Our goal with this initial McDonald’s socialresponsibility report is to share with you areview of McDonald’s progress and plansrelated to the community, environment, andpeople.

The principles behind our commitment tosocial responsibility were ingrained in ourculture by McDonald’s Corporation founder,Ray Kroc, who spoke nearly half a century agoof the importance of giving back to the localcommunities our restaurants served. Ray Krocdid not articulate this as a corporate strategynor would he have listed social responsibilityon a corporate balance sheet. He simply knewits worth because being a good neighbor andcorporate citizen are intrinsic to McDonald’sapproach to business.

Making the commitment to being a sociallyresponsible leader begins a process thatinvolves more awareness on the issues that willmake a difference – within communities, onbehalf of the environment, and with the peoplewho are McDonald’s. So, we consider thisreport a beginning and a template by which wewill measure our progress in the area of socialresponsibility.

We have organized this report keeping theemerging Global Reporting Initiative (GRI)*Guidelines in mind. We have strived to achieveGRI goals of providing information that is clear,that provides stakeholders with reliable andrelevant information to invite furtherdiscussion, that serves as an internal

management tool for continuous improvement,and that is in a format that is easy tounderstand and facilitates comparison withothers, contributing to credibility. GRI alsoprovides flexibility and encourages incrementalprogress toward meeting these guidelines.This is important to McDonald’s because of ourchallenges in gathering information when morethan 70% of our restaurants are owned andoperated by some 5,500 individualentrepreneurs in 121 countries around theworld.

As you learn more about our socialresponsibility performance, we invite you to letus know what you think. Visit our socialresponsibility web site and send us yourcomments or questions at:www.mcdonalds.com/corporate/social/

INTRODUCTION

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OUR FIRST SOCIAL RESPONSIBILITY REPORT: HOLDING OURSELVES ACCOUNTABLE

* The Global Reporting Initiative (GRI) is an international, multi-stakeholder effort to create a common framework for voluntary reporting of the economic,environmental, and social impact of organization level activity. The GRI mission is to elevate the comparability and credibility of sustainability reporting practicesworldwide. The GRI incorporates the active participation of businesses, accountancy, human rights, environmental, labor, and governmental organizations.

... socially responsible leadership begins aprocess that involves more awareness onthe issues that will make a difference ...

... socially responsible leadership begins aprocess that involves more awareness onthe issues that will make a difference ...

“Corporate social responsibility is achieving commercial success in ways that honor ethical values and respect for COMMUNITIES, the natural ENVIRONMENT, and PEOPLE.”

– Business for Social Responsibility (BSR), a non-governmental organization whose mission is to promote corporate social responsibility

TABLE OF CONTENTS

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McDonald’s Commitment to Social Responsibility ........... 4

Organization ........................................................................................ 7

Performance........................................................................................ 10

Community ............................................................................... 12

Ronald McDonald House Charities

Local Support and Involvement

Community Development

Environment ............................................................................. 18

Environmental Organization

Environmental Impacts

People ........................................................................................... 28

People Promise

Advanced Training and Development

Diversity

Marketplace............................................................................... 36

Supplier Social Compliance

Working with Experts

Animal Welfare

International Scientific Advisory Council

Happy Meal™ Toys and PlayPlace™ Safety

Governance.......................................................................................... 44

Disclaimer

This McDonald's inaugural Social Responsibility Report, issued in April 2002, provides information about pertinent aspects of our business related to the communitieswe serve, the environment, our people, and our relationships with suppliers.

The report presents our progress through the end of 2001 and a snapshot of our company as it was in early 2002. Forward-looking statements included in thereport reflected management's expectations regarding future events and our future performance as of April 2002.

Since that time, McDonald's has continued to launch new initiatives and make changes to our business. These developments, together with the uncertainties inherentin forward-looking statements, mean that programs and results may differ from those envisioned when the report was issued.

Thank you foryour interest inMcDonald’s. Wewelcome yourcuriosity, and wevalue yourperspectives –whether you area customer, aneighbor, asupplier, ashareholder, a

student, a parent, or a McDonald’s employee.

Strong principles are part of our heritage.Our corporation’s founder, Ray Kroc,committed McDonald’s to being a responsiblecorporate citizen in 1955 with a very simpleidea – that every McDonald’s should give backto the community in which it does business.This commitment serves as the foundation forall of our social responsibility efforts.

McDonald’s has the honor of serving morecustomers around the world than anyone else.With this privilege comes a responsibility to bea good neighbor, employer, and steward of theenvironment, and a unique opportunity to be aleader and a catalyst for positive change.Werecognize the challenges and the obstacles, butbelieve strongly in the importance of socialresponsibility.

This report, McDonald’s first SocialResponsibility Report, was published in April,2002. It describes McDonald’s philosophy andvalues, details a wide range of initiatives in theareas of Community, Environment, People, andMarketplace, and outlines a series of goals andour plans to meet them.

Since the publication of this report, we havelaunched several new initiatives that extend oursocial responsibility commitment to areas that

our customers tell us matter to them, includinganimal welfare, the environment, food safety, andchildren’s charities. We know there is alwaysmore work to do, and we are working on ournext Social Responsibility Report, which willtake a closer look at each of these areas, andmore.

One of my top priorities is maximizingMcDonald’s support of healthy, active lifestyles.McDonald’s was built upon offering high qualitymenu choices. Throughout our history, we haveexpanded these choices by listening to ourconsumers. Their input was the impetus for ourdecision to provide detailed nutritionalinformation about our menu items 30 years ago.

We are now implementing a worldwide,comprehensive approach to active lifestyles,fitness, and nutrition. Important first steps havealready been taken. McDonald’s is adding morechoice to our Happy Meals around the world.Countries are offering various selections,including fruit and vegetable selections, milk, andother healthy choices. We have also establishedan external global Advisory Council on HealthyLifestyles comprised of leading health and fitnessexperts to help McDonald’s develop superiorprograms that support our customers’ healthy,active lives. You will see an expansion of theseefforts in the future.

Acting in the best interests of our customers,the communities we serve, and the environmentis an evolving process. Your feedback helps usunderstand how we’re doing. Please let usknow what you think.

Jim CantalupoChairman and CEOMay, 2003

McDONALD’S COMMITMENT TOSOCIAL RESPONSIBILITY

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A MESSAGE FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER

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On behalf of the Corporate Responsibility Committee of McDonald’s Board ofDirectors, I am proud of the company’s initial effort to report extensively on our socialresponsibility efforts.

This report is a good beginning, establishing a benchmark on where McDonald’s istoday, what the goals are, and the plans the company has established to reach thosegoals. I hope you will find the company’s forthright assessment of where we are andwhere we want to be in all aspects of our commitment to the community,environment, and people as reassuring as I did. It is good to know that these plans forthe future are rooted in a heritage of giving back to communities, innovativeenvironmental programs, and core values and ethics that will provide a strongfoundation and momentum for the company’s social responsibility plans.

In an effort to make the world a better place, McDonald’s has set forth on a journeythat puts it on a path of continuous improvement. The road to being a sociallyresponsible corporation is not only long, but it’s one that requires constant attention asnew and unanticipated issues arise. This report provides a valuable roadmap that willenable McDonald’s to measure its progress and enhance its standards of performance.

It’s the direction that’s important, and that’s what you will find in this report. On behalfof my fellow members, I encourage your continued interest in our progress.

Walter E. Massey, Ph.D.

Chairman of the Corporate Responsibility CommitteeMcDonald’s Corporation Board of Directors

A GOOD START ON REPORTING

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OUR CORE VALUES

• We give back to the communities in which we do business. We are a local business. We must be leaders in social responsibility.Our customers view us by the positive influence we have on the neighborhood, its people, and the environment.

• We are dedicated to providing customers unparalleled levels of Quality, Service, Cleanliness, and Value.

• We are committed to our people.• We believe in the “three-legged stool”, the partnership of our

owner/operators, employees, and suppliers working together.• We are committed to franchising.• We believe in a decentralized management approach.• We lead through innovation.• We approach all aspects of our business with honesty and

integrity. We hold ourselves to the highest possible ethical standards.

• We grow the business for our shareholders.

WHERE SOCIAL RESPONSIBILITY FITS INTO BUSINESS STRATEGIES

This snapshot of McDonald’s vision andbusiness strategies illustrates where socialresponsibility fits into our organization.Our socially responsible expectations are anessential part of our core values. These valuesshape what our owner/operators, employees,and suppliers around the world do to serve theinterests of the markets in which we operate.Good citizenship develops through the localinterpretation of global principles.

