EFiled: Apr 20 2021 04:44PM EDT

Transaction ID 66530507
Case No. 2021-0324-JRS
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

TEAMSTERS LOCAL 237 ADDITIONAL

SECURITY FUND, TEAMSTERS LOCAL
237 SUPPLEMENTAL FUND FOR C.A. No.: 2021-0324-JRS
HOUSING AUTHORITY EMPLOYEES,
and TEAMSTERS LOCAL 237 WELFARE
FUND, derivatively on behalf of
MCDONALD’S CORPORATION,
Plaintiffs,
ENRIQUE HERNANDEZ, JR., LLOYD H.
DEAN, ROBERT A. ECKERT,
MARGARET H. GEORGIADIS,
RICHARD H. LENNY, JOHN J.
MULLIGAN, SHEILA A. PENROSE,
JOHN W. ROGERS, and MILES D.
WHITE,
Defendants,
-and-
MCDONALD’S CORPORATION, a Public Version Filed: 4/20/2021
Delaware corporation,
Nominal Defendant.

VERIFIED STOCKHOLDER DERIVATIVE COMPLAINT FOR

BREACH OF FIDUCIARY DUTY

Plaintiffs Teamsters Local 237 Additional Security Fund, Teamsters Local

237 Supplemental Fund for Housing Authority Employees, and Teamsters Local 237

Welfare Fund (collectively, “Plaintiffs”), by and through their attorneys, bring this

action derivatively on behalf of Nominal Defendant McDonald’s Corporation

(“McDonald’s” or the “Company”), against certain current members of the

McDonald’s board of directors (the “Board”), seeking to remedy breaches of

fiduciary duties in connection with the termination of the Company’s former chief

executive officer. Plaintiffs make these allegations upon personal knowledge as to

the facts of their ownership of McDonald’s stock, and upon information and belief

as to all other matters, based upon an in-depth review of: (a) documents obtained

pursuant to 8 Del. C. § 220 (“Section 220”) (the “220 Documents” or “220

Production”); (b) public filings made by McDonald’s and other related parties and

non-parties with the U.S. Securities and Exchange Commission (“SEC”); (c) press

releases and other publications disseminated by the Company and other related non-

parties; (d) news articles, stockholder communications, and postings on the

McDonald’s website concerning the Company’s public statements; (e) the

proceedings in related civil lawsuits based on the same underlying misconduct; and

(f) other publicly available information concerning McDonald’s and the Individual

Defendants (defined below).

NATURE OF THE CASE

1. This is a stockholder derivative action brought by Plaintiffs on behalf

of McDonald’s, alleging breaches of fiduciary duty by the Company’s Board in

connection with its decision to allow former CEO Stephen Easterbrook

(“Easterbrook”) to leave the Company in 2019 with a massive severance package

with a present value of nearly $56 million.

2
 2. In 2015, the McDonald’s Board promoted Easterbrook from the

Company’s Chief Brand Officer to its Chief Executive Officer. At the time of this

promotion, the Board knew that Easterbook was in an inappropriate and strictly

prohibited sexual relationship with a key McDonald’s public relations contractor,

Denise Paleothodoros, and had been since at least 2014. Indeed, Company policy

explicitly prohibited “any [McDonald’s Corporate] employee … from dating an

independent contractor or vendor if such employee has the direct or indirect

authority to engage the services of such independent contractor or vendor.”

Easterbrook’s relationship with Paleothodoros unambiguously violated McDonald’s

policy.

3. By promoting Easterbrook to the Company’s highest office despite his

relationship with Paleothodoros, the Board chose to consciously disregard his

flagrant and long-standing violation of Company policy and simultaneously sent a

message that violations of rules prohibiting managers from engaging in

inappropriate sexual relationships or encounters with subordinates would be

condoned, or, at the very least, ignored. The Board’s indifferent approach to the

Company’s own rules and to improper conduct in its own C-suite would prove to be

a hallmark of its decision-making over the next several years.

4. In 2016 and 2018, McDonald’s turned a blind eye to violations of

Company policy by another executive: David Fairhurst, none other than the Head of
3
Human Resources. In 2016, a McDonald’s employee reported that Fairhurst had

engaged in improper conduct at a Company event. Notwithstanding his role as the

Company’s officer in charge of human resources, Fairhurst faced no remedial action

other than being warned about excessive drinking at corporate functions. Critically,

Easterbrook knew of this incident. Fairhurst was a longtime confidant of

Easterbrook’s, and had accompanied Easterbrook on his move to Company

headquarters in Illinois from the United Kingdom in 2015. Compounding his own

previous violation of Company policy, Easterbrook did not report this incident to the

Board.

5. In 2018, Fairhurst again engaged in inappropriate conduct while

intoxicated at a Company event, this time rising to a level of egregiousness that

caused more than thirty McDonald’s employees to report his drunken and

debaucherous behavior. Given the widespread outcry over Fairhurst’s conduct,

Easterbrook had no choice but to elevate the incident to the Board. Despite the

number of employees who found Fairhurst’s misbehavior sufficiently offensive to

report it, and despite that the fact that Fairhurst was the head of Human Resources

(i.e. the Chief People Officer), the Board chose to take minimal action. In fact,

following Easterbrook’s suggestion, the Board chose only to cut a portion of

Fairhurst’s 2018 bonus, otherwise allowing him to continue in his position as

normal. Such minimal penance showed Easterbrook, and everyone else in the C-
4
suite, that the Board was largely indifferent to executives’ violations of Company

rules and policies prohibiting sexual harassment.

6. In October 2019, an anonymous McDonald’s employee notified the

Board that Easterbrook was again violating Company policy by engaging in an

inappropriate relationship, this time with a McDonald’s employee. In response to

this report, the Board conducted an exceedingly cursory investigation that took all

of seven days to complete. Easterbrook’s blatant violation of Company policy, and

history of similar violations, gave the Board ample justification to terminate him “for

cause.” Instead, consistent with its prior indifference to misconduct by its

executives, the Board opted to terminate Easterbrook “without cause.”

7. This decision had significant consequences for McDonald’s. In

terminating Easterbrook “without cause,” the Board permitted him to walk away

with a lavish severance package worth tens of millions of dollars. The Company

simply had no business rewarding an executive who had a known history of flouting

Company policy with such a massive exit package. But, by allowing Easterbrook

such a windfall, the Board hoped to position itself to sidestep any inquiry into what

it knew (and when it knew it) about Easterbrook’s improper conduct. Had the Board

terminated Easterbrook “for cause,” Easterbrook would have fought back by

revealing that the Board had known of and condoned his misconduct for years—as

Easterbrook currently argues in McDonald’s litigation against him. For the

5
conflicted Board members who had turned a blind eye to Easterbrook’s and

Fairhurst’s past violations, terminating Easterbrook “without cause” was an attempt

to sweep Easterbrook’s misconduct and the Board’s own role in condoning that

misconduct under the rug.

8. Unfortunately for the Board, Easterbrook’s misconduct proved difficult

to brush away so easily. In April 2020, Plaintiffs served a Section 220 demand on

the Company, seeking to investigate, inter alia, Easterbrook’s termination. While

Plaintiffs’ investigation was ongoing, in July 2020, another McDonald’s employee

submitted an anonymous report concerning Easterbrook’s misconduct. At this time,

the Board learned that Easterbrook had been engaged in not one, but three illicit

relationships in 2019; that Easterbrook maintained compromising pictures of these

women on his Company devices; that Easterbrook used the Company plane to take

flights with Paleothodoros; and that Easterbrook had awarded a special stock grant

worth hundreds of thousands of dollars to one of these women. In short, the massive

severance payoff was not going to work. The Board would have no choice but to

seek to recoup the improperly paid severance in a lawsuit against Easterbrook.

