McDonald's new CEO is tackling the fast-food giant's reputation problem from the inside
- In early November, Chris Kempczinski replaced Steve Easterbrook as the CEO of McDonald's in a shocking executive shakeup. Easterbrook was terminated after having a relationship with a coworker.
- On Monday, McDonald's announced that the company elected WNBA commissioner Cathy Engelbert to its board of directors, a move that Chairman Enrique Hernandez Jr. said underscores the company's "commitment to diversity at all levels."
- McDonald's insiders say that Kempczinski has spent his first month on the job pushing a renewed emphasis on corporate values, speaking internally on the importance of doing "the right thing each and every day."
- Prior to the CEO shakeup, McDonald's franchisees and corporate underwent a period of tense relations, as the company's franchisee count shrank by roughly 400 while Easterbrook led the company.
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As McDonald's CEO, Steve Easterbrook was tasked with transforming the fast-food chain's villainous "Supersize Me" reputation to a "modern, progressive burger chain."
For four years, from 2015 to this November, Easterbrook was seen as generally successful, rolling out restaurant redesigns and menu updates such as fresh-beef quarter-pounders.
In the end, however, Easterbrook created an entirely new reputation problem at the company. Easterbrook was terminated in early November, following an investigation by the board of directors into the then-CEO's relationship with a coworker. He was replaced with Chris Kempczinski, formerly head of the US business.
McDonald's critics quickly latched onto the incident as an opportunity to point out wider issues linked to McDonald's.
Fight for $15, a labor group fighting for higher minimum wages, swiftly released a statement following Easterbrook's firing that called McDonald's culture "rotten from top to bottom." On November 12, the American Civil Liberties Union and a Michigan McDonald's worker filed a class-action lawsuit over claims that McDonald's has failed to address a "systemic problem" of harassment, connecting the worker's claims of sexual harassment to Easterbrook's behavior.
Some corporate employees and franchisees - who told Business Insider that they were "shocked" by Easterbrook's sudden termination - resented the fact that Easterbrook's actions were hurting the fast-food chain's reputation.
McDonald's National Owners Association (NOA), an independent organization of franchisees, wrote in an internal memo that labor groups such as the Fight for $15 have "already started to use the news to advance their objectives," "for their own selfish reasons."
Over the last month, Business Insider has spoken with more than a dozen current and former McDonald's corporate employees and franchisees, in addition to obtaining internal documents from the company and franchisee groups.
According to these insiders, Kempczinski spent his first month on the job addressing McDonald's new reputation problem. Before engaging with customers and outside critics, Kempczinski is quelling internal concerns following the abrupt CEO shakeup and pushing a renewed emphasis on McDonald's corporate values and diversity.
'Do the right thing each and every day'
On Monday, McDonald's announced that the company had elected Women's National Basketball Association commissioner Cathy Engelbert to its board of directors.
"Cathy is an exceptional leader with a track record of guiding organizations to strength and success," Enrique Hernandez Jr., McDonald's chairman of the board, said in a statement.
"McDonald's will benefit from her fresh perspectives, strong operational experience, and broad financial expertise," Hernandez Jr. continued. "Cathy's election also underscores our commitment to diversity at all levels, from the crew room to the board room."
Engelbert also framed her election as a symbol of McDonald's work related to diversity and the representation of women at the company.
"I am encouraged by McDonald's Global Gender Balance and Diversity Strategy and its commitment to increasing the representation of women throughout the business - from the crew room to the board room," Engelbert said in a statement.
Since Kempczinski's promotion, McDonald's leadership team has worked to emphasize a commitment to ethical business.
The day after the CEO shakeup, Kempczinski starred in a video that aired at franchisee summits around the US, presenting a narrative and financial expectations to help franchisees get on board with the new leadership. Kempczinski reached out to at least one influential franchisee on the evening of November 3: Larry Tripplett, the head of the National Black McDonald's Owners Association (NBMOA) and a board member of the independent NOA, according to NBMOA documents.
The Wednesday following his promotion, Kempczinski held a town hall in the company's Chicago headquarters that was streamed to McDonald's employees around the world. Kempczinski talked about his personal background - including that he has been married for 25 years and met his wife in college - and answered questions about the future of the company.
