November 5, 2019 / 12:23 PM / 9 days ago

U.S. boards end era of impunity for 'skirt-chasers,' McDonald's firing shows

NEW YORK (Reuters) - Directors of U.S. companies are increasingly showing zero tolerance for executives’ sexual relationships with employees, even consensual ones, an attitude shift evident in McDonald’s Corp’s (MCD.N) dismissal of CEO Steve Easterbrook this week.

FILE PHOTO: McDonald's employees take orders at the Union Square fast-food chain McDonald's in New York, U.S., October 22, 2019. REUTERS/Shannon Stapleton/File Photo

Boards of directors in a different era turned a blind eye to executives’ so-called “skirt-chasing,” corporate governance experts said. But now boards focus on the risks to the company from relationships between supervisors and employees, a view shaped in part by the fallout from sexual misconduct allegations against Harvey Weinstein, former CEO of The Weinstein Company, in 2017 that fueled the #MeToo movement.

“Things people denied or swept under the carpet before, they no longer do,” said Jeffrey Sonnenfeld, a dean of leadership programs at the Yale School of Management. “It’s being reported more, and boards of directors are acting on the reports.”

Easterbrook, who reported to McDonald’s board, had a recent consensual relationship with an employee of the burger chain, violating company policy. Last year, Brian Krzanich resigned as chief executive of technology company Intel Corp (INTC.O) after an investigation found he had a consensual relationship with an employee, breaking company rules.

Companies see relationships between supervisors and their reports as problematic because workers often feel they cannot turn down sexual advances from superiors without negative repercussions, corporate governance experts said.

“It’s an imbalance in the power situation,” said Mark Spund, head of the employment law practice at Davidoff Hutcher & Citron LLP. “For most companies, it’s a violation of their regulations, and most of the time it will lead to a termination of an executive.”

More CEOs are being pushed out of their jobs for ethical lapses ranging from sexual indiscretions to fraud than in the past. Of those forced out of their jobs in 2018, 39% exited for ethical reasons, a greater number than for financial performance or board struggles, according to a study from a division of accounting firm PricewaterhouseCoopers.

In 2017, 26% of CEO exits were for ethical lapses, according to the study, while a decade prior it was 8%.

Earlier examples of corporate bosses leaving under ethical pressure include former Best Buy Co Inc (BBY.N) CEO Brian Dunn who resigned in 2012 following allegations of personal misconduct relating to a relationship with a female staffer, and Mark Hurd, who left HP Inc (HPQ.N) in 2010 amid sexual harassment allegations, though an internal probe later cleared him of the charges.

Corporate boards of directors are also more frequently discussing company-wide policies including rules that prohibit fraternization among employees, said Gillian Emmett Moldowan, an attorney at Shearman & Sterling LLP. In the past, boards were less likely to review broad-based policies implemented by human resources, she said.

Emmett Moldowan added that boards’ compensation committees often look at these issues, but because of the reputation risks some pose to the company, the whole board will take them up.

‘TOXIC CULTURE’

Some companies’ policies will allow relationships between peers in different departments, Sonnenfeld said. But every other worker at the company would be off limits to Easterbrook as McDonald’s CEO and the fast food chain’s top employee, corporate governance experts said.

One unanswered question is whether Easterbrook’s firing and the naming of Chris Kempczinski to replace him will impact low-level workers at the company’s restaurants who have claimed they regularly face groping, lewd comments and sexual propositions.

Fight for $15, a group campaigning for higher minimum wages, said that more than 50 sexual harassment complaints have been made against McDonald’s.

“McDonald’s culture is toxic – all the way from top where CEO Steve Easterbrook had an inappropriate relationship with one of his staff, down to the bottom where managers mock, fire, or retaliate against victims of sexual harassment,” the group said.

“With a new CEO, McDonald’s has an opportunity to change their culture.”

Reporting by Jessica DiNapoli in New York; Editing by Cynthia Osterman

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