McDonald's Learns That Trust Is Critical to Sustainable Future
It’s an HR leader’s dream.
In 2015, you move into one of the industry’s premier roles as head of HR for the largest restaurant chain in the world. McDonald’s was struggling but its brand and presence — more than 38,000 restaurants in 2019 — ensured your vision would impact millions of people’s lives.
Not only that, but you have built a great relationship with the new CEO as colleagues at McDonald’s UK operations — gaining the proverbial seat at the table.
Four years later in late 2019, that all changed for former chief people officer David Fairhurst. He left the fast-food giant on the heels of ex-CEO Steve Easterbrook’s firing over a relationship with a subordinate.
It was the tip of the iceberg of the issues that executives, lawyers and HR staff members are continuing to clean up today.
It’s also a reminder that the basic principles of trust and compliance must be at the heart of what every HR leader does, even in the midst of massive transformation.
"When McDonald's investigated, its CEO lied."
Shortly following the dismissal of Easterbrook and the departure of Fairhurst, McDonald’s began investigating and found the CEO had allegedly covered up relationships with multiple women. They are currently suing to claw back tens of millions in severance pay.
In court documents, the fast-food company stated, “When McDonald's investigated, its CEO lied.”
Not only that, but McDonald’s also found Easterbrook had covered up the misdeeds of other company leaders. Among the alleged coworkers he covered for included Fairhurst, whose behavior was characterized by employees and franchisees as “gross and dirty.” According to witnesses, Fairhurst was seen pulling a female staffer onto his lap at a holiday party in late 2018, well before his departure a year later. Instead of disciplinary actions, employees were chastised for drinking too heavily.
While not confirmed initially, McDonald’s stated late last month that Fairhurst was terminated for cause.
Easterbrook and Fairhurst had ushered in a party culture at McDonald’s, where senior managers reportedly did their fair share of late-night socializing with subordinates. The restaurant giant’s new CEO, Chris Kempczinski, and chief people officer Heidi Capozzi are taking aim at those practices but other issues remain.
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When Fairness Ends in HR
According to Business Insider reporting, franchisees and employees lost faith in the HR department under Fairhurst’s leadership. How could he possibly be fair when ethical concerns remained, they asked.
Alleged inappropriate executive behavior didn’t stop with improper work relationships, though.
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Two Black executives sued the company for racial discrimination in January of this year. The suit alleges that between 2014 and 2019, McDonald’s fired 30 Black officers and demoted five Black officers, including the two plaintiffs. They name both Easterbrook and Kempczinski in their complaint.
Earlier this month, 52 Black ex-franchisees also sued McDonald’s for racial discrimination occurring over the past decade, reportedly steering them toward specific neighborhoods with lower sales and higher costs. That suit seeks damages of up to $1 billion.
More recently, McDonald’s is receiving scrutiny for its reportedly lax safety practices in the wake of COVID outbreaks among some employees.
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Cleaning Up While Transforming
Capozzi, McDonald’s head of HR, has been in the midst of an investigation of the department she took over since her first day in April of this year. In recent months, she has reiterated her commitment to running a more transparent, professional HR function in employee meetings. She is still hosting listening sessions with a diverse set of employees across the organization nearly half a year after she began.
McDonald’s is also in the midst of a business transformation, partly driven by COVID-19 and the substantial changes to their menu and operations as well as perennial competition from fast-food rivals, always eager to gain market from the leader.
While McDonald’s sales are reportedly up compared to competitors during the pandemic, overall sales have declined over the past five years. Where the previous regime had succeeded was driving down costs in the midst of this shift, and Wall Street had rewarded them with a more than 100% leap in stock price since Easterbrook took over.
Of course, none of that success mattered when serious compliance issues came to light.
Now Capozzi is splitting time between cleaning up the past while positioning McDonald’s employees and franchisees for an uncertain future. The latter is a full-time job for even the best chief people officer.
The lesson for HR leaders is clear: Compliance is table stakes in the future of work. When HR fails to serve its first constituency of employees with clear-eyed, ethical leadership, they fail everywhere else, too.