In In re McDonald’s Corporation Stockholder Derivative Litigation, 2023 WL 387292 (Del.Ch. Jan. 26, 2023), the court, inter alia, held that the stockholder plaintiffs successfully alleged a claim of breach of fiduciary duty against David Fairhurst, who served as Executive Vice President and Global Chief People Officer of McDonald’s Corporation until his termination.
This case is illustrative of how alleged sexual harassment by corporate executives may result in claims brought not only by the direct victims of the harassment, but by those to whom fiduciary duties are owed.
From the decision:
The plaintiffs also claim that Fairhurst breached his fiduciary duties by engaging personally in acts of sexual harassment. That theory states a claim on which relief can be granted.
[F]iduciaries violate the duty of loyalty when they engage in harassment themselves.” Hemel & Lund, supra, at 1641. Although “[t]he standard of loyalty is measured by no fixed scale,” a director’s duty of loyalty “requires an undivided and unselfish loyalty to the corporation” and “demands that there shall be no conflict between duty and self-interest.” Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939). “Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests.” Id. When a fiduciary “intentionally acts with a purpose other than that of advancing the best interests of the corporation,” the fiduciary acts in bad faith, which constitutes a breach of the duty of loyalty. Disney, 906 A.2d at 67. “[A] CEO or other corporate officer who uses a position of power to harass, intimidate, or assault employees clearly acts for a purpose other than that of advancing the company’s interests.”
The prior section details the specific allegations contained in the complaint about multiple incidents of sexual harassment by Fairhurst. When Fairhurst engaged in sexual harassment, he was not acting subjectively to further the best interests of the Company.24 He therefore was acting in bad faith. The allegations against Fairhurst accordingly support a claim for breach of the duty of loyalty.
The court concluded with the following pithy observation: “Sexual harassment is bad faith conduct. Bad faith conduct is disloyal conduct. Disloyal conduct is actionable.”