EFiled: Jul 28 2021 03:09PM EDT Transaction ID 66805577 Case No. 2021-0642-JTL IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE PHYLLIS GIANOTTI, Derivatively on Behalf C.A. No. 2021-0642-JTL of the Nominal Defendant, MCDONALD’S CORPORATION, Plaintiff, PUBLIC VERSION v. FILED 7/28/21 LLOYD H. DEAN, ROBERT A. ECKERT, MARGARET H. GEORGIADIS, ENRIQUE HERNANDEZ, JR., JOHN J. MULLIGAN, SHEILA PENROSE, JOHN W. ROGERS, JR., MILES D. WHITE, CATHERINE ENGELBERT, STEPHEN JAMES EASTERBROOK, CHRISTOPHER KEMPCZINSKI, DAVID FAIRHURST, CHARLES STRONG, and MORGAN LEWIS & BOCKIUS LLP, Defendants, v. MCDONALD’S CORPORATION, Nominal Defendant. VERIFIED STOCKHOLDER DERIVATIVE COMPLAINT Plaintiff Phyllis Gianotti (“Plaintiff,” “Gianotti,” or “Stockholder”), by her attorneys, respectfully submits this Verified Stockholder Derivative Complaint for the benefit of Nominal Defendant McDonald’s Corporation (“McDonald’s” or the “Company”) against certain members of its Board of Directors (the “Board”) and officers (together, “Individual Defendants”) to remedy Individual Defendants’ breaches of fiduciary duties (or the aiding and abetting of such breaches) concerning their oversight duties into enterprise risks concerning racial discrimination and sexual harassment and misconduct, as well as for committing corporate waste, and against Morgan Lewis & Bockius LLP (“Morgan Lewis”) for aiding and abetting such breaches of fiduciary duties. Plaintiff makes these allegations upon personal knowledge as to those allegations concerning Plaintiff and, as to all other matters, upon information and belief based on the investigation of undersigned counsel, which includes, without limitation: (a) review and analysis of public filings made by McDonald’s and other related parties and non-parties with the United States Securities and Exchange Commission (“SEC”); (b) review and analysis of press releases and other publications disseminated by McDonald’s, Defendants (defined herein), and other related non-parties; (c) review of news articles, stockholder communications, and postings on McDonald’s website concerning the Company’s public statements; and (d) inspection of corporate books and records produced pursuant to a demand under 8 Del. C. §220 (the “220 Documents”). INTRODUCTION 1. Sexual misconduct and racial discrimination are problem areas McDonald’s has long recognized internally and externally. 2. In 2018, McDonald’s workers around the country held a strike to protest the widespread sexual harassment in McDonald’s restaurants, which made 2 this harassment a severe reputational issue for the Company’s brand. These strikes demanded that McDonald’s adopt and cause its franchisees to adopt more effective sexual harassment prevention policies, procedures, reporting, and training. 3. These strikes did not ultimately result in a successful outcome because a year later, McDonald’s faced a series of high-profile lawsuits brought by the American Civil Liberties Union (“ACLU”), as well as Fight for $15 and the Times Up Legal Fund. These lawsuits continued to allege widespread sexual harassment at McDonald’s corporate-owned and franchised restaurants, as well as the lack of effective prevention, and the widespread retaliation against employees who complained of harassment. In addition, the ACLU helped workers across the country file scores of employment discrimination charges based on sexual harassment with the Equal Employment Opportunity Commission (“EEOC”). The pervasive sexual harassment and misconduct at McDonald’s was even more troubling because many of the victims were teenagers. 4. These lawsuits reveal that McDonald’s restaurants often lacked any systematic or safe reporting mechanisms for sexual harassment and misconduct complaints. Restaurants even lacked human resources (“HR”) departments. Reporting options were often limited to store or regional managers, who would brush aside concerns. This blatant lack of concern would then encourage more employees 3 to engage in harassment because they knew there were few, if any, repercussions for doing so. By contrast, complainants would be targets for retaliation. 5. The fact that the corporation had widespread sexual harassment is not a surprise because the Company suffered from the wrong tone at the top. According to a Wall Street Journal report from January 2020, Easterbrook and Fairhurst, the heads of all human resources at McDonald’s, would often socialize and flirt with employees at happy hours at headquarters. The flirtation was witnessed by other employees and made them uncomfortable. Their leadership likely led to the tolerance of the widespread violation of the Company’s anti-dating policy, which prohibited employees from dating or otherwise having a sexual or romantic relationship with one another. Yet intra-office dating was so common that it resulted in marriages, or “McMarriages.” Numerous employees did not know of the Company’s anti-dating policy even though it was referenced in employee codes of conduct, which suggests the policy was widely ignored. 