According to a groundbreaking legal ruling, shareholders can sue McDonald Corp’s former global chief people officer for the damage they claim he caused the restaurant chain by allegedly allowing a culture of sexual harassment to flourish.
The decision is significant because it is the first time that the influential Delaware Court of Chancery has recognized that corporate officers owe the company a legal duty of oversight, which has traditionally been reserved for directors only.
Vice Chancellor Travis Laster’s decision allows McDonald’s shareholders to go to trial to try to prove that David Fairhurst, global chief people officer from 2015 to 2019, violated his oversight duties by allegedly acting in bad faith and ignoring signs of a toxic culture.
Fairhurst had argued that he could not be sued because Delaware judges had always held that oversight responsibilities rest with the board of directors, who oversee the officers.
Laster stated that officers handle much of a company’s day-to-day operations and that claiming they have no oversight obligations would result in almost illogical results.
“It would appear difficult to argue that the chief compliance officer could not owe a duty of oversight simply by virtue of being an officer,” Laster wrote.
A shareholder’s attorney declined to comment, and McDonald’s did not respond immediately to a request for comment.
In what is known as a derivative lawsuit, shareholders are suing Fairhurst on behalf of McDonald’s. Any damages awarded are paid to the company and may include clawing back Fairhurst’s remuneration or compensation for damage to McDonald’s reputation, as determined at trial.
Fairhurst was appointed global chief people officer shortly after Stephen Easterbrook was named CEO.
Both were fired in 2019 after allegations of personal sexual misconduct surfaced.
Easterbrook agreed to pay the company $105 million in December to settle allegations that he lied to conceal sexual relationships with employees. As a result, he was barred from participating in the shareholder lawsuit.