Our people also are vital to successfullyincorporating good citizenship into ourcorporate strategy and worldwide operations.McDonald’s is aware that a diverse team ofwell-trained individuals working together is keyto our continued success.

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PROFILE: “MY McDONALD’S”The McDonald’s on your street corner is likelyto be owned and operated by a local entre-preneur. This profile of a typical McDonald’sowner/operator illustrates his or her role inthe restaurant and in the community.

• I own and operate a McDonald’s restaurant.

• I live in the community in which I work.

• I know the names of the senior citizens who meet regularly at my restaurant for morning coffee or tea.

• I participate in local community groups andsupport local teams, schools, and charities.

• I employ 50 to 100 people, most of whomlive in the neighborhood.

• My employees and I reflect the diversity ofthe community.

• My restaurant typically serves about 1,500customers a day.

• We recycle our corrugated shipping boxes and used shortening.

• I am a hands-on entrepreneur, hiring staff,working shoulder-to-shoulder with crewmembers, and greeting customers.

• I depend on local suppliers.

• I offer educational resources for my staff atmy restaurant.

• My McDonald’s offers customers convenienceand quality food at affordable prices.

• I am committed to maintaining our food quality by making sure my staff is well-trained on proper food storage, handling,and cooking procedures.

• My restaurant supports Ronald McDonald House Charities.

• I am doing my part to make the communitya better place.

McDONALD’S SYSTEMOur success is often attributed to the uniquepartnering approach within McDonald’s. Thismeans that owner/operators, employees, andsuppliers each support the McDonald’s system– they are, in essence, interdependent.

• Our owner/operators know their neighbors.They understand their community’s distinctculture. McDonald’s commitment tofranchising helps ensure that we are aneighborhood business. The vast majority ofMcDonald’s restaurants are owned andoperated by 5,500 independent, localentrepreneurs.

• It is our philosophy to secure qualitysuppliers for our restaurants. McDonald’ssuppliers include many household names inthe countries in which we operate. Oursuppliers also include many other companiesthat have grown their business as we havegrown ours. As a whole, we estimate that80 percent of a restaurant’s supplies comefrom the local country, with the balanceusually coming from the bordering countriesor within the continent.

• McDonald’s company employees play acentral role in providing leadership, brandmanagement, direction, and a culturalfoundation upon which our owner/operators,suppliers, and other stakeholders rely.

ORGANIZATION

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McDONALD’S AROUND THEWORLDMcDonald’s is the world’s leading foodservicecompany with more than 29,000 restaurants,serving nearly 46 million people each day in121 countries. More than 70% of McDonald’srestaurants around the world are owned andoperated by independent, local businessentrepreneurs.

MENU AND ADAPTATIONSince our beginning, McDonald’s core menuitems have remained virtually unchanged. Theywere – and are – a model of simplicity. As wegrow and operate around the world, wedevelop additional products to meet the localcountry’s cultural preferences, from teriyakiburgers in Japan to spicy chicken sandwiches inChina.

INFORMATION McDonald’s was the first in our industry toprovide nutritional information for customers.For many years, we have voluntarily providednutrition information to help our customersmake informed choices when eating at ourrestaurants. Most recently, in the UnitedStates, we raised the bar in our industry byvoluntarily adding information about the sourceof natural flavorings in our core menu items.For examples of nutritional information, visit:

Sweden: www.mcdonalds.se/maten

France: www.mcdonalds.fr

USA: www.mcdonalds.com/countries/usa/food/nutrition_facts

The Teriyaki McBurgersandwich in Japan ismade with a toastedMcDonald’s sesame seedbun, lettuce, and a specialsweet mayonnaise. Theseasoned pork patty iscooked and then dippedin spicy teriyaki sauce.

The Spicy Chicken FiletBurger sandwich in China ismade with a toastedMcDonald’s bun, lettuce,and special McChickenSauce.

In addition to our core menu items,which include our world-famous BigMac™ and fries, McDonald’s offers many choices for ourcustomers around the world, including salads, soups, carrots, fruitand yogurt parfaits, juices, milk, bottled mineral water, eggs,potatoes, grilled chicken, and other selections.

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FINANCIAL HIGHLIGHTS

For additional financial and investor informationabout McDonald’s Corporation, please visit theinvestor section (www.mcdonalds.com/corporate/investor/index.html) of this website.

• McDonald’s operates in the foodserviceindustry and primarily operates quick-servicerestaurants under the McDonald’s brand. Tocapture additional meal occasions,McDonald’s also operates other restaurantconcepts under its Partner Brands: BostonMarket, Chipotle Mexican Grill, and DonatosPizzeria. The Company also has aninvestment in Pret A Manger.

• We plan to add 1,300 to 1,400 McDonald’srestaurants and open 100 to 150 newPartner Brand restaurants in 2002.

• When McDonald’s went public in 1965, 100shares cost $2,250. On December 31, 2001,those shares, adjusted for our 12 stocksplits, were worth about $2 million.

• McDonald’s is included in many indicesincluding the Dow Jones Industrial Index, theS&P 500 and the S&P Globally Traded StockIndex.

• As a publicly traded corporation, McDonald’scommon stock is owned by more than onemillion investors, including McDonald’semployees, owner/operators, suppliers andseveral hundred thousand individualinvestors as well as large institutionalinvestors such as mutual funds.

Stock Exchanges: New York, Chicago, EuronextParis, German and Swiss.

Trading Symbol: MCD

5-year performance

1997 1997 (2)

$33.6 $2.8 $18. 2

SYSTEMWIDE SALESIN BILLIONS

OPERATING INCOME (1)

IN BILLIONS

TOTAL ASSETSIN BILLIONS

$40.6 $3.1 $22.5

1997 2001

U.S . Europe Asia/Pacific, Middle East and Africa Latin America Canada Partner Brands Corporate(1) Graph excludes corporate segment and Partner Brands

(2) Excludes special charges of $378 million

2001 2001

PERFORMANCE

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This report summarizes our performance inthese broad categories

• Community – McDonald’s supportsactivities that benefit neighborhoods,families, and children.

• Environment – McDonald’s has aresponsibility to protect our environmentfor future generations. We share a beliefthat the right to exist in an environment ofclean air, clean earth, and clean water isfundamental and unwavering.

• People – Working toward a vision tobecome the best employer in eachcommunity around the world, McDonald’s iscommitted to supporting and valuing itsemployees, their growth, and contributions.

• Marketplace – Beyond these primaryperformance categories, we also describeour efforts to help make a difference insupplier workforce conditions/employmentpractices, animal welfare, and children’ssafety.

GOALS AND PRIORITIESWithin each section, we have included ourgoals and next steps.

McDonald’s is working with the non-governmental organization Business for SocialResponsibility (BSR) to assist us in creating aninternal process to examine our strengths,gaps, and opportunities for improvement. Wecommissioned an internal social responsibilityassessment by BSR that was completed in May2001, and we plan to continue this biennially toassess our progress internally. This assessmentprocess also will help us continually increaseour knowledge of emerging best practices, sothat we can further enhance McDonald’s socialresponsibility performance.

We operate our business as part of the widercommunity, and we strive to meet and exceedthe expectations of our internal and externalstakeholders. That is why we consult, listen andact to build on our record of social respons-ibility as an integral part of our approach tobusiness.

Social responsibility is a way of thinking, caring,and responding to a multitude of complexcommunity, environmental, and people issuesand circumstances. With this in mind, our goalis to utilize and leverage every opportunity toadvance the level of awareness and depth ofunderstanding of various social responsibilityissues, policies, and practices within McDonald’ssystem. Indeed, BSR noted in its assessmentreport to McDonald’s that “the single majorissue that emerged from the assessmentprocess relates to the company’s ability todrive social responsibility down through andacross its operating system to suppliers andinto restaurants.”

This report’s content is weighted towardcompany initiatives and programs, since theseare what we control and influence directly,reflecting performance and activities within thelast two years. We will strive to report moreowner/operator and supplier activities in thefuture.

While we have not conducted an external auditof this report, we are open to doing so in thefuture as this field emerges with generallyacceptable practices. Independent verificationis important because it can enhance the quality,credibility, and usefulness of the information,and provide support to the managementsystems that are in place to achieve ongoingsocial responsibility progress. In the meantime,we will continue to consult with key stake-holders, and listen and learn from them.