9. Forced to abandon its whitewash efforts amid mounting pressure from

both the media and Plaintiffs’ ongoing Section 220 investigation, the Board sued

Easterbrook in August 2020, seeking to recover the severance package it had chosen

to award him only ten months prior. In its lawsuit, the Board claims that Easterbrook
6
had misled and deceived the Board, and that the Board would never have terminated

Easterbrook without cause had it known all the facts.

10. All the facts that justified Easterbrook’s termination “with cause,”

however, were available to the Board in 2019—had it been properly incented to

discover them. The Board’s seven-day “investigation” into Easterbrook’s

misconduct was so cursory that it excluded even basic steps such as searching

Easterbrook’s electronic devices: the very same devices that contained the

compromising pictures reported in 2020. Although the Board now claims it could

never have found these pictures because Easterbrook deleted them from his cell

phone, the pictures remained on the Company’s own servers—a fact that would have

been readily uncovered in the course of any appropriately diligent investigation.

That the Board now finds itself in the conflicted position of suing to recover tens of

millions of dollars that it chose to give away is not, therefore, the result of

sophisticated deceit on Easterbrook’s part; rather, it is the result of the Board’s own

indifference to executive misconduct and its deliberate attempt to try to cover up its

own role in failing to stop this misconduct.

11. The Board’s indifference to C-suite sexual misconduct is just the tip of

the iceberg. Beginning in at least 2015, McDonald’s has faced wave after wave of

lawsuits, allegations, and investigations into rampant sexual misconduct,

harassment, and discrimination at its restaurants. By 2019, the problem was severe
7
enough—and the Board’s response anemic enough—that the United States Senate

told the Board that it “must do more to combat workplace harassment, abuse and

retaliation suffered by McDonald’s workers across the country.” Yet, for years, the

Board did virtually nothing in response, until finally announcing in April 2021 that

it would require sexual harassment training at its restaurants. This belated

announcement—following several years of lawsuits, investigations, and

Congressional pressure—underscores just how little oversight and responsibility the

Board took for misconduct at its restaurants in years prior.

12. The Board’s lackadaisical attitude to these chronic issues at its

restaurants demonstrates that its generous treatment of Easterbrook was no one-off

anomaly. Instead, it represents the highest-profile example of the Board’s company-

wide, dismissive approach to sexual misconduct—whether in its own C-suite, or at

its restaurants.

13. Ultimately, the Board’s decision to conduct a barebones investigation

and allow Easterbrook to depart with a mega-millions severance package can only

be explained by the Board’s desire to protect itself at the Company’s expense.

Rather than face the consequences for the leniency they long exhibited, the Board

chose to pay off Easterbrook in the hopes that he would go quietly and their own

misconduct would remain undetected. By choosing to allow Easterbrook to retain

his substantial severance package on the basis of a fleeting investigation, the Board
8
breached its fiduciary duties to the Company. This action seeks to remedy the harm

the Board has inflicted—and continues to inflict—on McDonald’s.

JURISDICTION

14. The Court has jurisdiction over this action under 10 Del. C. § 341.

15. As directors and officers of a Delaware corporation, the Individual

Defendants have consented to the jurisdiction of this Court under 10 Del. C. § 3114.

16. This Court has jurisdiction over McDonald’s under 8 Del. C. § 321 and

10 Del. C. § 3111.

THE PARTIES

I. PLAINTIFFS

17. Plaintiffs Teamsters Local 237 Additional Security Fund, Teamsters

Local 237 Supplemental Fund for Housing Authority Employees, and Teamsters

Local 237 Welfare Fund are employee benefit funds that receive contributions from

the City of New York.

18. Plaintiffs are, and at all times relevant hereto have been, owners and

holders of McDonald’s common stock, will continue to hold McDonald’s shares

throughout the pendency of this action, and will fairly and adequately represent the

interests the Company.

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II. NOMINAL DEFENDANT

19. Nominal Defendant McDonald’s is a Delaware corporation with

principal executive offices located at 110 N Carpenter Street, Chicago, Illinois.

McDonald’s describes itself as “one of the world’s leading food service brands.”

McDonald’s operates more than 36,000 restaurants in more than 100 countries. The

Company is ranked 156th on the Fortune 500, which ranks the largest United States

corporations by revenue. The Company’s shares trade on the New York Stock

Exchange under the symbol “MCD.” In 2019, the Company had 205,000 employees

worldwide and reported consolidated revenues of $21.1 billion.

III. INDIVIDUAL DEFENDANTS

20. Enrique Hernandez, Jr. (“Hernandez”) is the Chairman of the

Company’s Board of Directors. Hernandez has served as a member of the

McDonald’s Board since 1996. Hernandez is a member of the Executive,

Governance, and Public Policy and Strategy Committees.

21. Lloyd H. Dean (“Dean”) has served as a member of the McDonald’s

Board since 2015. Dean is a member of the Audit and Finance and Compensation

Committees.

22. Robert A. Eckert (“Eckert”) has served as a member of the McDonald’s

Board since 2003. Eckert is a member of the Executive, Governance, and Public

Policy and Strategy Committees.

10
 23. Margaret H. Georgiadis (“Georgiadis”) has served as a member of the

McDonald’s Board since 2015. Georgiadis is a member of the Audit and Finance

and Sustainability and Corporate Responsibility Committees.

24. Richard H. Lenny (“Lenny”) has served as a member of the

McDonald’s Board since 2005. Lenny is a member of the Compensation and

Sustainability and Corporate Responsibility Committees.

25. John J. Mulligan (“Mulligan”) has served as a member of the

McDonald’s Board since 2015. Mulligan is a member of the Audit and Finance,

Public Policy and Strategy, and Executive Committees.

26. Sheila A. Penrose (“Penrose”) has served as a member of the

McDonald’s Board since 2006. Penrose is a member of the Governance,

Sustainability and Corporate Responsibility, and Executive Committees.

27. John W. Rogers, Jr. (“Rogers”) has served as a member of the

McDonald’s Board since 2003. Rogers is a member of the Compensation and

Governance Committees.

28. Miles D. White (“White”) has served as a member of McDonald’s

Board since 2009. White is a member of the Governance, Public Policy and Strategy,

and Executive Committees.

29. The defendants identified in paragraphs 20-28 are referred to

collectively as the “Individual Defendants.”

11
 SUBSTANTIVE ALLEGATIONS

I. FOR YEARS, THE MCDONALD’S BOARD ALLOWED SEXUAL

MISCONDUCT BY ITS MOST SENIOR EXECUTIVES

A. THE MCDONALD’S BOARD PROMOTED EASTERBROOK TO CEO IN

2015, RUBBERSTAMPING HIS PRIOR VIOLATION OF COMPANY
POLICY BY ENGAGING IN AN INAPPROPRIATE RELATIONSHIP WITH
A COMPANY VENDOR

30. The Board’s tolerance of misconduct with its executives began at the

very start of Easterbrook’s tenure as CEO. In 2015, facing its first sales decline in

twelve years, the Board decided to replace Don Thompson as the Company’s CEO.

The Board chose to promote Steve Easterbrook—who then served as McDonald’s

chief brand officer and senior vice-president, and was based in the United

Kingdom—to the CEO role. Apart from a break between 2012 and 2013,

Easterbrook had worked at McDonald’s in various capacities for virtually his entire

career, since 1993.

