McDonald's Risk Management: Easterbrook Scandal Analysis
This paper examines how McDonald's responded to risk and uncertainty surrounding the misconduct of former CEO Steve Easterbrook, who was dismissed after engaging in undisclosed sexual relationships with subordinates. Drawing on concepts from risk management theory, the paper addresses the adverse selection and moral hazard problems the company faced, as well as the classic principal-agent conflict illustrated by Easterbrook's behavior. It also evaluates McDonald's divisional organizational structure and offers recommendations for strengthening internal controls, reforming workplace culture, and establishing an enterprise risk management function to prevent future executive misconduct.
- Introduction: McDonald's and the Easterbrook Misconduct: Overview of Easterbrook scandal and workplace misconduct allegations
- Recommendations for Improving Risk Management: Culture reform, training, and internal review proposals
- Adverse Selection and Information Asymmetry: How information gaps harmed McDonald's operations and employees
- The Moral Hazard Problem: CEO misconduct as a textbook moral hazard scenario
- The Principal-Agent Problem: Board-CEO misalignment and tools to realign incentives
- Organizational Structure and Overall Profitability: Divisional structure weaknesses and enterprise risk management proposal
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What makes this paper effective
- Anchors abstract economic and management concepts — adverse selection, moral hazard, and the principal-agent problem — to a concrete, well-known real-world case, making the theoretical discussion immediately accessible.
- Each section follows a consistent pattern: define the concept, apply it to the McDonald's situation, then offer actionable recommendations, giving the paper a clear and practical orientation.
- Uses a range of academic and news sources to support both the factual case background and the theoretical frameworks, demonstrating appropriate source diversity for a business management paper.
Key academic technique demonstrated
The paper demonstrates applied conceptual analysis — taking formal economic and organizational behavior concepts and using them as analytical lenses on a current corporate case study. This technique requires the writer to accurately define each concept, identify the features of the real situation that match the concept's conditions, and derive practical implications from that match.
Structure breakdown
The paper opens with a factual case summary of the Easterbrook scandal, then moves through four distinct analytical frameworks (risk management, adverse selection, moral hazard, and principal-agent theory), each treated as a self-contained section with a definition, case application, and recommendations. It closes with a structural analysis of McDonald's divisional organization and a proposal for an enterprise risk management unit. The references follow APA formatting conventions.
Introduction: McDonald's and the Easterbrook Misconduct
In recent months, McDonald's has been conducting further investigations into the conduct of Steve Easterbrook, its former CEO, regarding whether he concealed misconduct by other personnel, in addition to allegations of improper behavior within the human resources department. Mr. Easterbrook was dismissed by McDonald's after it was established that he had engaged in a sexual relationship with a subordinate. The company sourced a new chief executive to manage operations, and Easterbrook was given a severance package worth tens of millions of dollars in compensation. However, a subsequent lawsuit filed by McDonald's alleges that Mr. Easterbrook conducted sexual relations with three employees and awarded a substantial number of company shares to one of them. This represents a significant problem for the company, as it has had to contend with major allegations of wrongdoing by its senior executives (Haddon and Vranica, 2020).
Consensual relationships between coworkers or between managers and subordinates are not in themselves illegal. Nonetheless, McDonald's faces a dynamic power problem in the sense that subordinates may have felt pressured to participate in such relationships in order to retain their jobs. Furthermore, numerous women working at McDonald's filed complaints regarding sexual harassment and gender discrimination. Former employees indicated that their complaints about the conduct of coworkers and senior executives, including Easterbrook, were ignored and overlooked. In this regard, McDonald's is not only suing Easterbrook for covering up these relationships but has also, in recent months, conducted an internal review of its HR department (Haddon and Vranica, 2020).
References
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Burt, C. D. B. (2015). New employee safety: Risk factors and management strategies. Springer.
Campbell, A. F. (2019). The firing of McDonald's CEO won't solve the chain's sexual harassment problem. Vox. Retrieved from: https://www.vox.com/identities/2019/11/4/20947689/mcdonalds-ceo-steve-easterbrook-fired
Coleman, T. S. (2012). Quantitative risk management: A practical guide to financial risk (Vol. 669). John Wiley & Sons.
Ghio, A., & Verona, R. (2020). The evolution of corporate disclosure: Insights on traditional and modern corporate communication. Springer Nature.
Haddon, H., & Vranica, S. (August 25, 2020). McDonald's probe into ex-CEO investigates HR department, coverups. Wall Street Journal. Retrieved from: https://www.wsj.com/articles/mcdonalds-probe-into-ex-ceo-investigates-hr-department-cover-ups-11598398673
Louisot, J. P., & Ketcham, C. H. (2014). ERM — Enterprise risk management: Issues and cases. John Wiley & Sons.
McDonald's. (2020). What's the structure of McDonald's and how each department in the organization interacts/works together? Retrieved from:
Walker, R. (2013). Winning with risk management. World Scientific.
Wiener-Bronner, D. (August 26, 2020). McDonald's is investigating its HR department and possible cover-up of employee misconduct by former CEO. CNN. Retrieved from: https://edition.cnn.com/2020/08/26/business/mcdonalds-easterbrook-investigation/index.html
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