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REPORTING CHALLENGES• We are a foodservice company: Most social

responsibility reports thus far have comefrom companies involved with manufacturingor more intensive industries in which thereare more quantifiable environmental data,like water and air emissions. We do nothave comparable data.

• We are 70% franchised around the world:Currently, we do not have systems tocollect and aggregate what some 5,500independent owner/operators do for theircommunity, people and environment at thelocal level.

• We partner with our suppliers: Because weare in the foodservice business, many of thethings we do have an indirect impactthrough our suppliers. These can involvesuch complex matters as geneticallymodified organisms, employment issues,refrigerants that contribute to globalwarming, land impacts from cattle grazing,and animal antibiotic use. We also use thesesupplier relationships to lead industryreforms, from food safety to social com-pliance. McDonald’s increased efforts tomanage social issues with suppliers aredetailed in the environmental and suppliercompliance sections of this report.

• Developing metrics: Most of our currentgoals and measurements are related toprocesses, systems development, andstandard setting. Since metrics arenecessary for accountability and measure-ment purposes, we will work to furtherdevelop these in the future.

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COMMUNITY• Introduction: Importance of giving back to

our communities

• Ronald McDonald House Charities(RMHC): Improving the health and wellbeing of children

• Local Support and Involvement:Supporting communities around the world

• Community Development: Fosteringeconomic vitality and growth opportunities

• Goals and Priorities: Next steps

INTRODUCTION

IMPORTANCE OF GIVING BACKTO OUR COMMUNITIESMcDonald’s serves as a partner to a variety oforganizations in local communities. We have aspecial focus on children’s programs. This isbest illustrated through our support of RonaldMcDonald House Charities (RMHC). RMHC’smission is to create, find, and support programsthat directly improve the health and well beingof children.

Ronald McDonald Houses, for example, allowfamilies to stay in a home-like atmospherewhile their child undergoes medical attention ata nearby hospital. Our corporate philanthropicprograms support RMHC and other children’scauses.

The strength of McDonald’s communityinvolvement is with our owner/operators, whoare community leaders providing support totheir neighborhoods. McDonald’s owner/operators help local educational efforts, offerscholarships, serve on local boards, and supportcommunity causes.

Sometimes there is resistance to McDonald’swhen we enter a new market or expand in anexisting market. In some cases, communitystakeholders have shared concerns related toplanning permission, architectural design,

increased traffic or congestion, or waste andlitter. When the community has questions, wedo our best to address them. Our businessdepends on community support. McDonald’sbrings a portfolio of community investmentbenefits (including jobs, training, opportunity,personal involvement, and leadership) into acommunity.

Beyond local community issues, someindividuals have broader concerns aboutMcDonald’s, such as whether we export andpromote lifestyles and consumption patternsnot consistent with local cultures. We realizeMcDonald’s is sometimes used by critics ofglobalization as a symbol for addressing theirissues, which go beyond McDonald’s scope. Inessence, we are a network of local businessesowned by local entrepreneurs, who hire localpeople, and purchase from regional and nationalsuppliers and service companies.

We are committed to being socially responsibleleaders in the communities in which we dobusiness. We care about our local commun-ities, our people and customers, and ourbroader societal role.

RONALD McDONALD HOUSECHARITIES (RMHC)

IMPROVING THE HEALTH ANDWELL BEING OF CHILDREN McDonald’s and our owner/operators supportprograms through Ronald McDonald HouseCharities (RMHC). RMHC, a public charityfounded in 1984 in memory of Ray Kroc, inpartnership with its local Chapters, has donatedmore than $300 million to programs thatimprove the lives of children and their familiesin neighborhoods worldwide. Funds for thesegrants are raised through a variety of specialevents, outside corporate partnerships, andcommunity programs.

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McDonald’s Corporation provides free goodsand services covering 100 percent of themanagement and general costs for RMHC’sglobal office. Funding and volunteer supportcome from McDonald’s owner/operators,restaurant and regional staff, and suppliers.McDonald’s customers support RMHCgenerously through a variety of fundraisingevents and programs, including collectioncanisters in McDonald’s restaurants worldwide.

RONALD McDONALD HOUSEPROGRAMRonald McDonald Houses operate throughoutthe world, providing comfort to families withseriously ill children. The program began withsupport from McDonald’s individuals inPhiladelphia, Pennsylvania. The first RonaldMcDonald House was established inPhiladelphia in 1974. Today, there are morethan 200 Ronald McDonald Houses in morethan 20 countries. They range from a five-bedroom House facility in Geneva, Switzerland,to an 84-bedroom House in New York, NY, to awalk-up apartment in Vienna, Austria. Morethan three million families have stayed in aRonald McDonald House, or nearly 100,000families a year.

RECONSTRUCTIVE FACIALSURGERY FOR KIDSRMHC awarded nearly $4 million in grants toInterplast and Operation Smile to fund 40medical missions in 28 countries throughoutLatin America and Asia.

The grants supported facial reconstructivesurgery for nearly 8,000 children who have noaccess to this kind of modern, highly specializedmedical care.

EFFORTS TO ELIMINATEMATERNAL AND NEONATALTETANUS (MNT)A $5 million grant from RMHC to the U.S. Fund for UNICEF (The United NationsChildren’s Fund) will be used to help eliminatematernal and neonatal tetanus from everycountry in the world by the year 2005. Thisdisease kills an estimated 600 infants indeveloping countries each day.

For additional information on these programsand more, visit: www.rmhc.org

HOME AWAYFROM HOME

One of the new RonaldMcDonald Houses is afour-story, 18,775square feet(approximately 1,744square meters) facility,located in Tokyo’sSetagaya ward next to

National Okura Hospital. The House, which serves the hospital’sNational Center for Child Health and Development, has 18bedrooms (each accommodating three people), a spacious familyroom, a children’s playroom, and a modern kitchen facility.

HEALTH CARECLOSE TO HOME

RMHC launched itsinternational RonaldMcDonald Care Mobileprogram to bring free healthand dental care directly tochildren in underservedcommunities. This program’sgoal is to improve health

outcomes through screenings, preventive care, and healtheducation, and to provide continuity of care. Chapters and theirselected clinical service providers have served more than 7,000children with educational programs and services ranging fromroutine physicals and immunizations to dental sealants andfillings. Ronald McDonald Care Mobile sites include: BuenosAires,Argentina; Billings, Montana; Philadelphia, Pennsylvania; SanJose, California;Worcester, Massachusetts; Pittsburgh, Pennsylvania;Winston-Salem, North Carolina; Houston,Texas; and Hilton Head,South Carolina.

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LOCAL SUPPORT ANDINVOLVEMENT

RELIEFWhether they are tornadoes or hurricanes,floods or earthquakes, riots or other disasters,McDonald’s – through our owner/operators,employees, and suppliers – has a longtimerecord of helping communities in need.

For example, McDonald’s partners with theAmerican Red Cross and its International RedCross network to provide food and othersupport to disaster victims, meals for theprofessionals and volunteers on the scene toaid them, and a haven of safety for others in thecommunity.

McHAPPY DAY FUNDRAISERSMcHappy Day is a fundraising event in manycountries around the world that supportsRMHC and other charitable causes. Forexample, in 2000, McDonald’s Brazil raised

funds for Instituto Ronald McDonald (RMHC),benefiting 61 Brazilian institutions that assistchildren with cancer. During McHappy Day2000, more than 500 restaurants donatedproceeds from the sale of Big Mac™sandwiches and “McDía Feliz” items to helpchildren. About 34,000 McDonald’s employees,210 suppliers, 152 owner/operators, volunteerartists, personalities, and Olympic athletesworked side-by-side all day helping prepare andsell Big Mac™ sandwiches.

McDONALD’S FAMILY CHARITYThe McDonald’s Family Charity was created toassist members of the McDonald’s systemworldwide who have been affected personallyby natural disasters. Members eligible toreceive funds include employees working at anyof the more than 29,000 McDonald’s andsubsidiaries’ restaurants and offices worldwide,as well as employees of McDonald’s suppliers.

