National Basketball Association commissioner Cathy Engelbert to its board of directors, alluding to McDonald’s commitment to diversity in a press release. In mid-December, McDonald’s announced that Bill Lowery — who has been serving as ombudsman — would be promoted to the newly created role of vice president of operator diversity and ombudsman.
Looking forward to 2020
In mid-November, Kempczinski sent out a company-wide message asking employees for feedback about how McDonald’s could improve.
“Some of that will come in my upcoming visits and touchpoints where I’ll get the chance to hear what’s on your mind — but for those I won’t get to right away and for those with whom I haven’t yet spoken, here’s my invitation,” Kempczinski said. “Between now and year-end, share something that makes you proud to be part of McDonald’s and something I could do as CEO to make you even prouder.”
In the weeks since, McDonald’s has received more than 1,000 responses from employees, according to a source with knowledge.
Meanwhile, Kempczinski is working to keep up his squeaky clean reputation, especially as new stories about Easterbrook come to light. Last Monday, Kempczinski announced in a company-wide email that he had a new Instagram account.
Kempczinski follows 14 accounts on Instagram. Most are McDonald’s partners, including Yoplait USA, Sprite, and Fanta. Kempczinski also follows the official account for Chicago, where McDonald’s headquarters are located, and Duke University, where he attended college.
Kempczinski posted his first photo — a headshot — on Instagram early Monday morning. The caption reads: “Opportunity, Community, and Solutions: three things that make me proud of our McDonald’s System. I firmly believe that McDonald’s can change the world in a way that no other company can, and we’re just getting started. I’m thrilled to be using Instagram to connect with and share the stories of our community.”