This week we are pleased to have a guest post from Edward Heath and Dan Brody. Attorneys Heath and Brody are members of Robinson+Cole’s Government Enforcement and White-Collar Defense Team.
McDonald’s Corporation, a Fortune 500 company and one of the world’s largest fast-food chains, was recently reminded of the value of two basic internal controls: maintaining an anonymous reporting system and conducting an internal investigation based upon information received through that system. Those two measures, which can be adopted by any manufacturing company of any size, may have saved the Golden Arches over $40 million.
Last November, McDonald’s terminated its CEO, Stephen Easterbrook, for having a consensual relationship with an employee, deeming it conduct that demonstrated poor judgment. During the termination process, Easterbrook informed the company’s Board that the relationship had been the only one of its kind. Based on that representation, McDonald’s agreed to pay Easterbrook a severance package valued at about $42 million.
In July 2020, however, McDonald’s received an anonymous report that Easterbrook had engaged in additional improper relationships with employees. Acting on that information, the company engaged an outside law firm to conduct an internal investigation, which purportedly discovered that Easterbrook engaged in improper relationships with at least three other McDonald’s employees in the year before his termination and may have approved a stock grant to one of the employees during the course of their relationship. The internal investigation reportedly determined that Easterbrook lied to the Board, lied to investigators, and tried to cover up the employee relationships. As a result, the company has filed a lawsuit against Easterbrook seeking repayment of the severance package.
It is a sad fact that from time to time even the most trusted employee may exploit an employer. Additionally, rogue employees sometimes disregard established best practices for reasons ranging from laziness to vindictiveness. The conduct may be witnessed by others who decline to speak up for fear of retribution or ostracization. Those individual concerns may be addressed by an anonymous complaint system, which is one of the most inexpensive, easily-implemented, and commonly-used measures by which a company can learn of internal misconduct or noncompliance.
But receiving the complaint is only half the battle. All too often, anonymous complaints are not treated with the necessary level of urgency or diligence. It is a fallacy that internal investigations are warranted only when criminal conduct is suspected or that every internal investigation must be expensive, far-reaching and disruptive. Skilled compliance personnel or legal counsel will right-size the inquiry and pursue the allegations only as thoroughly as the circumstances justify, and with the proper degree of discretion. Involving legal counsel, particularly outside counsel, may also enable the investigation to be protected from subsequent discovery in litigation with private parties or government agencies.
While the McDonald’s case grabs headlines for the $42 million amount in controversy, the more important takeaway is that anonymous reporting systems and follow-on internal investigations are two components of good corporate governance that can deliver great benefit to most any manufacturer, regardless of size.