On Wednesday, the McDonald’s (MCD) board announced the retirement of its chief executive Don Thompson and the elevation to CEO of chief brand officer Steve Easterbrook, who had led the fast-food giant’s UK and European units.
The news is simply one example in a string of CEO departures since the third quarter of last year that puts on full display the growing power of corporate boards today—and their newfound willingness to exercise that power.
Along with the top management shuffle, directors at McDonald’s also appointed Google’s president of the Americas, Margo Georgiadis, to the board. Her expertise should strengthen the board’s ability to assess the company’s progress in improving its digital strategy. As Sanofi (ADR) chair Serge Weinberg told me in an interview regarding the high-profile ouster at that company late last year, strengthening the board goes hand in hand with replacing a CEO.
What’s different than in the past, though, is that now boards are orchestrating their own succession rather than allowing the new CEO to take care of that.
Boards can more easily take these decisive actions because many companies now have separated the CEO and chair positions. As many directors will attest, it’s hard to take control of succession when the CEO runs the board. Sanofi had a separate chair, and Andy McKenna has been non-executive chair at McDonald’s since 2004, according to the company’s website. Abercrombie (ANF) and Bob Evans (BOBE) were both under fire from activist investors when the boards of those companies stripped the CEO of the chair position; that is, before those chief executives were ultimately ousted.
But why are boards increasingly taking these actions? Late last year, a board member at a mid-sized insurer put it this way. Boards are tired of looking at CEO paychecks, which are enormous compared to what companies are getting in return for all that pay. It’s just not adding up anymore, this director told me.
The huge paychecks have become a double-edged sword for CEOs. “If you want big money,” boards are increasingly saying, “we want to see big things.”
Exorbitant CEO pay not only widens the divide between workers and the C-suite, it is also creating enormous wealth gaps between CEOs and many board members. In that way, many board members today, those who are hired for skill rather than celebrity, are somewhat more in touch with economic realities than the CEOs they oversee.
Whether the McDonald’s board fully understands that its reputation for low pay has damaged its prospects remains to be seen. But from a practical standpoint, it is difficult to address “operational excellence” when the fast-food company’s workforce is struggling to make ends meet. It’s not clear from the recent discussions that this issue has received sufficient attention from the McDonald’s board.
While it’s true that many boards are slow to act against the CEO, the move by McDonald’s serves as a bellwether of a new reality in corporate governance. More and more boards will not simply wait for activist shareholders to come knocking. They are increasingly willing to start remodeling their companies themselves.
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://www.thevaluealliance.com), an independent board education and advisory firm she founded in 1999. She has been a regular contributor to Fortune since April 2010 and is the author of two books on corporate governance and valuation.