6. Furthermore, Fairhurst, the global head of all HR, himself repeatedly engaged in inappropriate behavior with female employees, for which he became the subject of multiple complaints, yet he was allowed to retain his position for years. Board minutes reveal that Fairhurst was the subject of at least three complaints within the span of less than two years, yet he was fired only after the last complaint. 4 7. Easterbrook, as the CEO of the Company, also engaged in inappropriate behavior by having numerous relationships with employees despite the fact that the Company barred these relationships. The Board discovered that Easterbrook had at least three sexual relationships with junior employees between 2018-2019. Nevertheless, although Easterbrook was fired owing to his violation of Company policy, he was given a lavish severance package, and only after facing stiff investor resistance to this award, the Board has now sought to revoke that severance based on purportedly new evidence, thus involving the Company in a protracted legal battle that it could have avoided from the outset had it conducted a minimally adequate investigation 8. More recently, the public has also shined a spotlight on widespread racial discrimination perpetrated at the highest levels in McDonald’s. 9. First, in January 2020, two McDonald’s executives filed a discrimination lawsuit where they alleged that Easterbrook and Kempczinski (in his former role as head of U.S. operations and in his current role as CEO) expressly deprioritized racial equity as a concern by focusing entirely on gender in company diversity pushes. 10. Easterbrook and Kempczinski, more than revealing their positions on racial equity through their messaging, were also alleged to have systematically 5 targeted Black franchisees and Black executives through initiatives that had a direct and disproportionate impact on them. 11. As a result, McDonald’s went from having a black CEO between 2013 to 2015, Don Thompson, to having no Black executives in its C-suite. Moreover, Black executives at the level of vice president or above decreased from 42 to only 6, more than an 85% decline. This included numerous demotions, such as the plaintiffs in the discrimination suit. 12. Moreover, the tone at the top set by Easterbrook and Kempczinski led to other executives engaging in open discriminatory conduct – including calling Black female colleagues “angry Black women” and even using racial slurs – without any repercussion. Indeed, Black employees who complained about discrimination or hostile conduct were systematically retaliated against. In June 2021, the Northern District of Illinois denied motions to dismiss numerous claims in the lawsuit filed against Easterbrook, Kempczinski, and the Company, lending further credence to these allegations, and making it even more troubling that, to date, the Board has refused to investigate these allegations. 13. These allegations are further bolstered by press reporting. For example, in September 2020, the Wall Street Journal reported that Easterbrook shrank diversity funding, thus making it more difficult to recruit and retain diverse employees, further exacerbating the lack of diversity at the top. 6 14. McDonald’s problem with racial discrimination has only became a greater reputational concern over the last year. After the discrimination suit was filed, it was followed last fall by lawsuits by two groups of Black franchisees – one of former franchisees and one of current franchisees – alleging that McDonald’s systematically discriminates against them by steering them toward lower-income and higher-crime neighborhoods, thus forcing them to incur higher operating costs while having less of an opportunity to earn a profit. 15. These lawsuits continue today. Herb Washington, a record-breaking track star and professional baseball player, who at one time was McDonald’s largest Black franchisee, in February 2021 filed a lawsuit alleging that McDonald’s systematically discriminated against him by steering him to operate in lower-margin neighborhoods (because of lower income and higher crime), and then forced him to sell his more successful franchises to White operators. 16. And in May 2021, Byron Allen sued McDonald’s for discriminating against him and other Black media companies by refusing to buy advertisements on their networks. Allen alleged that out of McDonald’s $1.6 billion annual advertising budget, less than $5 million – or less than one third of one percent – was spent on Black-owned