MH0037-PDF-ENG - MH0037 1259420477 REV FRANK T ROTHAERMEL...

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SEPTEMBER 1, 2015. Steve Easterbrook walked into his office in McDonald’s corporate headquar- ters. He had finally achieved his dream of becoming chief financial officer (CEO) at a major Fortune 500 company, but somehow he had expected it to feel better than this. Don Thompson, the former CEO who had recently “retired” had not been just his boss, but his friend. They had both started their careers at McDonald’s early in the 1990s and had climbed the corporate ladder together. He had not taken personal joy in seeing either his friend or his company fail. Rather, Easterbrook had fantasized about inheriting the company at its peak and taking it to new heights—not finding the corporate giant on its knees in desperate need of a way to get back up. The company’s troubles had snowballed quickly. In 2011, McDonald’s had outperformed nearly all of its competitors while riding the recovery from a deep economic recession. In fact, McDonald’s was the number-one performing stock in the Dow 30 with a 34.7 percent total shareholder return. 1 But in 2012, McDonald’s dropped to number 30 in the Dow 30 with a –10.75 percent return. The company went from first to last in 12 brief months (see Exhibits 1 and 2 ). In October 2012, McDonald’s sales growth dropped by 1.8 percent, the first monthly decline since 2003. 2 Annual system-wide sales growth in 2012 barely met the minimum 3 percent goal, while operating income growth was just 1 percent (compared to a goal of 6 to 7 percent). 3 Sales continued to decline over the next two years. Net income in 2014 fell almost 15 percent to $4.76 billion, representing the company’s first annual drop in “like- for-like” sales since 2002. 4 By early 2015, McDonald’s shares had dropped below their 2012 price point, while the overall market was up by 50 percent. 5 Things were not much better overseas. The weak global economy was a further drain on domestic sales. 6 When the dollar was relatively weak, it had been an asset for the company to generate almost 70 percent of its revenues from other countries, but the dollar’s current strength made McDonald’s trademark products even more expensive for its international consumers. 7 Asian sales were still recov- ering from a 2014 scandal, where a major Chinese meat supplier had been accused of selling expired meat to McDonald’s restaurants. European sales were also soft due to political problems in Russia. Several McDonald’s outlets had “failed” inspection and been shut down in retaliation for U.S. sanc- tions against the Russian invasion of Ukraine. 8 Thompson had already tried revitalizing the menu (e.g., the McWrap), eliminating poorly selling items, increasing customization, and restructuring U.S. operations to give local franchises greater autonomy. He had named Deborah Wahl the new chief marketing officer in March 2014 and brought Mike Andres in as president of the U.S. division in October that same year.
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