"The mission I'm asking you to re-enlist in is to make this company an example for the world and to do the right thing each and every day," Kempczinski told employees, according to a McDonald's employee who attended the town hall.
According to another McDonald's employee, Kempczinski emphasized that he had respect for everyone on his team. Further, Kempczinski said that he would not have anyone on his team who didn't share his values - a statement this employee saw as a clear reference to Easterbrook's departure.
While Engelbert's election is McDonald's first public corporate move since the CEO shakeup, McDonald's has also made internal hires that appear to address some franchisees' concerns about corporate diversity.
In late November, McDonald's announced internally that the company would add a third operations officer in field offices in Chicago, Dallas, and Nashville, according to company documents viewed by Business Insider. All three of the new operations officers are people of color, and two are black.
Some insiders have turned on McDonald's in recent years
Kempczinski's efforts to get McDonald's franchisees and employees on board carry extra weight due to internal disagreements, especially between franchisees and corporate.
In 2017, Easterbrook and Kempczinski unveiled the tech-centric "Experience of the Future" growth plan. The growth plan, which included initiatives such as installing kiosks in stores and remodeling restaurants, quickly saw pushback from franchisees who felt the costs outweighed the benefits. Remodels could cost up to $750,000 per location - an expensive investment even with McDonald's covering 55% of costs.
McDonald's franchisee count dropped from slightly less than 2,100 to roughly 1,700 during Steve Easterbrook's time as CEO, according to leaked internal franchisee documents obtained by Business Insider. The number of black franchisees went from 261 to less than 200, according to two franchisees.
Juneth Daniel is one of the hundreds of franchisees who have left McDonald's in recent years, selling her three locations in 2018. Daniel said the cost of remodeling stores convinced her to sell her locations, as she did not believe that certain expenses, such as remodeled tile floors, would help increase her sales or win over customers at her locations in Alabama.
Daniel said that she and other black franchisees felt they have faced particular challenges at McDonald's in recent years. Two black franchisees said that, on average, black-owned McDonald's locations net $68,000 less a month than McDonald's overall franchisee average. According to internal NBMOA documents obtained by Business Insider, this disparity has more than doubled in recent years.
A McDonald's spokesperson said in a statement to Business Insider in late November that it "is among our top priorities that all McDonald's franchises in all communities have the opportunity to prosper, grow and achieve their business ambitions."
They added: "These efforts are rooted in our core belief that diversity and a vibrant, inclusive and respectful McDonald's makes us stronger. McDonald's is proud to create opportunities for entrepreneurship, economic growth and mobility in communities across the country."
Black franchisees were not the only ones pushing back against the growth plan.
In 2018, McDonald's franchisees formed their first independent organization, the National Owners Association, focused on protecting franchisees' interests. Today, roughly 880 of McDonald's 1,700 US franchisees are members, according to NOA documents viewed by Business Insider.
"The NOA has played a critical role in the positive change we have witnessed this last year," the NOA board wrote in a memo to members the day after Easterbrook's termination. "We went from running the play to owning the play. We are back to collaborating with our partners."
Even before taking over as CEO, Kempczinski was working to win back franchisees. Over the last year, the company has made adjustments that were demanded by franchisees, such as extending how long they have to remodel stores and tweaking its delivery program. Franchisees' cash flow figures have been improving, something that a source with knowledge of the situation says will continue to be a major priority with Kempczinski as CEO.
In a statement to Business Insider, Tripplett said the NBMOA was encouraged by the progress seen at McDonald's. The organization declined to comment on specific documents shared in the article, which were not provided to Business Insider by the NBMOA itself.
"Working in collaboration with McDonald's, we both are committed to delivering world-class hospitality, operational excellence, and increasing guest visits," Tripplett said in a statement. "We are working together to make the McDonald's brand shine by fully integrating African Americans at all levels. We both recognize that when we move together; we move further. And we are encouraged by our progress."
- Read more:
- McDonald's franchisees' leaked memos reveal what they actually think about a controversial exec's unexpected promotion to CEO
- McDonald's black franchisees are fighting to earn as much as their white counterparts, as dozens leave the company they once considered family
- The inside story of how McDonald's ex-CEO's push to modernize the chain left black franchisees behind
- Inside the new McDonald's CEO's quest to win over the massive fast-food giant after his predecessor's shocking exit