If They Win, Former C-Suite Officer Might Have to Repay Millions to Company
Under a precedent-setting legal ruling in Delaware, McDonald’s shareholders can sue the corporation’s former chief people officer for allegedly damaging the company by permitting sexual harassment to thrive. The decision by the Delaware Court of Chancery upends tradition by holding corporate officers accountable for such oversight on their watch; in past rulings, boards of directors had been held responsible, Reuters reported.
Vice Chancellor Travis Laster ruled that McDonald’s shareholders may proceed to trial in an attempt to prove that David Fairhurst, who from 2015-2019 held the title of McDonald’s global chief people officer, acted in bad faith and for years had ignored signs of a toxic culture, according to Bloomberg. Fairhurst had contended that he had no legal exposure because Delaware judges had always ruled that directors were tasked with such oversight.
Judge Gives Reasons Behind His Ruling
In explaining his decision, Laster stated that officers carry out companies’ everyday operations. His 65-page opinion said that exempting C-suite officers from oversight duties was illogical. “It would seem hard to argue that, simply by virtue of being an officer, the chief compliance officer could not owe a duty of oversight,” Laster wrote.
Shareholders have sued Fairhurst in a “derivative lawsuit,” which means that any damages that eventually might be ordered would go to the company because his actions harmed its reputation and ultimately its bottom line. If they win, Fairhurst might have to give back some of what McDonald’s had paid him. A trial will determine whether this happens.
Fairhurst’s History with McDonald’s
Fairhurst, who had been with McDonald’s in executive-level roles starting in 2005, became the global chief people officer soon after Stephen Easterbrook became chief executive officer on March 1, 2015. In 2019 both were terminated after they were accused of personal sexual misconduct. In August 2020, The Wall Street Journal reported that Fairhurst was fired for cause in November 2019 because he had made female employees feel uncomfortable at many business events.
In December 2022, Easterbrook agreed to give McDonald’s $105 million to settle allegations that he lied about sexual relationships with subordinates, according to The Wall Street Journal, Fortune, The New York Times and several other media reports. That settlement was one of the largest claw-backs of executive compensation in history, The Times said. Easterbrook was dropped from the shareholders’ lawsuit once the settlement deal was nailed down.
After Laster’s ruling on Jan. 25, Reuters contacted both sides. A lawyer representing shareholders and the lawyer declined to comment; McDonald’s Corp. did not immediately respond to a request for comment.