31. When the Board made its decision to promote Easterbrook, the Board

knew that he was in an intimate relationship with Denise Paleothodoros, a public

relations executive who led her company’s relationship with McDonald’s. At the

time, McDonald’s policy prohibited employees from engaging in relationships with

independent contractors and vendors, when they have “the direct or indirect

authority to engage the services of such independent contractor or vendor.”1 Given

1
TEAM0000001.
12
Easterbrook’s and Paleothodoros’ respective roles, their relationship unquestionably

violated this policy. In appointing Easterbrook as CEO, in other words, the Board

knew that he had been violating Company policy. Rather than grapple with this clear

policy violation, the Board opted to “sign[]off on the relationship under assurances

that Paleothodoros would be removed from the McDonald’s account.”2 With the

Board’s blessing, Easterbrook continued to violate Company policy through his

intimate relationship with Paleothodoros until they split up in 2018.3

32. Having elevated an executive who had engaged in a relationship that

clearly violated Company policy to the CEO position, the Board allowed a corrosive

culture mirroring what was happening at the restaurant level to proliferate at

McDonald’s headquarters in Chicago. Under the Board’s unwatchful eyes,

Easterbrook set a tone at the top by allowing heavy partying and excessive drinking

at McDonald’s headquarters. Of particular note, McDonald’s operated a corporate

cash bar that hosted booze-fueled employee happy hours on Thursdays. At these

2
Heather Haddon, McDonald’s Started Investigation of CEO’s Relationship With
Employee Three Weeks Ago, THE WALL STREET JOURNAL (Nov. 8, 2019),
https://www.wsj.com/articles/McDonald’s-started-investigation-of-ceos-
relationship-with-employee-three-weeks-ago-11573241506.
3
Kate Taylor, The ex-girlfriend of ousted McDonald's CEO Steve Easterbrook
reveals the 'surreal and panic-inducing' trauma of becoming a tabloid sensation,
BUSINESS INSIDER (Sep. 18, 2020), https://www.businessinsider.com/McDonald’s-
ex-ceo-steve-easterbrooks-ex-dragged-into-scandal-2020-9.

13
happy hours, male employees’ and executives’ behavior routinely made female

employees feel uncomfortable.4 Unsurprisingly, Easterbrook and Fairhurst were

frequent visitors at these happy hours, and Easterbrook developed a reputation for

flirting with female employees.5 With this behavior apparent to anyone that cared

to notice it, it was only a matter of time until Easterbrook’s brazen misconduct would

come to harm the Company.

33. The Board’s tolerant approach of such misconduct extended far beyond

its own C-suite. In October 2016, more than a dozen McDonald’s workers from

restaurants across the nation filed complaints with the EEOC, complaining of

unwanted sexual comments, touching, and kissing, including outrageous acts of

4
Heather Haddon & Suzanne Vranica, McDonald's Looks Beyond Party Culture,
THE WALL STREET JOURNAL (Jan. 5, 2020),
https://www.wsj.com/articles/McDonald’s-looks-beyond-party-culture-
11578243600.
5
Beth Kowitt, McFamily Feud: Scandal, lawsuits, and cultural upheaval at
McDonald’s, FORTUNE (April 5, 2021), https://fortune.com/longform/mcdonalds-
ceos-chris-kempczinski-steve-easterbrook-mcfamily-feud-scandal-lawsuits/.

14
groping and sexual assaults taking place on a daily basis.6 The complaint alleged

that victims who protested against the mistreatment were ignored or, worse,

retaliated against, including having their hours cut, thereby forcing them to quit.

34. The Board did little to address these well-publicized complaints,

prompting McDonald’s employees to take matters into their own hands. Fed up with

their unfair treatment and frustrated by the Company’s persistent ignorance of their

grievances, in September 2018, McDonald’s employees from 10 cities across the

United States went on a one-day strike to protest the culture of sexual harassment

and McDonald’s management’s failure to remedy the ongoing problem.

35. On the heels of the employees’ protest, and in response to other

alarming events, regulators were moved to make formal inquiries into McDonald’s

sexual harassment issues. For example, on December 11, 2018, United States

6
Leslie Patton, McDonald’s Workers File EEOC Sexual Harassment Complaints,
BLOOMBERG (Oct. 5, 2016), https://www.bloomberg.com/news/articles/2016-10-
05/mcdonald-s-workers-file-eeoc-complaints-over-sexual-harassment. By this
point, the EEOC was already deeply familiar with reports of sexual harassment at
McDonald’s restaurants. In 2012, for example, the U.S. Equal Employment
Opportunity Commission (“EEOC”) brought suit against the Company alleging
sexual harassment, which a Company franchisee settled for $1 million. The suit
alleged that since at least 2006, several male employees subjected female co-
workers, including teenage female workers, to sexual harassment, including sexual
comments, kissing, touching of their private areas, and forcing their hands onto the
men’s private parts. Despite the fact that the franchisee was notified of the
harassment and abuse, it failed and refused to take prompt and appropriate remedial
action.

15
Senator Tammy Duckworth sent CEO Easterbrook an inquiry regarding the

“multiple sexual harassment complaints made by employees who work at

McDonald’s Restaurants in Detroit, Chicago, Los Angeles, and six other cities.”7 As

the allegations below demonstrate, neither the Board nor (unsurprisingly, given his

own sordid conduct) Easterbrook took any meaningful action to combat the issue,

and the problem continued to fester.

B. AFTER INSTALLING EASTERBROOK AS CEO, THE BOARD AGAIN

TURNS A BLIND EYE TO EXECUTIVE MISCONDUCT AND SEXUAL
HARASSMENT AT RESTAURANTS NATIONALLY

36. Also in December 2018, the Board again displayed its lax approach to

sexual misconduct by its own executives. At a Board meeting on December 13,

2018, the Board discussed an incident involving David Fairhurst (the Company’s

head of Human Resources).8 Specifically, the Board minutes characterize an

incident where an employee was observed by many others being subjected to sexual

harassment by the Head of Human Resources. The minutes spin the incident as

follows: after Fairhurst drank to excess, “a female employee sat in Mr. Fairhurst’s

7
Letter to Steve Easterbrook, CEO of McDonald’s, from U.S. Sen. Tammy
Duckworth (Dec. 11, 2018), available at
https://www.duckworth.senate.gov/download/senator-duckworths-letter-to-
McDonald’s-ceo.
8
TEAM00001492 at 492.

16
lap” at an “HR business function.” More than thirty employees reported the

incident.9

37. On the basis of this incident, the Company’s Compliance Department

“concluded that David Fairhurst behaved and put himself in a position inconsistent

with the Company’s Standards of Business Conduct.”10

38. The Board quickly learned that this was not an isolated incident.

During the December 13, 2018 Board meeting, Easterbrook informed the Board that

an employee had previously reported Fairhurst for improper conduct in December

2016 and that Fairhurst had at that time “been warned about excessive drinking at

company events,” demonstrating that Fairhurst’s drunken escapades were a routine

occurrence.11 The Board did not ask for more details about these “events” or

question why Easterbook had not informed them of these episodes when they

happened. Nor did the Board question whether Easterbrook was only then disclosing

Fairhurst’s misconduct because the sheer number of employee reports had left him

no choice.

39. Easterbrook’s failure to notify the Board of these past transgressions

should have raised red flags, particularly given Easterbrook’s own checkered history

9
TEAM00001492 at 492.
10
TEAM00001492 at 492.
11
TEAM00001492 at 492.
17
of flouting Company policy concerning romantic entanglements. But rather than

question why Easterbrook had not notified them of Fairhurst’s past transgressions,

the Board inexplicably tasked Easterbrook with leading the Company’s investigation

into and response to Fairhurst’s misconduct. It bears repetition that the default

choice to lead such an investigation—the head of Human Resources—was himself

the person under investigation. By placing a known violator of Company policies

who had himself failed to timely disclose other allegations of impropriety against

Fairhurst in charge, the Board all but guaranteed that no serious action would be

taken to address Fairhurst’s misconduct or any broader misconduct that might have

been permitted to proliferate under Easterbrook’s stewardship. In fact, according to

two former executives, “the environment in HR during Fairhurst’s tenure made

employees feel as if they had little recourse for reporting bad behavior.”12

40. This reality was further underscored by the fact that Easterbrook and

Fairhurst were longtime associates, with Easterbrook having brought Fairhurst with

him to the United States when he was promoted, following their joint service at

McDonald’s in the United Kingdom. Under these circumstances, the Board had no

business allowing Easterbrook to lead a conflicted investigation and response.

