(Reuters) — Shareholders can sue McDonald Corp.’s former global chief executive for the harm they claim he caused the restaurant chain by allegedly allowing a culture of sexual harassment to flourish, according to a landmark court ruling.
The decision is the first time the influential Delaware Court of Chancery has recognized that corporate executives owe the company a legal duty of care, which has traditionally been the sole duty of directors.
The decision by Vice Chancellor Travis Laster allows McDonald’s shareholders to proceed to trial to try to prove that David Fairhurst, global chief executive from 2015 to 2019, breached his supervisory duties by allegedly acting in bad faith and ignoring signs of a toxic culture.
Mr. Fairhurst had argued that he could not be sued because Delaware judges had always held that oversight duties lie with the board, which oversees the officers.
Judge Laster said that much of the day-to-day business of a company is carried out by its officers and that the argument that they have no supervisory duties would produce almost illogical results.
“It seems difficult to argue that, simply by virtue of being an officer, the Chief Compliance Officer cannot owe a duty of care,” Judge Laster wrote.
A shareholder̵7;s attorney declined to comment, and McDonald’s did not immediately respond to a request for comment.
Shareholders are suing Mr Fairhurst on behalf of McDonald’s in what is known as a derivative suit. Any damages awarded are payable to the Company and may include recovery of Mr. Fairhurst’s compensation or compensation for damage to McDonald’s reputation, which will be determined at trial.
Mr. Fairhurst became global chief people officer shortly after Stephen Easterbrook was named CEO.
Both were fired in 2019 in the wake of allegations of personal sexual harassment.
Mr. Easterbrook agreed in December to pay the company $105 million to settle allegations that he lied to conceal sexual relations with employees. As a result, he was rejected from the shareholder suit.