CORPORATE GIVINGIn addition to our support of Ronald McDonaldHouse Charities, McDonald’s provides directcharitable contributions. In 2000, our recordedcorporate cash contributions amounted tomore than $10 million to charitable causes.The majority of these contributions emanatefrom respective McDonald’s markets, with thebalance coming from our corporate homeoffice. Additionally, our recorded contributionsto local causes from owner/operators andaffiliates accounted for more than $8 million.While we are not able to completely captureall giving, significant contributions and additionaldonated products and services to those in needare provided by our corporate offices andowner/operators.

Moreover, McDonald’s Corporation donatesgoods and services to Ronald McDonald HouseCharities, including the free use of its facilities,equipment, materials, and limited services. Thefree goods and services provided by McDonald’s

SEPTEMBER 11

McDonald’srespondedimmediately to theU.S. national tragedyby providing morethan 750,000 freemeals around the clock at McDonald’s mobile restaurantsat the disaster sites in New York City, at the Pentagon,and in Pennsylvania. At each location, 45-ft-long trucksfilled with McDonald’s Quarter Pounders, ChickenMcNuggets, bottled water, and soft drinks were deliveredto feed the work forces there. More than $2 million hasbeen collected, to date, from RMHC in-store canisters.McDonald’s cookies and juice were delivered to blooddonation centers throughout the United States andCanada. An additional $1 million donation each fromMcDonald’s Corporation and RMHC were pledged forrelief efforts.

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Corporation cover 100 percent of the coststhat RMHC would otherwise incur formanagement and general costs and partiallydefray fund-raising and program servicesexpenditures. For the years ended December31, 2001 and 2000, the value of the free goodsand services provided by McDonald’sCorporation totaled $4,078,000 and$2,125,000, respectively.

LOCAL INVOLVEMENTMcDonald’s owner/operators and managerssponsor a variety of family programs, such asactivity days for children and restaurant tours.Our restaurants support various communityactivities that exemplify our philosophy to give

back to the communities we serve. Local orregional restaurants often work together for alarger cause, such as:

• In the last decade, McDonald’s in Russia hasprovided more than $4.5 million to multipleRussian charitable organizations for projectsranging from purchasing medical andtransportation equipment to providing mealsto those in need.

• In honor of Ray Kroc’s memory, McDonald’sUSA celebrated Founder’s Week with aseven-day volunteer effort to give back tothe communities we serve. Thousands ofMcDonald’s employees, owner/operators, andsuppliers have participated. McDonald’s USAhas donated nearly 100,000 hours ofcommunity service during Founder’s Weeksince 1999.

• McDonald’s of Saudi Arabia supports theAl-Faysaliah Children’s Welfare and JeddahAutism Center organizations, sponsoringparties for children in which a speciallytrained host conducts games that areappropriate for the group.

EDUCATIONWe partner with major organizations todevelop curriculum support materials andscholarship programs. We also make othercontributions including cash, food, computers,Happy Meal™ toys, event sponsorships, andeducational programs and services.

Some examples include:

• In Chile, McDonald’s – along with the ChileanEducation Minister – supported a readingcontest. The support provided funding forthe production of a book compiling allwinners’ works, as well as prizes.

• Through the McInternet Program for schoolsand seniors, restaurant employees in CostaRica teach free internet lessons during quietperiods. Each month, McDonald’s Costa Ricaalso donates products to community events,including special school programs.

SAFETY

The ten McDonald’s restaurantson the Sunshine Coast inQueensland,Australia, worktogether as a region to sponsora number of events,organizations, and activities intheir area to give back to theirlocal communities. Thissponsorship with Surf Lifesaving

Queensland, for instance, involves the provision of sun safeequipment to protect children from the sun.

SUPPORT

GuangzhouUniversity SoccerLeague sponsoredby McDonald’sGuangzhou inChina won itschampionship in

2001 and was awarded half-a-year of free hamburgers.McDonald’s continues to foster sports spirit in the Chinese youthcommunity,where soccer is becoming an increasingly popular sport.

CLEAN UP

McDonald’s Australia is amajor sponsor of the annualClean Up Australia Day, thecountry’s biggest communityparticipation event. In1999, a record 750,000volunteers collected 125,000

tons of rubbish in 870 towns and cities across the country.

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• McDonald’s Australia funds the McDonald’sCamp Quality Puppet Program, which toursschools in New South Wales, Queensland,South Australia,Victoria, and Western Australiawith the aim of better educating childrenabout cancer, its treatment, and effects. Sinceits inception in 1989, the puppet show hasbeen performed for more than one millionchildren and significantly helped raise the levelof cancer education in Australian schools.

INTERNATIONAL YOUTH CAMPMcDonald’s extended its sponsorship to theOlympic Youth Camp program throughOlympic Achievers in 2000. This programbrought together more than 400 young menand women from around the globe to attendthe Youth Camp in Sydney, where theyparticipated in a variety of arts, sports, andcross-cultural activities. McDonald’s was thefirst-ever global company to sponsor theNational Olympic Committee (NOC) selectionof the 2000 Sydney Youth Camp participantsfrom nearly 200 countries around the world.Participating McDonald’s restaurants and

NOCs worldwide worked together to select two or more McDonald’s Olympic Achieversfrom each country to attend the Sydney 2000Olympic Youth Camp.

COMMUNITY DEVELOPMENT

Each of our restaurants brings opportunitiesfor each local community, meaningfulcommunity employment, regional suppliers, andcommunity contractors and professionals.When McDonald’s opens a restaurant in a newcountry, a local management and entrepreneurialteam is in charge. Before they begin toconstruct their restaurants, they also help builda supply infrastructure within the localeconomy.

LOCAL INVESTMENTEXAMPLES• McDonald’s is the largest employer of youth

in Colombia. Between 1995 and September2000, more than $500 million and nearly400,000 hours in employee training wereinvested. Employees acquire transferableskills including: problem-solving, teamwork,leadership, communication, and timemanagement. McDonald’s Colombiaemploys approximately 1,000 individuals.McDonald’s 350 regional suppliers export:10 million pounds of coffee to the UnitedStates, 18 tons of lettuce to Venezuelaweekly, napkins to McDonald’s Ecuador andVenezuela, and uniforms to McDonald’sVenezuela (creating 600 employmentopportunities in manufacturing alone).

• McDonald’s Israel opened its first restaurantin October 1993. Today, McDonald’s Israeloperates more than 90 restaurants andsources more than 80 percent of itsingredients locally, including 100 percentKosher beef patties, potatoes, lettuce, buns,and milkshake mix. McDonald’s Israelemploys 3,000 Israelis.

In 2000, McDonald’s andThe Walt Disney Companyrecognized 2,000exceptional young peopleworldwide for theiroutstanding contributions totheir communities. These “Millennium Dreamers”Ambassadorsrepresented nearly 90 countries and ranged in age from eightto 15 years old. In association with UNESCO (United NationalEducation, Scientific and Cultural Organization), the MillenniumDreamers program was the largest and most extensivechildren’s program of its kind.

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• In the United States, more than one-third ofour restaurants are owned and operated bywomen and minorities. McDonald’s USApurchases approximately $3 billion in food,equipment, and services from women- andminority-owned businesses every year. Inmany cases, we helped these businesses getstarted.

CONSTRUCTION AND DESIGNLike most service companies, much of ourstrength is in our brand image. Part of thatimage stems from the consistency of our brandicons – like the Golden Arches. Because it isimportant for us to be visible to our customers,our architects have designed restaurant stylesthat maintain the traditional McDonald’s lookthat our customers have come to know andexpect. We want to be accepted within thecommunity and so, when possible, we will adaptto local culture and community planningpreferences. For example, in Rossio, Portugal,one of the most emblematic squares in Lisbon,McDonald’s has fully restored the area, parts ofwhich date back to the 18th century.McDonald’s also fully restored the front of thebuilding in which it is located. In Porto, Portugal,McDonald’s chose the famous Imperial cafélocation for our restaurant. Filled with poeticand cultural tradition, the Imperial café, with itsbeautiful interior and exterior featuring anenormous eagle with open wings, is anarchitectural jewel.

GOALS AND PRIORITIES

❑ Increase the reach and impact of support to Ronald McDonald House Charities (RMHC) with a focus on international expansion

❑ Develop a formal reporting tool to capture community involvement activities

❑ Create a better measurement system to capture more of the company’s in-kind and owner/operator charitable contributions

❑ Consider structuring and implementing a formal volunteerism program

❑ Evaluate expanding our employee scholarship program

In the UK, McDonald’s restaurants have been developed andadapted in many conservation areas and close to sites ofhistoric interest, including next to the Tower Hill in London.