12
Beth Kowitt, McFamily Feud: Scandal, lawsuits, and cultural upheaval at
McDonald’s, FORTUNE (April 5, 2021), https://fortune.com/longform/mcdonalds-
ceos-chris-kempczinski-steve-easterbrook-mcfamily-feud-scandal-lawsuits/.
18
 41. Easterbrook, unsurprisingly, proposed that the Company take no

meaningful action against Fairhurst. He proposed that the “discipline” for Fairhurst

would include “forfeiting 50% of his TIP bonus payment for 2018, signing both an

agreement regarding the conduct and a release.”13 Given Easterbrook’s own past

(and, as would later become evident, ongoing) misconduct, it is not surprising that

Easterbrook proposed a mere tap on the wrist for his longtime associate. Equally

unsurprisingly, the Board viewed this “discipline” as sufficient, and made sure to

inform the thirty concerned employees that “management had appropriately

addressed the matter.”14 In other words, the Board brushed aside misconduct by its

own head of Human Resources at a Human Resources event.

42. The Board had taken even less action in response to continued reports

of sexual harassment at the Company’s restaurants, prompting yet another rebuke

from United States Senators. On June 11, 2019, seven senators joined Senator

Duckworth in sending a letter to Easterbrook insisting that the Company “must do

13
TEAM00001492 at 492.
14
TEAM00001492 at 492.

19
more to combat workplace harassment, abuse and retaliation suffered by

McDonald’s workers across the country.”15

43. The Senators observed that “[a]fter carefully reviewing [McDonald’s]

public statements and documents, we remain troubled that the procedures, policies

and activities outlined fall short of providing a safe and respectful work

environment for all workers who wear the McDonald’s uniform.”

44. The Senators observed bluntly that “continued reports of workplace

misconduct are unacceptable.” The Senators stated, “[s]ince independently owned

operations make up the vast majority of the over 14,000 McDonald’s locations

across the U.S., it is imperative that the McDonald’s Corporation require all

franchise locations to adopt the updated policies to guarantee that all workers will

be covered by the new protections and support services.” Even this scrutiny from

the U.S. Senate did little to alter the Board’s approach.

15
Letter to Steve Easterbrook, CEO of McDonald’s, from U.S. Sen. Tammy
Duckworth, U.S. Sen. Richard Blumenthal, U.S. Sen. Sharrod Brown, U.S. Sen.
Bernard Sanders, U.S. Senator Elizabeth Warren, U.S. Sen. Kamala D. Harris, U.S.
Sen. Amy Klobuchar, and U.S. Sen. Chris Van Hollen (Jun. 11, 2019), available at
https://www.duckworth.senate.gov/download/letter-to-McDonald’s-on-workplace-
harassment.
20
 C. IN 2019, THE MCDONALD’S BOARD ALLOWS EASTERBROOK TO
LEAVE THE COMPANY WITH TENS OF MILLIONS OF DOLLARS TO
WHICH HE WAS NOT ENTITLED

45. The Board’s treatment of Fairhurst in 2018 was fully consistent with its

blasé approach to executive misconduct—an approach that eventually came back to

bite it. On November 3, 2019, McDonald’s abruptly announced that it had

terminated Easterbrook because of his involvement in a romantic relationship with

a McDonald’s employee—echoing the conduct the Board had previously condoned

in 2015.16 The Board concluded that Easterbrook “violated company policy and

demonstrated poor judgment involving a recent consensual relationship with an

employee.”17

46. The Board reached this decision after being notified on October 17,

2019 that Easterbrook was engaged in an undisclosed, improper relationship with a

Company employee.18 At a telephonic meeting on October 18, 2019, the Board

directed that the Company engage independent outside counsel to conduct an

investigation into the allegation.19

16
See Ex. 99.1 to McDonald’s Form 8-K filed with the SEC on Nov. 4, 2019.
17
Heather Haddon, McDonald’s Fires CEO Steve Easterbrook Over Relationship
With Employee, THE WALL STREET JOURNAL (Nov. 4, 2019),
https://www.wsj.com/articles/McDonald’s-fires-ceo-steve-easterbrook-over-
relationship-with-employee-11572816660.
18
TEAM00000858 at 859.
19
TEAM00000858 at 859.
21
 47. Based on the documents the Company produced in response to

Teamsters’ Section 220 Demand, it is not clear precisely when such “independent

counsel” was engaged, what specifically this independent counsel was engaged to

do, when this counsel began their investigation, and when this investigation

concluded. The minutes of the November 1, 2019 meeting, however, state that the

Board’s “independent directors” held a meeting on October 26, 2019, that was also

attended by Steven Wall of Morgan, Lewis & Bockius LLP. Wall presented the

results of “his investigation” to the Board’s “independent” directors” and general

counsel at this same meeting.20

48. The reason that the precise details and timeline of the Board’s

investigation are unclear is simple: no minutes exist for the October 18 and October

26, 2019 meetings. Shockingly, even though the Board met on these dates

specifically to discuss the termination of the Company’s CEO, the Company

informed Plaintiffs’ counsel that “calls on those dates were not separately

20
TEAM00000858 at 859.

22
 minuted.”21 Instead, the events at these two meetings are recounted in a roundabout

fashion in the minutes of the November 1, 2019 meeting, when the Board formally

decided to terminate Easterbrook. These minutes state that “Mr. Hernandez asked

Mr. Krulewitch to recap for the directors and for the record the events leading to the

[November 1] meeting.”22 In this shabby, clunky fashion, the minutes then belatedly

recount the events of the Board meetings on October 18 and October 26, 2019.

49. It is difficult to overstate just how irregular it is for no minutes to be

taken for meetings addressing an issue of this magnitude. The Board of Directors of

McDonald’s—the largest restaurant chain in the world, a company worth $167

billion— purposefully chose to make no record of two separate meetings where it

exclusively discussed the termination of the Company’s CEO. As a result, there is

21
Upon review of the Company’s document productions in response to Plaintiffs’
Section 220 demand, Plaintiffs observed that the Company had not produced
minutes (or any other documents) related to the critical Board meetings in October
2019. For that reason, Plaintiffs sent a letter to counsel for the Company on March
18, 2021, asking whether minutes or any other materials for the October 18 and
October 26, 2019 Board meetings exist. In response, counsel for the Company wrote
on March 22 that the Board meetings on October 18 and October 26 “were not
separately minuted.” In a further twist, fewer than two hours later that same evening,
counsel for the Company sent a corrected email, this time stating that “calls on those
dates were minuted along with the November 1, 2019 meeting in the [November 1]
minutes to which you refer and which have been produced.” It is unclear to Plaintiffs
how any Board meetings—let alone Board meetings regarding the termination of the
Company’s CEO—can be minuted with any reliability several days (and, in the case
of the October 18 meeting, nearly two weeks) after the fact.
22
TEAM0000858 at 859.

