In the (Alphabet) Soup: How bad behavior at McD’s spells W-A-R-N-I-N-G for the A-dogs in the C-suite
Compliance Corner: Issue 2.3
Lately, much has been written about the folks in the C-suites. You know: the CEOs, the CIOs, the COOs; the ones with the corner offices on the top floors of the tallest buildings in the biggest cities. They run large corporations, employ millions of workers, and keep the world running.
At least, that’s the idea.
Some, like former McDonald’s CEO Steve Easterbrook, were busy doing other things. In a landmark ruling by the Delaware Chancery Court, the court found that Easterbrook “promoted…a party atmosphere and a boys’ club…participating in drinking excursions and engaging in inappropriate behavior with female employees.” His modus operandi trickled down into the culture of McDonald’s, leading to walkouts and a 10-day strike that eventually landed the company on Congress’ radar.
But what made the court’s ruling so unusual was that they not only held Easterbrook accountable, they also sanctioned David Fairhurst, who was the executive vice president and global chief people officer (or, to add to the alphabet soup, the global CPO) serving during Easterbrook’s tenure. Their argument? Since Fairhurst was the CPO, he exhibited a breach of his “…fiduciary duties, including the duty of oversight, by ‘allowing a corporate culture to develop that condoned sexual harassment and misconduct.’” Plaintiffs argued that Fairhurst willingly ignored the red flags that indicated not all was golden under the golden arches.
Even worse, Fairhurst participated in the bad behavior during a period when “he co-led the company’s initiative to put in place significant remedial measures to address corporate problems with sexual harassment and misconduct.”
C-suite officers, including the CEO, engaging in egregious sexual misconduct as they are leading the company’s efforts to combat that very misconduct company-wide evidences a deep cultural problem…
Bart M. Schwartz and Bonnie Jonas, corporatecomplianceinsights.com
The Delaware Chancery Court decision in the McDonald’s case extends the “fiduciary duty of oversight” of corporate directors (those who serve on corporate governing boards) it recognized in 1996 in the well-known Caremark case, to corporate officers. Coming on the heels of the Department of Justice’s renewed focus on holding individuals accountable for corporate crimes, this ruling comes as an additional warning to all those who occupy offices in the C-suite or serve as officers of organizations. When misconduct exists, people will now be looking to see who’s in charge. And if you’re in charge you have fiduciary duties, and you could now be held personally accountable for shirking those duties. Being a fiduciary means you “act[s] on behalf of another person or persons [in their best interest], [put] [your] clients’ interests ahead of [your] own, with a duty to preserve good faith and trust.”
Most would agree that Easterbrook and Fairhurst were not putting the interests of their clients – here, their board, their shareholders and most importantly, their employees – ahead of their own. In fact, they caused harm to many employees who suffered from the rampant misconduct that existed.
The actions of Easterbrook and Fairhurst put leaders who are corporate officers on notice. But what if you’re not in the C-suite? What if you lead a department or team without all of those letters behind your name? Do the same rules apply?
They should. Leaders set the tone. And employees watch their leaders to see if they’re playing by the same rules they ask everyone else to follow. To do anything less is to lead through a veil of hypocrisy, and in turn, to prevent your employees from enjoying a workplace free from sexual harassment and other misconduct.
At VCU, we expect our leaders to do the right thing and we hold them to these ethical standards:
- Setting clear expectations
- Leading by example
- Supporting a civil and professional working environment
- Promoting a culture where employees feel comfortable asking questions and voicing concerns
- Rewarding integrity
- Seeking help in resolving and escalating issues
The most important of these, by far, is “leading by example.” Remember: leaders set the tone, and we’re watching.
So, if you’re in a leadership position, make sure that you and the rest of your leadership team are maintaining ethical standards. Exercise oversight by holding one another accountable for your actions. Make sure that you and the rest of the A-team, whether you’re in the C-suite or not, are minding your Ps and Qs; that’s the best way to avoid being in the (alphabet) soup for bad behavior.
If there’s an ethics or compliance topic you’d like us to write about, please contact mcquillenka@vcu.edu to share it.
Sources:
Kagan, J. (2023, January 17). Fiduciary definition: Examples and why they are important. Investopedia. Retrieved March 17, 2023, from https://www.investopedia.com/terms/f/fiduciary.asp
Nanji, N. (2023, January 9). McDonald’s: Former Boss Easterbrook fined after staff relationship. BBC News. Retrieved March 16, 2023, from https://www.bbc.com/news/business-64211747
Schwartz, B. M., Jonas, B., & . (2023, March 7). Uncharted waters: McDonald’s case ushers in New Era of C-Suite Accountability. Corporate Compliance Insights. Retrieved March 17, 2023, from https://www.corporatecomplianceinsights.com/mcdonalds-executive-accountability/
VCU Integrity and Compliance Office. (n.d.). VCU Code of Conduct. VCU Code of Conduct – Audit and Compliance Services. Retrieved March 17, 2023, from https://acs.vcu.edu/integrity-and-compliance-office/vcu-code-of-conduct/
Www.justice.gov. (n.d.). Retrieved March 17, 2023, from https://www.justice.gov/opa/speech/file/1535301/download