Although theidea of openinga McDonald’srestaurant nearthe mainsquare ofKrakow, Poland,met withopposition

initially, McDonald’s was ultimately praised for its efforts tomeet the requirements set by local authorities.

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• Introduction: Evolving to environmentalsustainability

• Environmental Organization: Structureand management processes

• Environmental Impacts: What we knowabout our ecological influence

• Goals and Priorities: Next steps

INTRODUCTION

EVOLVING TOENVIRONMENTALSUSTAINABILITYMcDonald’s approach to the environment is intransition from a traditional approach ofenvironmental responsibility, embodied by thepractical philosophy of “reduce, reuse, recycle,”to a broader sustainable framework.Historically, McDonald’s has implementedenvironmental responsibility in the managementof our own restaurant systems. These includewaste management, packaging use, the buildingenvironment, energy efficiency, and littercontrol. For the most part, these issues areeasy to touch and see, because they are directlyrelated to our restaurants.

Our vision for the environment is now enteringa new stage of development within theframework of a “sustainable” society.McDonald’s is partnering with the sustainabilityorganization, The Natural Step (TNS), to helpus incorporate into our business what the TNSdescribes as “the minimum system conditionsrequired for society to operate in balance withthe rest of nature.” Achieving deeper levels ofenvironmental stewardship is consistent withour business needs as well. For example, wedepend upon a food supply that is sustainable.

“Sustainability is the minimum systemconditions required for society to operate inbalance with the rest of nature.”

- The Natural Step

THIS IS A JOURNEYCan McDonald’s achieve “sustainability”? Theword “sustainability” is often used, but whatdoes it mean in practical terms? And how canwe put sustainable principles into practice thatare clearly understood and motivating forMcDonald’s staff, owner/operators, andsuppliers – and our customers? We areembarking on a journey in which the answersare not obvious. Sustainable solutions are notquickly found and implemented. Generalknowledge of the technical aspects ofsustainability, even with the experts andprofessionals in the field, is nascent, so thisvision for the environment entails bothchallenges and opportunities.

In this section, we provide information abouthow we will integrate environmentalsustainability within McDonald’s, including theoverarching strategies, tangible actions, andspecific outcomes to make sustainability anintegral part of what we do. We are committedto addressing the underlying causes of non-sustainability. This means McDonald’s needs tobalance our efforts to control and reduce thetangible impacts of our restaurants, like wasteand energy use, with comparable effortsbeyond the four walls of our restaurants topositively influence “upstream” supplierimpacts. Addressing “upstream” issues with oursuppliers is taking on much more prominencein McDonald’s environmental strategies. Forexample, our commitment to reducingpackaging and adding recycled content is anestablished priority, and now we will investigatepurchasing our paper products from sourcesthat use certified sustainable forestry practices.

ENVIRONMENT

19

Another illustration is our testing of alternativepackaging materials for our Big Mac™ andother hamburger sandwiches, through materialssuch as EarthShell (see page 27). In addition,we need to focus on additional strategicapproaches, examining beef with a sustainabilityfilter, and asking our suppliers for ways toimprove the sustainability of cattle and dairycow practices. These are examples of ways ourefforts are evolving – how we need tochallenge our traditional thinking, start askingdifferent and better questions, and balance ourfocus and actions on both restaurant andsupply chain impacts.

We are dedicatedto learning. Wehave started to gainthe knowledge ofsustainableprinciples andscience that willprovide thecompass to guideus as we continueto integrate thisframework into ourbusiness and inpartnership withour suppliers.

ENVIRONMENTALORGANIZATION

STRUCTURE ANDMANAGEMENT PROCESSESIn 1990, McDonald’s established a corporateenvironmental department and formalized ourenvironmental policy. At the same time, severalMcDonald’s markets established their ownenvironmental functions.

POLICY: OUR COMMITMENT TOTHE ENVIRONMENTWe believe we have a responsibility to protectthe environment for future generations. Thisresponsibility is derived from our uniquerelationship with millions of consumersworldwide, whose quality of life tomorrow willbe affected by our stewardship of theenvironment today. We share their belief thatthe right to exist in an environment of cleanair, clean earth, and clean water is fundamentaland unwavering. We realize that in today’sworld, a business leader must be anenvironmental leader as well. We aredetermined to analyze every aspect of ourbusiness in terms of its impact on theenvironment and to take actions beyond whatis expected if they hold the prospect of leavingfuture generations an environmentally soundworld. We will lead, both in word and in deed.

Our environmental commitment and behaviorsare guided by the following principles:

• Conserving and protecting natural resources

• Encouraging environmental values andpractices

• Effectively managing solid waste

• Ensuring accountability procedures

We are committed to timely, honest, andforthright communication with our customers,shareholders, suppliers, employees, and owner/operators. We will continue to seek thecounsel of experts in the environmental field.By maintaining a productive, ongoing dialoguewith all of these stakeholders, we will learnfrom them and move ever closer to doing allwe can to preserve and protect theenvironment.

[This company policy is currently being updated andrevised to expand to McDonald’s sustainableaspirations. For complete text, see Our Commit-ment to the Environment.]

TM

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GLOBAL ENVIRONMENTALCOUNCIL In keeping with McDonald’s decentralizedmanagement structure, each country’s managingdirector is responsible and accountable foraddressing environmental issues. Environmentalconditions and priorities vary around theworld, according to each country’s distinctculture, infrastructure, and environmentalneeds. Waste management systems, packaging,and construction materials are examples ofpractices that are directly influenced by acountry’s infrastructure.

To support McDonald’s goal of sustainability, werecently formed a Global EnvironmentalCouncil (GEC). This Council will: 1) identifystrategic global priorities, initiatives, andprojects; and 2) advise and assist McDonald’sdecentralized system in learning, planning, andmaking progress toward McDonald’s vision ofsustainability. The GEC is comprised of 17senior leaders from all four management zonesof our business, including environmental leaders,as well as representatives from key functions suchas Operations, Purchasing, Communications, andDevelopment. The GEC includes an outsideadvisor from The Natural Step.

The GEC reports to the Social ResponsibilitySteering Committee. McDonald’s Board ofDirector established a Corporate ResponsibilityCommittee whose charter includes a review ofthe company’s environmental performance anddirection.

ENVIRONMENTAL IMPACTS

WHAT WE KNOW ABOUT OURECOLOGICAL INFLUENCEUnderstanding the scope and extent ofMcDonald’s impact on the environment inrunning our restaurant business provides a

critical foundation for our work. Thisexamination allows McDonald’s leadership, bothat the corporate and country level, to addressthe most relevant strategies and actions.Notwithstanding our decentralized system,McDonald’s restaurants around the world havethe same primary environmental inputs andoutputs. We need to learn much more abouteach of these areas. The following descriptionssummarize what we know in general terms,because McDonald’s does not yet measure,track, and monitor all of these areas in everycountry. We are beginning a process, however,to enable the inclusion of more comparabledata in future reporting.

Inputs include:• Energy

• Packaging, toys, and operating supplies

• Food

• Water

• Construction materials to build and maintainthe restaurant

• Service providers (such as waste haulers,recyclers, and maintenance)

• Transportation

Outputs include:• Used packaging and food waste

• Construction material waste (used inconstructing new restaurants or remodelingexisting ones)

• Waste water

• Emissions to air and water

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ENERGY USEOur restaurants use combinations of electricityand gas as primary fuel sources. Depending onlocal availability and technology, these combina-tions can fluctuate significantly, although wetypically use more electricity than gas. Use perrestaurant per month also varies around theglobe, but the average range falls within 25,000-45,000 kilowatt hours and 1,000-4,000 cubicmeters of gas. Per square foot of restaurantspace, the foodservice industry is an energy-intensive business. McDonald’s restaurant sizevaries, but the average restaurant is about 3,000square feet (about 279 square meters) andrequires energy to support activities within therestaurant, including a heating and air-conditioning system, walk-in cooler and freezer,indoor and outdoor lighting, cookingequipment, and several small pieces ofequipment.

McDonald’s has built energy-efficientrestaurants that have reduced energy use. Wealso know that energy conservation practiceswithin a restaurant (start-up schedules,equipment maintenance, etc.) can reduceenergy use another 10 percent.

PACKAGING AND MATERIALSUSEMcDonald’s packaging is a visible manifestationof our environmental actions. We have madeprogress in reducing packaging volume andadding recycled content. However, disposablepackaging can represent a larger, material useand consumption issue.