23
.
no reliable, contemporaneous record of the Board’s decision to engage outside

counsel, of the nature and scope of such outside counsel’s investigation into

Easterbrook’s misconduct, or of the actual results of this investigation. The secrecy

is compounded by the fact that, according to the November 1, 2019 minutes, the

details of Morgan Lewis’ investigation were provided to the Board “under express

legal privilege”—shielding them from any scrutiny by Plaintiffs.23

50. Despite the Board’s attempted secrecy, what is clear is that the Board’s

investigation into Easterbrook lasted only one week. It is also clear is that this

investigation was cursory at best. Perhaps as a result of its fleeting duration, the

Board failed to take the basic step of searching Easterbrook’s email account and text

messages on the Company’s own servers. And, instead of actually investigating

whether Easterbrook was engaged in any other relationships beyond the one

reported, the Board chose a different route: it simply asked Easterbrook. In response,

Easterbrook unsurprisingly told the Board that he was not involved with any other

employees.24

51. The Board’s unquestioning acceptance of this self-serving

representation is particularly puzzling given the Board’s knowledge that Easterbrook

23
TEAM0000858 at 859.
24
See Complaint ¶¶ 47-48, McDonald’s v. Easterbrook, C.A. No. 2020-0658-JRS
(Del. Ch. Aug. 8, 2020).
24
had a demonstrated track record of flouting Company policy and of failing to

disclose similar violations of such policy by other corporate executives. The Board’s

unquestioning acceptance is particularly troubling in light of the enormous motive

Easterbrook had to lie: a severance package worth tens of millions of dollars that

would have been put at risk had he disclosed the truth. Against this backdrop, the

Board’s failure to take basic steps to verify that Easterbrook was actually being

truthful is inexplicable.

52. Because Easterbrook’s improper relationship was almost certain to

become public, the Board had little choice but to act. On the basis of its cursory

investigation and Easterbrook’s own self-proclaimed innocence, the Board resolved

to terminate Easterbrook’s relationship with the Company at the October 26, 2019

Board meeting, subject to the negotiation of a separation agreement.25 But despite

explicitly finding that Easterbrook “violated company policy,” warranting his

immediate termination, the Board chose to fire Easterbrook “without cause,”

continuing its longstanding tolerance of executive misconduct.26

53. The Board would have been well within its rights to fire Easterbrook

for cause. The Company’s Officer Severance Plan permitted termination for cause

25
TEAM00000858 at 859.
26
TEAM00000858 at 859.

25
for a “serious, reckless or material violation of McDonald’s Standards of Business

Conduct or other employment policies.”27 Given Easterbrook’s past violation, his

failure to disclose Fairhurst’s violations, and his own recidivism, the Board had

ample basis to find Easterbrook’s violation “serious, reckless, or material.” Instead,

as it did in 2015, the Board chose to gloss over Easterbrook’s misconduct and

violations and allow him to leave the Company with his severance fully intact.

Doing so advanced the Board’s own interest in preventing its own prior failures to

act from coming to light.

54. Beginning on October 26, 2019, McDonald’s and Easterbrook

negotiated the terms of Easterbrook’s separation agreement and severance package,

with negotiations completed on October 31, 2019.28

55. The next day, at a meeting on November 1, 2019, the Board formalized

its decision to terminate Easterbrook “without ‘cause’ for purposes of the

Company’s benefit plans and arrangement,” and “approve[d] the Separation

Agreement” providing “Separation Benefits in exchange for Stephen Easterbrook’s

resignation, release of claims, and compliance with certain restrictive covenants.”29

27
McDonald’s Corporation Officer Severance Plan, as Amended and Restated
Effective January 1, 2019, at 1.
28
TEAM00000858 at 860.
29
TEAM00000858 at 860-62.
26
The Board did not make any attempt to reduce Easterbrook’s severance package, to

eliminate any category of benefits, or to claw back any previous compensation.

56. The Board purportedly chose to terminate Easterbrook “without cause”

for the sake of “minimizing disruption to the Company and its stakeholders,” and

because the Board was unsure whether it “would prevail in such a dispute” regarding

termination for or without cause.30 But once again, the Board’s indifference to

sexual misconduct and the Board’s desire to continue to conceal its own past failures

to investigate and put a stop to such executive misconduct tainted this decision. By

permitting Easterbook to retain his full severance package, the Board gambled that

its own prior misconduct would escape detection.

57. Easterbrook’s separation benefits were substantial and are currently

worth as much as $56 million. Although FW Cook initially valued Easterbrook’s

severance package at $47,534,341, the package currently has a value of

$56,500,198, as follows: (i) separation payment of $700,000; (ii) health benefits

worth $2,516; (iii) outplacement services worth $25,000; (iv) 2019 prorated bonus

worth $3,063,872; (v) 72,163 performance restricted stock units (currently worth

$16,619,860 based on McDonald’s share price of $230.31 on April 14, 2021); and

(vi) 347,399 unexercised stock options (with various exercise prices that are

30
TEAM00000858 at 859.

27
currently worth $36,088,950 based on McDonald’s share price of $230.31 on April

14, 2021).31

58. At the same meeting on November 1, 2019, the Board was also forced

to confront another example of its longstanding governance failure—with respect to

Fairhurst. According to the minutes of this meeting, McDonald’s general counsel,

David Krulewitch, provided the Board with an “update on the employment matters

related to Mr. David Fairhurst,” and “described his recent conversations” with

Fairhurst.32 Based on this discussion, the Board resolved to fire Fairhurst. The

minutes of the November 1 meeting do not specify whether the Board fired Fairhurst

with or without cause, but McDonald’s would later announce that—unlike with

Easterbrook—it had fired Fairhurst for cause.

59. The Board minutes available to Plaintiffs also do not explain precisely

why the Board chose to fire Fairhurst at this time. The minutes similarly do not

reflect whether Fairhurst had transgressed yet again, or whether the Board was

instead taking belated action for past transgressions. Both explanations, however,

equally illustrate Board’s governance failure. If Fairhurst yet again behaved

31
See McDonald’s Notice of Annual Shareholders’ Meeting and Proxy statement,
Form DEF 14A filed with the SEC on April 9, 2020, pp. 47, 53-58, 62; see also
TEAM00000858 at 867 et seq.
32
TEAM00000858 at 863-64. Once again, Krulewitch recounted these
conversations to the Board “under express legal privilege.” TEAM00000858 at 863.
28
inappropriately with a Company employee, he only was in a position to do so

because of the Board’s previous decisions to take no meaningful action against him.

If, on the other hand, the Board belatedly chose to take action for Fairhurst’s

misconduct from years prior, the Board effectively conceded that it should have fired

Fairhurst far sooner—but did not.

60. Despite the fact that it had decided to fire a second senior executive for

his inappropriate conduct towards women, the Board chose not to disclose that it had

fired Fairhurst. Doing so would have raised serious questions about the propriety of

firing Easterbrook “without cause” and would have hinted that perhaps something

larger than a single “consensual relationship” between Easterbrook and an employee

was at issue. Instead, the Board sat on this information for nearly nine months, and,

as explained below, only disclosed this termination when the Board was forced—

via further reports about the true extent of Easterbrook’s misconduct—to abandon

its efforts to sweep this misconduct under the rug with a lucrative severance package.

D. SEEKING TO INVESTIGATE THE BOARD’S PAYOUT TO EASTERBROOK,

PLAINTIFFS SERVE A 220 DEMAND

61. Troubled by the Board’s egregious and inexplicable decision to allow

Easterbrook to depart McDonald’s with a massive severance package, and the

Board’s failure to address sexual harassment at the Company’s restaurants, Plaintiffs

served a Section 220 demand on the Company on April 24, 2020.

29
 62. Plaintiffs’ Section 220 demand sought to (1) investigate potential

wrongdoing and mismanagement in connection with McDonald’s persistent

problem with sexual harassment; (2) investigate the independence and

disinterestedness of the Board; (3) determine whether the Board properly discharged

its duties as they relate to McDonald’s sexual harassment policies; (4) investigate

the circumstances surrounding the dismissal of Easterbrook; and (5) assess the

propriety of the Board’s decision to enter into the separation agreement with

Easterbrook under the circumstances. To further this investigation, Plaintiffs sought

a variety of Board minutes, materials, and internal governance reports and policies

related to Easterbrook’s termination and the Company’s handling (or lack thereof)

of sexual harassment.

