The U.S. Securities and Exchange Commission (SEC) highlighted the duty of public companies to protect their shareholders and cure misconduct in an enforcement action concerning McDonald’s Corp. and its former CEO, Stephen J. Easterbrook. In a recent development, McDonald’s, Easterbrook, and the SEC reached a deal by which Easterbrook agreed to a $400,000 fine and a five-year ban on serving as officer or director to settle claims that Easterbrook concealed the events that led to his termination.

Both, Easterbrook and the company agreed to cease-and-desist orders without admitting or denying the SEC findings. The SEC found that McDonald’s failed to disclose to shareholders that it exercised discretion in firing the former CEO without cause. Public issuers must disclose all material elements of a CEO’s compensation, including those in a separation agreement.

In any case, McDonald’s managed to avoid a fine altogether by suing Easterbrook to claw back the $105 million he had received after covering up sexual relationships with subordinates. Easterbrook agreed back in December 2021 to give up his severance payout that he would have forfeited had he been truthful about the reasons for his termination.

The SEC sent a strong message in its settlement that companies will benefit from taking steps to recover unjust compensation from CEOs, or taking other steps to go beyond formal compliance actions. As a result, companies may avoid substantial fines by doing right by their shareholders.

Easterbrook, allegedly, engaged in an inappropriate personal relationship with a subordinate employee, violating company policy. His 2019 separation agreement contained a finding that his termination was without cause. The finding allowed him to retain about $44 million in equity compensation that he otherwise would have forfeited.

McDonald’s had opened an internal investigation before Easterbrook’s termination, but the company later opened a second investigation after an anonymous tip uncovered evidence of inappropriate relationships with additional employees.

The case is In the Matter of Stephen J. Easterbrook and McDonald’s Corporation, case number 3-21269, U.S. Securities and Exchange Commission.