Recognizing this responsibility of usingdisposable packaging, McDonald’s has a well-established process and history of working withour suppliers to find ways to streamline ourpackaging and minimize the use of resources.The result of this long-term work has kept usat the forefront of packaging efficiency andrecycled content use. For instance, based on

USA numbers, the average restaurant usesabout 1,000 pounds of packaging per week,while serving approximately 10,000 customers.

The main items using recycled content arenapkins, carry-out bags, drink carriers, HappyMeal™ bags and boxes, and trayliners. Usingrecycled content for direct food packaging isrestricted and highly regulated, due to foodhygiene, so we are limited in this area. Basedon global use, McDonald’s uses approximately400 pounds of recycled paper per restaurantper week.

McDonald’s packaging use differs around theworld based on local supplier availability,cultural differences, waste managementpractices, and infrastructure. The demandsplaced on quick-service food packaging arehigh. Because it protects the product untilconsumed and contributes to providing safefood, packaging must meet the requirementsfor restaurant and take-away consumption.

In the early 1990s inmost parts of theworld, McDonald’schanged our carry-outbags from bleached,100 percent virginpaper fiber tounbleached, recycledcontent. During thatsame time, McDonald’spurchased more than

$4 billion worth of products made from recycled materialsfor use in the construction and operation of our restaurantsworldwide.

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The packaging we use for customers isprimarily paper-based (ranging from 75 percentto more than 90 percent worldwide), and thebalance is mostly plastic. The packaging usedfor shipping and transport is typically corru-gated cardboard boxes, with secondary shippingpackaging consisting mostly of polyethyleneplastic film. Corrugated boxes for all suppliesdelivered to McDonald’s totals an average of600 pounds per week per restaurant.

WASTE AND LITTERWhile our employees work to ensure orderand cleanliness both inside and surrounding ourrestaurants, McDonald’s is concerned aboutlitter. We realize the negative image litterreflects upon us when people do not dispose oftheir items properly. We also know that littercan be prevented. McDonald’s has operationalprocedures that include a daily inspection ofthe area around the restaurant for litter pick-up, and we support many efforts to educateconsumers about litter prevention.

Recycling is highly dependent on the infra-structure and culture of the countries andcommunities in which we do business. Somewaste is a valuable commodity in parts of theworld. Our items that are most recyclable arecorrugated boxes and cooking oils. The abilityto recycle consumer packaging varies fromcountry to country. For example, severalcommunities specifically prohibit direct foodpackaging from recycling. McDonald’s hasvarious practices and forms of recycling,including composting, in areas of the world thathave the appropriate support infrastructure.Most of McDonald’s waste is organically based,including mostly paper-based packaging, alongwith food residues, so it is compatible forcomposting.

Use byWeight %

38%

14%

17%

6%

5%

1%

6%

3%

2%

2%

3%

2%

1%

Packaging Use Based on AverageMcDonald’s USA Restaurant

Paper Items

Cold cups and napkins

Folding cartons and clamshells

Carry out bags and drink carriers

Sandwich wraps, f-flute containers

Happy Meal™ cartons, bags and insulated wraps

Miscellaneous wraps, bags, cups

Plastic Items

Lids for cups, cutlery and coffee stirrers

Cold cups and salad packaging

Breakfast packaging, hot cups and bowls

Salad packaging, straws, desert cups, bags

Operating Supplies

Paper towels and tissue

Can and prep pan liners

In-store trays and tray liners

McDonald’s Germany’s posters encourage customers to cleanup and not litter. Slogans include: “Have a clean attitude”and “Litter bugs are an endangered species.”

To encourage environmentalawareness and protection,McDonald’s Japan has created a“Thank You Box” to separate theirlitter. It includes clearly identifiedillustrations so customers canseparate and dispose of plasticgarbage, trash other than plastic,and beverages with ice.

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TRANSPORTATIONWe are exploring ways to improve distributionefficiencies and reduce the impacts of transpor-tation, especially related to energy use andother infrastructure effects. McDonald’s workswith independent companies that are, in manycases, dedicated to distributing food and papergoods to our restaurants and supporting theMcDonald’s system. Regional distributioncenters service an average of 200 to 300restaurants each.

WATERMcDonald’s has recently organized a GlobalWater Team that works to understand ourwater treatment and use, and to learn ways toconserve its use in our restaurants. Safe,quality water is a fundamental need for ourbusiness. In countries in which the watersupply does not meet minimum standards forsafety and quality, advanced water treatmentsystems are used.

The average water use of a McDonald’srestaurant is 10 to 15 cubic meters (2,600 to4,000 gallons) of water per day. Typically, 20percent of the water is used for purposes suchas drinks and watering the landscape, while 80percent of the water leaves through the wastedrains.

McDonald’sGermany has anin-store recyclingcollection system.Customer waste isbrought to thesetray carts, whichincludes a separateplace for drainingliquids.

McDonald’sSwitzerlandhas developedways toincrease theproportion ofcombined railtransportationand directtransfer of

containers from railway wagons onto trucks, and vice versafrom three to 28 percent of all goods moved since 1996.

With Australia beingthe driest continent onEarth, McDonald’sAustralia has investedin technology toimprove the quality ofwaste water fromrestaurant operations.Along with in-storeprocedures to reducethe amount ofmaterial getting intodrains, there has beenan improvement ofapproximately 90percent in waste waterquality in those stores.

Reducing water consumption also is a priority for therestaurants. Approximately 25 percent of water used byrestaurants in Australia is on landscaping. By reviewinglandscape watering times and frequencies and the type ofplants used in different climates, many stores have been ableto reduce their reliance on water in the garden. This VerticalGravity Separator (VGS) (as shown) pre-treats waste waterprior to release to city sewers. The VGS removes wastematerials.

McDonald’sKorea, inpartnership witha major paperpulp supplier,collects andrecycles papercups from ourrestaurants,which are

recycled into tissue products and supplied to McDonald’s.

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SUPPLIER IMPACTS AND RAWMATERIALSThe environmental effects from the sourcing ofour goods, materials, and services – whether itis meat, sandwich wraps, ketchup, grillingequipment, or flooring materials – are referredto as upstream impacts.

Nearly $11 billion of goods and materials arepurchased, much of which are suppliedregionally. This purchasing power brings with ita responsibility to work with our suppliers onsustainability issues and to ensure they havestandards and policies that are sustainable.

McDonald’s historic approach with suppliers isone of collaboration. We expect high stand-ards, top quality, and a commitment to supportMcDonald’s long-term goals. Our long-termsupplier relationships make partnering forsupply chain environmental management thebest approach for McDonald’s. McDonald’scontinues to learn about best practices inpurchasing sustainable goods and services, andwe are increasing our efforts with our supplypartners to make progress toward oursustainability vision.

ACTIONS• Protecting rain forests: McDonald’s long-

standing rain forest policy clearly details ourcommitment to rain forest preservation.We do not buy any beef from rain forestlands. This is strictly prohibited.

• Phase-out chlorofluorocarbons (CFCs)in packaging: McDonald’s was the firstfoodservice company to announce thephase-out of CFCs in our packaging in thelate 1980s.

• Packaging changes: McDonald’s haschanged our packaging in ways that haveinfluenced the entire industry. Because ofMcDonald’s USA’s breakthrough partnershipwith the Environmental Defense Fund in the

early 1990s, significant packaging changeswere developed for the U.S. business. Mostwere transferred globally and eventuallyadopted by the quick service industry as awhole. Examples include recycled,unbleached carry-out bags; recycled napkinsand trayliners; and shipping boxes with morethan 40 percent recycled content.

• Exploring alternative refrigerants:McDonald’s has worked with its suppliers,the United Nations EnvironmentalProgramme, the U.S. EnvironmentalProtection Agency (EPA), experts, and otherstakeholders on an improvement processwith refrigerants used in the foodserviceindustry. We seek solutions that go beyondthe current use of hydrofluorocarbonsbecause they contribute to climate change.Because alternatives are

EnvironmentalDefense staffRichard Denisonand Jackie PrinceRoberts worked ata McDonald’srestaurant tounderstand how toreduce waste within

McDonald’s. As a result of our partnership, by the end of the1990’s, McDonald’s USA eliminated 150,000 tons ofpackaging; purchased more than $3 billion worth of recycledproducts; and recycled more than two million tons ofcorrugated cardboard.