63. The Company rejected Plaintiffs’ Section 220 Demand via letter of

May 11, 2020. In-keeping with an aggressive “trend” that the Court of Chancery

has heavily criticized,33 the Company baselessly alleged that Plaintiffs had failed to

set forth a proper purpose for inspection.

64. Nonetheless, the Company indicated it was open to discussing

Plaintiffs’ demand. Plaintiffs and counsel for the Company then embarked on a

lengthy meet-and-confer process. More than two months later, the Company began

33
Pettry v. Gilead Sciences, Inc., 2020 WL 6870461, at *2 (Del. Ch. Nov. 24, 2020).
30
to produce documents on July 31, 2020. Since that time, Plaintiffs have received

nine document productions totaling 363 documents and 2,712 pages.

65. Plaintiffs subsequently learned that, during the very month it began to

produce documents to Plaintiffs (July 2020), the Company began another

investigation into Easterbrook’s prior misconduct.

E. MOUNTING PRESSURE FORCES THE BOARD TO WITHDRAW FROM

ITS EFFORTS TO WHITEWASH EASTERBROOK’S MISCONDUCT

66. The Board’s July 2020 investigation was once again spurred by an

anonymous report. In July 2020, a McDonald’s employee anonymously reported

that Easterbrook had engaged in a sexual relationship with yet another McDonald’s

employee (i.e., other than the woman at issue in 2019). Faced with even stronger

evidence of Easterbrook’s misconduct and mounting pressure from Plaintiffs

seeking to investigate corporate misconduct, the Board began another investigation.

67. This time, following the previous public outcry and Plaintiffs’ ongoing

inspection, the Board was forced to conduct a more thorough investigation, taking

the basic steps that it should have taken in 2019. Had the Board treated

Easterbrook’s conduct with the gravity it deserved in 2019, the Board would have

had to address that Easterbrook had pornography (“photos and videos”) on Company

servers; and was engaged in not one, but at least three other improper relationships.

The Board also would have learned that Easterbrook improperly approved a stock

31
 grant worth hundreds of thousands of dollars to one of the employees with whom he

was involved in a sexual relationship in violation of Company policy. And the Board

also would have learned that Easterbrook had used the Company’s private aircraft

for personal trips with Paleothodoros, whose improper relationship with Easterbrook

the Board had condoned at the time of his promotion in 2015 and which continued

until 2018.

68. However, because the Board chose to gloss over Easterbrook’s

misconduct in 2019 to prevent further scrutiny of their own misconduct, the Board

only addressed these damning facts in July and August 2020—more than eight

months after it attempted to buy Easterbrook’s silence with a hefty severance

package.

69. On July 21, 2020, following the anonymous tip, the Board approved a

resolution “to pursue claims against [Easterbrook] with respect to the circumstances

of his termination of service and the compensation and benefits provided (or to be

provided) to him pursuant to the Separation Agreement.”34

70. After the ensuing investigation uncovered the full extent of

Easterbrook’s misconduct, and pressured by Plaintiffs’ own investigation of the

Board’s conduct, the Board sued Easterbrook on August 10, 2020, seeking to claw

34
TEAM0001440 at 444-45.

32
.
back his severance package.35 In explaining why Easterbrook was not entitled to

retain his massive severance package, McDonald’s claimed that Easterbrook had

lied to the Company in the course of its original investigation, and had deleted

incriminating evidence from his cell phone.

71. Easterbrook has responded two-fold. Either, first, McDonald’s actually

knew about Easterbrook’s misconduct: one of Easterbrook’s attorneys stated that

“discovery will show that McDonald’s knew that Mr. Easterbrook had prohibited

relationships with McDonald’s employees but believed it to be in McDonald’s best

interests to avoid an investigation that would demonstrate that.”36 Or, second,

McDonald’s constructively knew about Easterbrook’s misconduct given the

incriminating information on its servers: Easterbrook argued that “McDonald’s

should have known and, in fact, did know about his indiscretions before it signed the

Separation Agreement because the evidence of his sexual relationships with

employees always resided on the Company’s servers.”37 The simple fact is that if

the Board had treated Easterbrook’s conduct seriously and conducted any

investigation, it would have discovered the information that lay in its own

35
McDonald’s Corporation v. Stephen J. Easterbrook, C.A. No. 2020-0659-JRS
(Del. Ch.).
36
Transcript of Oral Argument at 11-12, McDonald's Corp. v. Easterbrook, C.A.
No. 2020-0659-JRS (Del. Ch. March 29, 2021).
37
McDonald's Corp. v. Easterbrook, 2021 WL 351967, at *9 (Del. Ch. Feb. 2, 2021).
33
 possession. Of course, had the Board done so, the directors would have been forced

to question what role their ongoing failure to act had played. Instead, the Board

chose a pay-off designed to conceal their own culpability for allowing a culture of

pervasive sexual misconduct at the Company.

72. With that path foreclosed in the wake of further tips and investor

scrutiny, the Board now finds itself in a predicament borne of its own making.

Having condoned Easterbrook’s misconduct in 2015, having failed to investigate

after they learned that Easterbrook had concealed Fairhurst’s indiscretions, and

having opted to terminate him “without cause” rather than fully investigate his

misconduct in 2019, the Board is now left trying to undo the consequences of its

previous bad choices via a costly and embarrassing lawsuit, in which the Board has

been forced to claim that it could not possibly have discovered Easterbrook’s other

misconduct and to declare that it was duped and misled by Easterbrook.

73. Even if the Company’s lawsuit against Easterbrook is successful, it will

undoubtedly involve millions (or tens of millions) in dollars in legal fees, will

embroil the Company in ugly litigation for months or years, and is unlikely to result

in the Company regaining the full value of Easterbrook’s severance package. The

Board’s belated, forced decision to sue Easterbrook, in other words, will never be

able to make the Company whole for the Board’s decision to terminate Easterbrook

without cause.
34
.
 74. The Company has also entered into a separation agreement with at least

one of the women involved in a sexual relationship with Easterbrook, deepening the

harm to McDonald’s as a result of the Board’s acquiescence to his misconduct. At

the Board’s August 21, 2020 meeting, the Board was told that the woman—

identified as “Employee – 2”—had agreed to enter into a separation agreement,

.38

75. Now, according to McDonald’s, the critical factor in terminating

Easterbrook “without cause” was that the Board only knew about one of his

transgressions based on his lies. But, McDonald’s asserts, had it known about all

three, Easterbrook’s termination would have been entirely different and “for

cause.”39 This arbitrary, retrospective, and self-serving red line makes little sense,

and does nothing to explain or justify the Board’s initial decision to terminate

Easterbrook without cause.

F. INVESTORS HEAVILY CRITICIZE THE BOARD FOR ITS SHAMBOLIC

TREATMENT OF EASTERBROOK

76. The Board’s high-profile, botched investigation into and firing of

Easterbrook unsurprisingly attracted heavy criticism from McDonald’s investors.

Most notably, CtW Investment Group (“CtW”), which represents union pension

38
TEAM0001490 at 491.
39
Hearing Tr. at 35:12-17, McDonald’s Corporation v. Stephen J. Easterbrook, C.A.
No. 2020-0659-JRS (Del. Ch. Mar. 29, 2021).
35
.
plans that are shareholders in McDonald’s, immediately criticized the Board’s

decision to terminate Easterbrook “without cause” in November 2019. CtW

expressed “distress” at the Board’s decision and observed that it “def[ied] belief to

claim that the termination of an executive who has admitted to violating an express

and unambiguous provision of McDonald’s Standards of Business Conduct was

undertaken ‘without cause.’” CtW further argued that the Board’s decision to allow

Easterbrook to retain his substantial severance package “failed to disincentivize

violations of its code of conduct.” Overall, CtW argued that it was “hard to imagine

how a board could set a worse ‘tone at the top’ than this, particularly considering the

Company’s painfully slow and still inadequate response to widespread sexual

harassment in McDonald’s restaurants.”40

77. Months later, in April 2020, CtW demanded real change. By letter of

April 23, 2020, CtW asked Company shareholders to join it in voting against the re-

election of Defendants Hernandez and Lenny, in an attempt to “hold the board

accountable for its poor decision-making” related to Easterbrook’s termination.

