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It is the rare Employer these days that does not have a well stated policy that prohibits sexual harassment in the workplace and Employers of almost every size have someone, if not an entire HR Department, responsible for administering that policy. As a recently filed case against McDonald’s Corp.’s Board of Directors demonstrates, however, merely having such a policy and a well-trained staff responsible for enforcing it is not enough when those at the top consider themselves and their peers exempt from such policies.  

McDonald’s Board of Directors has been sued in a derivative action by a Local of the Teamsters Union in its capacity as a shareholder of McDonald’s.  The suit alleges that the Board breached its fiduciary duties to the shareholders by how it handled allegations of sexual misconduct by the company’s former Chief Executive Officer, Stephen Easterbrook, and McDonald’s head of Human Resources, David Fairhurst.

Easterbrook was promoted to Chief Executive Officer despite the Board knowing he was  involved in a relationship with an independent contractor that was prohibited under company policy. Fairhurst was alleged to have acted improperly at a company event but  suffered no consequence other than being warned about excessive drinking. Easterbrook did not inform the Board of Fairhurst’s conduct. Fairhurst became intoxicated at another company event and engaged in sexually inappropriate conduct that numerous McDonald’s employees reported to the company. Easterbrook did report that event to the Board but urged the Board to do no more than reduce Fairhurst’s annual bonus.

The Board subsequently received a complaint that Easterbrook was engaging in yet another impermissible relationship involving a McDonald’s employee. After what the Complaint describes as “an exceedingly cursory investigation” the Board terminated Easterbrook but did so  “without cause.” That decision permitted Easterbrook to leave with his reputation intact and, more to the point of the lawsuit, severance payments amounting to tens of millions of dollars.  The Complaint alleges that the Board doing so constituted a breach of its fiduciary duties to the shareholders.

The McDonald’s case is not unique. Other high-profile cases from companies such as Vice Media, Ford Motor Company, 21st Century Fox and Bank of America make it clear that sexual harassment occurs at the highest levels.  What is the takeaway lesson from these stories? It is that merely having an anti-harassment policy and a Human Resources Department are  not sufficient defenses against sexual harassment occurring and that the failure to enforce such policies at the highest level erodes respect for them at every level that eventually will lead to trouble. 

Employers and Boards of Directors should know that claims of such misconduct by senior executives cannot be ignored or  treated with a quiet taking of the executive to the proverbial “woodshed” but with no real consequences.  When the charge is against a senior officer the chief executive officer must use the imprimatur  of his or her office to assure, not obstruct, a thorough investigation and impose appropriate consequences notwithstanding friendships or the perceived importance of the wrongdoer to the enterprise.  Companies must have an effective method so that charges against the most senior executives of a company may be reported without fear of reprisal and assurance of thorough investigation and appropriate consequences.  When a Board receives such reports, they must be investigated appropriately either by a committee of the Board consisting of only outside directors or by an external entity.

Only by demonstrating “top down” compliance with sexual harassment policies can Employers expect all employees to take such policies seriously; and while this article has focused on sexual harassment policies, the same principles apply to all anti-discrimination policies.