“The most significant achievement was demonstratingaction – actually going to the public and making changesin packaging and waste reduction that they could see, andmaking some changes behind the counter they could notsee. Now, when we do a program with other companies,we aspire to meet this standard.”

Jackie Prince Roberts,Director,

Alliance for Environmental InnovationEnvironment Defense

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not commercially available for our industry,development work is necessary. McDonald’sand our suppliers have a special teamworking on solutions, with a near-term goalof building an HFC-free restaurant in 2002.

• Animal antibiotics: McDonald’s hasstudied the animal antibiotic issue, and weagree with experts that their use should bemanaged in order to minimize their impacton antibiotic resistance in humans. As aresult, McDonald’s USA told our poultrysuppliers one year ago to discontinue theuse of fluoroquinolones. This decision wasmade far ahead of federal guidelines and wasbased on a review of United States scientificresearch. In Europe, suppliers have beenapproached to not use growth-promotingantibiotics used in human medicine inpoultry rearing.

• Biotechnology awareness:Biotechnology is a challenging issue, withstakeholders having a wide spectrum ofviews, emotions, and concerns about the useof biotechnology today and in the future.McDonald’s will continue to monitorongoing developments closely in ourcontinuing efforts to listen, learn, andevaluate.

Our input to biotechnology providersincludes:

- More research and studies are necessary.Studies from mainstream scientists and academics are consistent in identifying certain gaps in knowledge and research.

- Emphasis should be placed on intro-ducing biotech products that benefit consumers, with clear attributes such as enhanced nutrition.

- Because consumer confidence and acceptance are paramount, more needs to be done by those involved with advancing biotechnology to engage the relevant stakeholders in the debate and to help educate the public about the science.

Based on these factors, McDonald’s willevaluate whether to purchase newbiotechnology products in the future. We willreview the status of regulatory approvals,customer acceptance, consumer benefits, andthe state of scientific research.

GOALS AND PRIORITIES

Our challenges include managing a McDonald’ssystem that is very decentralized involvingindependent business people – our owner/operators and suppliers. We need to defineenvironmental sustainability and designeducational approaches for McDonald’s staffand owner/operators so that sustainability ismeaningful and actionable in the countries inwhich we operate. Additionally, while workingupstream with supply chain issues is extremelyimportant, doing so is complex. For example,we are optimistic that refrigerant solutions willbe developed that do not impact globalwarming. The fact remains that while we canask for change, we are dependent on new orexisting suppliers to make change happen.With refrigerants, McDonald’s restaurants, evencollectively, purchase just a small fraction ofHFCs in the marketplace, so it is imperativethat we work with other purchasers to ask forthe same changes.

One of McDonald’s toughest challenges is todevelop quantifiable data for ongoingenvironmental performance. Because we are inthe service industry, we have minimal emissionsand few reporting requirements by law orregulation. With the development of aMcDonald’s Environmental ManagementSystem, the foundation of measurement andaccountability can be built into our localrestaurants. Currently, most of our goals andmeasurements are related to processes,systems development, and standard setting.

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❑ Develop systems to integrate environmental sustainability into McDonald’s system:

• Revise the 1990 environmental policy to include our aspirations for sustainability (2002).

• Develop a McDonald’s Environmental Management System (EMS) that can work in all of the countries in which we operate. This will include a set of minimum standards, with an ongoing process to establish and review targets and measurements for continuous improvement toward sustainability. Our goal is to develop a process that recognizes the large differences among countries and encourages the flexibility required in attaining sustainability goals,given the variation inherent in each country regarding business environment,culture, and infrastructure (2003).

• Educate McDonald’s owner/operators,employees, suppliers, and customers.Expanding the scope of our educational role will serve to motivate our system to advance sustainability in daily jobs and decision making. In 2002, we plan to establish a web-based sustainable resource information system for McDonald’s employees, owner/operators,and suppliers. Recognizing that our customers represent an even greater force for change, we will extend this education to our customers, starting with web-based materials on sustainability.

• Work with The Natural Step to detail McDonald’s sustainable impacts at two levels (by 2002):

- The restaurant: factors that staff can control and influence, such as energy use and waste management

- Regional/corporate: factors beyond the restaurant, such as purchasing practices for food and paper or constructing new or remodeled restaurants

This information will serve as a foundation forfuture decision making that moves McDonald’scloser to sustainability.

❑ Address key supply chain sustainability issues:• Work with stakeholders on key emerging

issues that are most relevant to achieving progress. We are committed to examining priority environmental issues thoroughly,listening to a broad spectrum of stakeholders, and meeting with scientific and non-governmental organizations. We have done this over the past few years on topics such as genetically modified (GM) foods; alternatives to hydrofluorocarbon (HFC) refrigerants; initial research with animal antibiotics and the scientific concern about antimicrobial resistance;and environmental sustainability.

• Continue to advance our knowledge and understanding of alternative refrigerants.

• Continue to monitor biotechnology developments and stay abreast of scientific studies. Evaluate new biotechnology products with stakeholders to help make informed decisions on our purchasing practices.

• Continue to work with the animal agricultural industry and environmental,health, and animal welfare stakeholders to develop management systems that help reduce human health impacts related to antimicrobial resistance.

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• Work in formal partnership with TheCenter for Environmental Leadership inBusiness, a division of ConservationInternational on implementing sustainable agricultural and conservation practices and standards within our food supply chains. This project is already underway.We are working together to assess our products and to start developing minimum guidelines for prioritized products in 2002.

• Develop a global approach to purchasing paper packaging from supply sources that ensure sustainable forestry practices.

❑ Provide input and information to McDonald’s countries and zones to assist them in addressing environmental issues:

• A Worldwide Energy Task Force has recently been created to champion,coordinate and drive energy use reductions. This team has representatives from all the major geographical zones, and from the critical functional areas of expertise, including Equipment,Development, Environment, Operations and Finance.

• Work to keep our communities looking clean through both hands-on clean-up programs and customer education, and working alongside local authorities and interested parties.

• Continue to advance recycling systems,including composting systems, especially for behind-the-counter packaging.

• Continue to provide packaging leadership,examining more ways to reduce packaging, add recycled content, and use unbleached materials and alternative and innovative new materials. For example, McDonald’s USA is currently testing EarthShell™ packaging in the

Chicago market. EarthShell™ is neither paper nor plastic. It is made mostly from calcium carbonate and recycled potato starch, with some recycled paper fiber,water, and coatings.

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• Introduction: We aspire to be the best employer in each community around the world

• People Promise: We value you, your growth, and your contributions

• Advanced Training and Development:Hamburger University

• Diversity: Committed to a diverse workforce

• Goals and Priorities: Next steps

INTRODUCTION

WE ASPIRE TO BE THE BESTEMPLOYER IN EACHCOMMUNITY AROUND THEWORLDOur People Vision is supported by the PeoplePromise we make to the millions of currentand future McDonald’s employees in countriesaround the world:

We Value You, Your Growth,and Your Contributions.

Five people principles reflect McDonald’s valuesand the culture we embrace:

1. Respect and Recognition

2. Values and Leadership Behaviors

3. Competitive Pay and Benefits

4. Learning, Development and Personal Growth

5. Resources to Get the Job Done

These principles govern the philosophicalunderpinnings of how we want our employeestreated. This means valuing contributions ofthe more than 1.5 million people who makeour restaurants run in more than 29,000restaurants, 24 hours a day, 7 days a week, 365days a year. The numbers of widely differentcountries, communities and cultures present areal challenge to achieving consistentimplementation of the People Promise.

We believe in the value of a decentralized,locally managed and franchised restaurantbusiness. This business concept means thatrestaurants are operated by localentrepreneurs, who best understand the localculture because they live and work in it.

Most of what we describe here applies directlyto McDonald’s company restaurants and staff.McDonald’s management team is responsiblefor our company people policies, practices, andprogress. Of course, many corporate programsare used by McDonald’s owner/operators, butit is important to note that people managementis one of the skills and expectations of ourfranchisees. We test our performance – andthe extent of improvements – by surveyingemployees on how we are implementing thePeople Promise in restaurants.

A typical McDonald’s restaurant is a $1.6 million business. Keeping it running everyday is no easy task: the restaurant has to beclean, the food has to be hot and fresh, supplieshave to be ready, customers have to be served,and you have to work with a busy team.Having fun on the job, treating employees wellon a day-to-day basis, and building a close-knitsense of teamwork will improve the workenvironment and employees’ views of whatthey do.

