How Big Mac Reacts to Attack: Recovering From Missteps
In a Chief Executive magazine commentary, Professor Jeffrey Sonnenfeld applauds McDonald’s for being forthright about recent performance problems at the company and the plan to address them.
Originally published in Chief Executive on March 19, 2015.
When Don Thompson stepped down as CEO of McDonald’s, the company did not cloak the transition in innuendo by waxing on about the character of this beloved, loyal, experienced official. The simple truth was evident: McDonald’s was losing ground and the board was not confident in his ability to fix things.
How refreshing that the decision was not concealed by corporate speak, nor was an outside activist’s involvement required.
McDonald’s stock price had languished while that of direct competitor Burger King’s was strong and the stocks of new entrants like Shake Shack, Five Guys, Burgers and Fries, In-N-Out Burger, and Smashburger soared. In fact, 12 hours after Thompson stepped down, Danny Meyer, founder of 14-year-old Shake Shack, fired up his burger chain on the New York Stock Exchange with a $1.7 billion value, doubling its IPO price of the day.
Meanwhile, in a January 23 earnings report, McDonald’s reported its first dip in same-store sales in 12 years and the fifth straight quarter of dropping sales revenues. Plus, profits in the last quarter of 2014 had plummeted by 20% compared with the same quarter a year prior.
The causes of McDonald’s decline are many, including poor food quality (Consumer Reports recently cited its burgers as the worst in the nation), contaminated processing plants, and uneven price positioning and supply-chain problems. Following the culture of notoriously humble CEOs, Thompson did not effectively get out in front of these troubles with an inspiring, new brand image and systemic overhauls.
Having invested in great bench strength, McDonald’s was able to turn to a trusted official ready to take control. It’s a path the company has been down seven times in a dozen years, thanks to similar performance slips by an earlier CEO, the unexpected death of two previous CEOs, and unplanned exits of two leading succession candidates. New CEO Steve Easterbrook may be a superb choice, having led a triumphant turnaround as a brand steward and a top operating executive in Europe. He also engineered the very successful introduction of genuine, organic healthy foods in the core menu, as well as championed modern, attractive store designs and promising digital strategies.
Wouldn’t it be great if other firms that made missteps could be this forthright in responding to faults? In the past two years, we’ve seen disruptive, CEO-succession surprises at GM, Walmart, and Oracle presented as business as usual, as well as politically motivated abrupt transitions at Pfizer and Citigroup that were shrouded by misleading rumors about CEO performance. Apple’s investor-relations people tried for months to reassure people that Steve Jobs was fine, even as its CEO fought for his life.
By contrast, current Ford CEO Mark Fields launched “The Road Ahead” campaign in 2008, where he and executive chairman Bill Ford showed footage of closed Ford plants and devastated towns, admitting that management mistakes were partly to blame. In 2001, Anne Mulcahy rescued the once-troubled Xerox in part by building trust through candor in acknowledging problems to employee groups. As she put it, “The most uncomfortable feeling, actually, would have been for them to hear something that did not ring true regarding the seriousness of the issues.”
Sure, McDonald’s has made missteps. However, they should be saluted for addressing the problems objectively, fairly and directly—with contingency plans.