CtW’s “Vote No” campaign stemmed from its belief that the Board’s “use of

40
Letter from CtW to Enrique Hernandez, Jr., Nov. 26, 2019, at 1, available at
https://static1.squarespace.com/static/5d374de8aae9940001c8ed59/t/5e39b94366e
d3a69c9e6639e/1580841283886/Investor+Letter+to+McDonald%27s+re.+Clawba
ck+%2811.26.19%29.pdf.

36
discretion in [Easterbrook’s] case was unwarranted” and “overly generous” to

Easterbrook, in light of the substantial equity awards the Board allowed

Easterbrook— awards that would vest far beyond the date of his termination.41

78. CtW was left aghast again when the fresh allegations of Easterbrook’s

misconduct surfaced in July 2020. On December 17, 2020, CtW wrote to Defendant

White (in his capacity as Chair of the Governance Committee), again requesting that

Defendants Hernandez and Lenny be replaced, given their key roles in Easterbrook’s

termination. CtW observed that because of the Board’s mishandling of

Easterbrook’s termination, the Company was now “engaged in costly litigation

against its former CEO to recoup millions of dollars of severance payments”—

litigation that could have been avoided “[h]ad the Board terminated Mr. Easterbrook

for cause instead, given his clear violation of McDonald’s Standards of Business

Conduct.” CtW also noted that the Board’s indifferent approach was not limited to

its C-suite executives, but had extended far beyond, leading to “at least 72 lawsuits

filed over the past decade against the Company and its franchisees for fostering an

environment where sexual harassment is pervasive.”42

41
Letter from CtW to McDonald’s shareholders, April 23, 2020, at 1, available at
https://static1.squarespace.com/static/5d374de8aae9940001c8ed59/t/5ea1a16c5636
756e62c6c15d/1587650928941/McDonalds+Vote+No+FINAL2.pdf.
42
Letter from CtW to Miles White, December 17, 2020, at 1, available at
https://static1.squarespace.com/static/5d374de8aae9940001c8ed59/t/5fdbb8d5329

37
 79. CtW specifically criticized the Board’s cursory 2019 investigation into

Easterbrook’s misconduct. CtW noted that the Board had “never disclosed the scope

of its investigation into Mr. Easterbrook’s conduct before he was fired in 2019,” and

had not “identified the directors or the committee responsible for directing and

overseeing this review.” And CtW pointedly observed that the Board’s failure to

examine Easterbrook’s deleted emails constituted a failure of “standard investigative

practice regarding electronic information.”43

II. THE MCDONALD’S BOARD HAS BREACHED ITS FIDUCIARY

DUTIES TO THE COMPANY

A. THE BOARD OWED FIDUCIARY DUTIES TO THE COMPANY

80. By reason of their positions as directors of the Company, each of the

Individual Defendants owed and owe McDonald’s and its stockholders fiduciary

obligations of trust, loyalty, good faith, and due care, and were and are required to

use their utmost ability to control and manage McDonald’s in a fair, just, honest and

equitable manner. The Individual Defendants were and are required to act in

03d4227850f78/1608235221796/MCD+Sign+on+Letter+FINAL+12-17-
2020+%281%29+final.pdf.
43
Letter from CtW to Miles White, December 17, 2020, at 1, available at
https://static1.squarespace.com/static/5d374de8aae9940001c8ed59/t/5fdbb8d5329
03d4227850f78/1608235221796/MCD+Sign+on+Letter+FINAL+12-17-
2020+%281%29+final.pdf.
38
furtherance of the best interests of McDonald’s and not in furtherance of their

personal interest or benefit.

81. To discharge their duties, the McDonald’s Board was required to

exercise reasonable and prudent supervision over the management, policies,

practices, and controls of the financial affairs of the Company. By virtue of such

duties, the directors of McDonald’s were required to, among other things:

a. ensure that the Company operated in a diligent, honest, and

prudent manner in compliance with all laws, rules, and
regulations;
b. ensure that the Company complied with its legal obligations and
requirements and refrained from engaging in deceptive conduct;
c. conduct the affairs of the Company in an efficient, business-like
manner in compliance with all applicable laws, rules, and
regulations so as to make it possible to provide the highest
quality performance of its business, to avoid wasting the
Company’s assets, and to maximize the value of the Company’s
stock; and
d. remain informed as to how McDonald’s conducted its
operations, and, upon receipt of notice or information of
imprudent or unsound conditions or practices, make reasonable
inquiry in connection therewith, and take steps to correct such
conditions or practices and make such disclosures as necessary
to comply with applicable laws.
82. McDonald’s holds its fiduciaries to specific governance principles

beyond the requirements of law. The Company’s Corporate Governance Principles

outline the responsibility of the Board, stating that the Board is “entrusted with the

39
oversight of the Company’s business affairs and assets.”44 Further, the Corporate

Governance Principles state that the Board “defines and enforces standards of

accountability.”45

83. The Individual Defendants, as directors of McDonald’s, were also

bound by the McDonald’s Code of Conduct for the Board of Directors.46 Among

other things, the Code of Conduct requires that the Board “act in the best interests

of, and fulfill their fiduciary obligations to, all McDonald’s shareholders;” “act

honestly, fairly, ethically and with integrity;” and “act in a manner to enhance and

maintain the reputation of McDonald’s.”47

B. THE BOARD BREACHED ITS FIDUCIARY DUTIES BY CHOOSING TO

ALLOW EASTERBROOK TO RECEIVE A SEVERANCE PACKAGE
WORTH $56 MILLION ON THE BACK OF A CURSORY INVESTIGATION

84. The Board has demonstrated a pervasive indifference to misconduct by

its most senior executives. This indifference is best exemplified by its lax approach

44
McDonald’s Corporate Governance Principles, available at
https://corporate.McDonald’s.com/corpmcd/investors/corporate-governance.html.
45
McDonald’s Corporate Governance Principles, available at
https://corporate.McDonald’s.com/corpmcd/investors/corporate-
governance/governance-resources.html.
46
McDonald’s Director Code of Conduct, available at
https://corporate.McDonald’s.com/corpmcd/investors/corporate-
governance/governance-resources.html.
47
McDonald’s Director Code of Conduct, available at
https://corporate.McDonald’s.com/corpmcd/investors/corporate-
governance/governance-resources.html.
40
to Easterbrook’s and Fairhurst’s repeated transgressions. Fairhurst’s blatant and

pervasive sexual harassment was so notorious that his replacement Heidi Capozzi

has already conceded to employees in a meeting that Fairhurst had repeatedly made

female McDonald’s employees feel uncomfortable.

85. In 2019, despite knowing that Easterbrook had already violated the

Company’s policies before, the Board responded to Easterbrook’s latest violation by

lavishing him with a severance package now worth as much as $56 million. The

Board made no effort to reduce this huge payout, and made minimal effort to

discover whether Easterbrook had committed any other misconduct which might—

even in the Board’s casual view—merit termination for cause. Instead, the Board

somehow missed incriminating evidence laying on the Company’s own servers, and

blessed Easterbrook’s departure with millions that it is now belatedly trying to

recover. The Board faced conflicting incentives in deciding to quickly and quietly

resolve the dispute with Easterbrook: conducting a more rigorous investigation and

trying to cut the amount of the severance could have invited greater scrutiny of the

Board’s own past failings. Although awarding Easterbrook the full severance hurt

McDonald’s, it helped the Board attempt to avoid having to account for its own role

in failing to put a stop to this misconduct years earlier.

