McDonald’s former chief people officer, accused of ignoring a toxic work culture that ultimately led to the ouster of former CEO Steve Easterbrook, had an obligation to report that conduct to the board of directors, a judge in Delaware ruled this week.
The ruling came in a lawsuit filed in the Delaware Court of Chancery against David Fairhurst and McDonald’s by shareholders who argue that Fairhurst participated in the toxic culture that included multiple, consensual affairs between Easterbrook and employees that led to his firing in 2019.
Fairhurst “had an obligation to make a good faith effort to put in place reasonable information systems so that he obtained the information necessary to do his job and report to the CEO and the board, and he could not consciously ignore red flags indicating that the corporation was going to suffer harm,” Vice Chancellor Travis Laster wrote in the ruling.
Fairhurst had requested that the lawsuit be dismissed, arguing that shareholders failed to stake a proper claim. Laster ruled in favor of shareholders.
Fairhurst and McDonald’s have also sought a ruling on whether shareholders can sue Fairhurst over his failure to report Easterbrook’s actions. A ruling on that question has yet to be made.
But the lawsuit and the ruling continue a legal saga that has extended more than three years. Easterbrook was shockingly fired in November 2019, replaced with current CEO Chris Kempczinski. Easterbrook, however, was allowed to walk away with stock options as part of a severance agreement.
McDonald’s later sued Easterbrook to recover that severance after additional affairs were discovered. Easterbrook agreed to repay $105 million as part of a settlement. Easterbrook was recently charged by the SEC with making false statements over the nature of his firing and was fined $400,000.
Fairhurst was ousted as global chief people officer the day after Easterbrook was fired and the company later acknowledged the dismissal was rooted in some of his actions during the four years he was in the position, between 2015 and 2019.
The lawsuit alleges that Fairhurst himself was accused of sexual harassment in 2016 and disciplined over an incident two years later and was warned about his use of alcohol at company events. It also notes that he was terminated over another act of sexual harassment, according to the ruling.
“When a corporate officer himself engages in acts of sexual harassment, it is reasonable to infer that the officer consciously ignored red flags about similar behavior by others,” Laster wrote.
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