41
 86. The Board was similarly tolerant of Fairhurst’s misconduct, choosing

to terminate him only after repeated allegations of his behavior at Company events,

and only after the Board had also resolved to terminate Easterbrook.

87. As a result of this breach of fiduciary duty, the Company has been

damaged not only in the amount of the severance package itself—which it is far from

guaranteed to recover, and certainly not in full—but the substantial, ongoing expense

and reputational damage that have followed. Compounded by the Board’s ignorance

of sexual harassment issues across the Company, the Board has earned McDonald’s

the reputation of being a company that is unconcerned with the safety and fair

treatment of its employees.

DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS

88. Plaintiffs bring this action derivatively in the right and for the benefit

of McDonald’s to redress injuries suffered, and to be suffered, by McDonald’s as a

direct result of breaches of fiduciary duty by the Individual Defendants.

89. McDonald’s is named as a nominal defendant solely in a derivative

capacity. This is not a collusive action to confer jurisdiction on this Court that it

would not otherwise have.

90. Plaintiffs will adequately and fairly represent the interests of

McDonald’s in enforcing and prosecuting its rights.

42
 91. Plaintiffs were stockholders of McDonald’s at the time of the

wrongdoing complained of, have continuously been stockholders of the Company

since that time, and are current McDonald’s shareholders.

92. The current Board of McDonald’s consists of the following twelve

individuals: Hernandez, Kempczinski, Dean, Eckert, Engelbert, Georgiadis, Lenny,

Mulligan, Penrose, Rogers, Walsh, and White (together, the “Demand Board”).

I. THE BOARD CANNOT IMPARTIALLY CONSIDER A DEMAND

BECAUSE A MAJORITY OF THE DEMAND BOARD FACES A
SUBSTANTIAL LIKELIHOOD OF LIABILITY FOR REWARDING
AND FAILING TO INVESTIGATE EASTERBROOK’S
MISCONDUCT

93. Demand is futile as to the Demand Board because, as detailed herein, a

majority of the Demand Board faces a substantial likelihood of liability for violating

their fiduciary duties by knowingly and intentionally failing to act in light of

Easterbrook’s known sexual misconduct and awarding him a lavish severance

package in a failed bid to prevent inquiry into their own past failings to act, thereby

abdicating their duty of oversight and subjecting themselves to liability.

94. Each of the Individual Defendants has served on the McDonald’s Board

since at least 2015, when the Board appointed Easterbrook as CEO and condoned

his ongoing, improper relationship with a McDonald’s vendor. Over the next four

years, the Individual Defendants continued to brush aside instances of sexual

misconduct in C-suite, and missed or ignored what should have been obvious signs

43
that Easterbrook was continuing to flout Company policy—including, for example,

by awarding hundreds of thousands of dollars in stock to one of his partners and

taking another on trips on the Company aircraft. In 2019, when forced to finally

take action in response to the anonymous employee report about Easterbrook’s

improper relationship, the Individual Defendants failed to meaningfully investigate

these allegations, failed to investigate whether Easterbrook had committed any other

transgressions, failed to withhold or reduce Easterbrook’s severance package in any

way, and ultimately allowed Easterbrook to stroll away with tens of millions in

Company funds.

95. Each of the Individual Defendants served on the Board when

Easterbrook was appointed as CEO and his relationship with Paleothodoros was

signed off on. Each of the Individual Defendants served on the Board when Fairhurst

was warned about his conduct in 2016. Each of the Individual Defendants served

on the Board when Fairhurst again behaved inappropriately in 2018, and participated

in the decision to simply reduce his bonus but to otherwise allow him to continue to

serve as McDonald’s “Chief People Officer.” And each of the Individual

Defendants served on the Board when the Easterbrook’s illicit relationship came to

light, and the Board chose to conduct an eight-day investigation and proceed with

paying Easterbrook off with a huge severance rather than face scrutiny for their own

failures to timely investigate and stop this improper behavior.

44
 96. As members of the Executive Committee, Individual Defendants

Eckert, Hernandez, Mulligan, Penrose, and White attended the October 18, 2019

telephonic meeting where they were notified about the anonymous report about

Easterbrook’s improper relationship, and where they instructed Krulewitch

(McDonald’s general counsel) to engage outside legal counsel to conduct an

investigation. The remaining Individual Defendants were also notified about the

report against Easterbrook and the imminent investigation.

97. Each of the Individual Defendants attended the October 26, 2019 Board

meeting where the Board was informed about the outcome of Morgan Lewis’

summary investigation, and where the Board informally decided to fire Easterbrook

without cause.

98. Each of the Individual Defendants attended the November 1, 2019

Board meeting where the Board formally resolved to terminate Easterbrook without

cause, allowing him to leave the Company with millions in his pocket. As members

of the Compensation Committee, Defendants Dean, Lenny, and Rogers also

recommended “that the Board approve the proposed separation benefits in the event

that the Board determined that it was advisable to terminate Mr. Easterbrook’s

employment without cause.”48

48
TEAM0000858 at 861; see also TEAM0000648 at 648-654.
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 99. Indeed, as detailed herein, there is no indication the Board would have

ever taken action in response to Easterbrook’s pervasive sexual harassment and

discrimination against McDonald’s employees had the whistleblower not come

forward and if Plaintiffs’ Section 220 demand was not pending.

100. The Board’s self-serving decision to trust Easterbrook rather than

conduct an adequate investigation of his conduct, enabling his pervasive harassment,

exposes all Individual Defendants to liability for breach of fiduciary duties,

rendering the Board incapable of impartially considering a demand.

101. Accordingly, demand is futile, and thus, excused.

COUNTS

COUNT I
Against the Individual Defendants for Breach of Fiduciary Duty
102. Plaintiffs incorporate by reference and reallege each and every

allegation contained above, as though fully set forth herein.

103. The Individual Defendants each owe McDonald’s and its stockholders

the highest fiduciary duties of loyalty, good faith, fair dealing, due care, and

oversight in managing and administering the Company’s affairs.

104. The Individual Defendants knowingly, intentionally, and fraudulently

violated and breached their fiduciary duties of good faith, fair dealing, loyalty, and

due care as a result of the misconduct described above.

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 105. As a direct and proximate result of the Individual Defendants’ breaches

of their fiduciary duties, McDonald’s has sustained significant economic damage

and injury to its corporate image and goodwill. The economic harm inflicted upon

McDonald’s by the Individual Defendants includes, but is not limited to, the

severance package the Board chose to award Easterbrook and the substantial costs

incurred by the Company in its ongoing attempt to recoup Easterbrook’s severance

package.

106. Plaintiffs, on behalf of McDonald’s, have no adequate remedy at law.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on behalf of McDonald’s Corporation, demand

judgment as follows:

A. Against all of the Individual Defendants and in favor of the Company

for the amount of damages sustained by the Company as a result of the Individual

Defendants’ breaches of fiduciary duties;

B. Awarding to Plaintiffs the costs and disbursements of the action,

including reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and

expenses; and

C. Granting such other and further relief as the Court deems just and

proper.

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 Dated: April 15, 2021
Of Counsel
NEWMAN FERRARA LLP
Jeffrey M. Norton
Benjamin D. Baker
1250 Broadway, 27th Fl.
New York, NY 10001
(212) 619-5400
jnorton@nfllp.com
bbaker@nfllp.com
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GRANT & EISENHOFER P.A.
/s/ Michael J. Barry
Michael J. Barry (#4368)
Christine M. Mackintosh (#5085)
Vivek Upadhya (#6241)
123 Justison Street
Wilmington, DE 19801
(302) 622-7000
mbarry@gelaw.com
cmackintosh@gelaw.com
vupadhya@gelaw.com
Barbara J. Hart
GRANT & EISENHOFER P.A.
485 Lexington Avenue
New York, NY 10017
(646) 722-8500
Counsel for Plaintiffs