PEOPLE

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An impressive list of people with verysuccessful careers – in McDonald’s, in theindustry, and in other fields generally – credittheir experience at McDonald’s for giving theminvaluable lifelong job skills. In many countries,the majority of our restaurant and higher-levelmanagement and many owner/operatorsstarted as restaurant employees.

Examples:• The Australia National Training Association

has named McDonald’s Australia Employerof the Year. McDonald’s is certified by thegovernment of Australia’s National TrainingAuthority, which allows McDonald’smanagers to receive university credit inmanagement.

• In an award acknowledging the role of itsemployees, McDonald’s Bolivia wasrecognized as providing “The Best CustomerService” three years in a row, through acertified, independent survey.

• McDonald’s Brazil has been named “TheBest Company to Work For.”

• The Netherlands Joint Industrial Counselrecognized McDonald’s Netherlands publiclyfor its successful multicultural employmentpractices.

• McDonald’s Sweden was recognized as “TheBest Developer of People.”

PEOPLE PROMISE

RESPECT AND RECOGNITION McDonald’s seeks to manifest a culture throughwhich we demonstrate respect for allemployees and express appreciation tooutstanding employees.

• For example, in the 2002 Olympics CrewIncentive Program, restaurant employees and

managers from 16 countries servedMcDonald’s food at the 2002 WinterOlympic Games in Salt Lake City, Utah and“showed they’re the best” to thousands ofOlympic athletes, coaches, and spectators.While in Salt Lake City, they were providedwith free tickets to Olympic events.

• In the United States, creative restaurantrecognition programs are as varied as thedifferent regions of the country. The EastDivision holds a celebratory awards banquetfor all restaurant managers. The WestDivision conducts a “best restaurant”competition with a $1,000 cash prize and atrip to Disneyland for the winners.

VALUES AND LEADERSHIPBEHAVIORSMcDonald’s beliefs and the way it acts on thosebeliefs provide the foundation for principle-centered people leadership. We approach allaspects of our business with honesty andintegrity, communicating openly, listening andunderstanding, valuing diverse opinions andencouraging people to express their views,working as a team, accepting responsibility forindividual actions, and appreciating andacknowledging the strengths of others.

We have developed, and continue to improveupon, our methods of training managerialemployees on all aspects of day-to-day peoplepractices in order to better build consistencyin valuing people. We know the task is neverover, as each new person and each newsituation bring new training needs andchallenges.

• An example of our commitment to ourpeople is McDonald’s use of two-waycommunication opportunities betweenmanagement and employees. Direct,ongoing communication is a key part ofMcDonald’s business environment as itallows dialogue with all levels of manage-ment and provides a way to surface

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ideas, issues, and questions. Dialogue isfacilitated through regular restaurantemployee meetings, informal “rap” sessionsthat lead to problem-solving action plans,one-on-one performance appraisals,commitment surveys and evaluation actionplans, and employee rallies in anticipation ofmajor marketing promotions. Solvingemployee concerns – surfaced throughdirect communication channels – early andproactively is the best way to maintain andimprove the work environment.

• While we believe the values underlying thePeople Promise are universal, we havelearned that their application and theprocess for employee relations must belocal. We have pioneered concepts ofemployment in some countries, including theuse of part-time employment where it didnot previously exist. We have worked withlocal management and national institutions,including Ministries of Labor, to establish thelegal basis and mechanism for part-timeemployment in accord with the local legalsystem and culture. In the DominicanRepublic and Bolivia, we worked withMinistries of Labor, local counsel, andmanagement to develop systems thatconformed to local laws and guaranteedemployees a specified income in exchangefor a defined amount of work on a part-timebasis. These pioneering efforts have createdopportunities for employment, employeegrowth and advancement which would nothave occurred otherwise.

• Around the world, our behaviors towardour people show McDonald’s desire andefforts to act in a way that supports whatwe state. For example, McDonald’s Australiaplaces a premium on employee health andsafety by implementing restaurantWorkplace Safety Committees thatchampion safe work practices and generateideas to minimize hazards and improvesafety. Similar committees exist in manyother McDonald’s countries, including

Austria, Canada, Denmark, Norway, Sweden,and the UK. In addition, McDonald’s hasdeveloped innovative tools to ensure candid,two-way communication and resolution ofconcerns that are raised. Examples includeMcDonald’s UK’s computerized In-StoreSatisfaction survey and McDonald’s Canada’sCrew Connect Program that allows allemployees to email their comments,concerns, and suggestions.

• McDonald’s does not tolerate harassingbehavior and has implemented anti-harassment policies. For example, in theU.S., a Zero Tolerance Policy is in effect, andMcDonald’s Netherlands has taken the stepof training human resources consultants toserve as confidential counselors to adviseand comfort those seeking help fromunwanted conduct.

COMPETITIVE PAY ANDBENEFITSMcDonald’s basic philosophy of competitive payand benefits includes paying employees fairlyand timely; providing incentives to motivateemployees’ improved performance anddevelopment; providing take-home value to thecompensation package; providing benefits thatemployees value; being constantly aware of theeconomic environment and benefit trends; anddemonstrating to prospective employees thatMcDonald’s offers something special.

The setting of wage rates is a matter of greatconcern to us, as we are a labor-intensivebusiness. The wage rates in each country areestablished independently, in accordance withnational requirements and structures. Wagerates represent a careful balancing of the needto reward employees fairly for their productiv-ity and improve their standards of living overtime with the need of any business to becompetitive and profitable. This balance mustbe achieved within the context of eachcountry’s unique economic circumstances and

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our desire to provide an affordable product tothat country’s consumers. It is a balancing actthat we constantly evaluate.

• Competitive pay is implemented on a localbasis. For example, before the firstMcDonald’s opened in Sri Lanka, the nationalwage code was examined to compare thejobs listed to those of a typical McDonald’s.The wage rate instituted for restaurantemployees was significantly above therequired rate. In South Africa, our basewages and benefits package for ouremployees has exceeded those paid by mostof our competitors. In addition, it is ourphilosophy to pay for performance,rewarding our employees for what they do,so that their increases over time exceednationally required increases.

• Around the world, McDonald’s providesvarious benefits to accommodate ouremployees’ interests. McDonald’s Australiabuilds loyalty and commitment with aninternational exchange scholarship programthat provides airfare and other logistical andfinancial support to assist employees tospend a full school year living with a hostfamily in another country. McDonald’s USAhas instituted the Alternative WorkApproaches (AWA) program for staffemployees. Options to work a non-traditional schedule or decreased hourswithout loss of benefits include flextime,compressed workweek, job sharing, andpart-time work. McDonald’s Germanyinstituted an ongoing employee bonusprogram, designed to involve all restaurantemployees in continuously improvingrestaurant sales.

LEARNING, DEVELOPMENT,AND PERSONAL GROWTHMcDonald’s provides restaurant employeeswith employment skills – the ability to work ona team for common objectives, the importanceof punctuality, customer focus, and a drive forpersonal excellence. These skills translate intoadvancement and growth because employeessee daily role models who demonstrate theability to grow on the job with McDonald’s. Inmany countries, a majority of McDonald’srestaurant management began as restaurantemployees; around the world, many McDonald’sstaff employees and many McDonald’sfranchisees first started working in ourrestaurants. Globally, McDonald’s implementsinnovative programs designed to maximize eachemployee’s opportunities to grow and developwithin the system.

• McDonald’s works with local andgovernment agencies worldwide to provideincreased employment opportunities toindividuals with disabilities, focusingappropriately on what each person can do.These include the activities of McDonald’sSpain (ONCE Foundation), McDonald’sPortugal (AAPC), McDonald’s Austria(Jobfabbrik), McDonald’s Russia(employment of graduates of the RonaldMcDonald Center for disabled children),McDonald’s New Zealand (Workbridge),McDonald’s USA (Chairmanship of theEmployer’s Committee of the Departmentof Labor’s Office of Disability EmploymentPolicy), and many others. Further, we aredeveloping a pan-European initiative toprovide employment opportunities fordisabled individuals.

As one of the largest employer of students,McDonald’s welcomes the special responsibilitythis places on us to ensure that youngerworkers are treated properly, that theiremployment is in conformance with legalstandards, and that their schooling comes first.

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Our efforts to fulfill our responsibility includetechnology to “build in” and monitorcompliance; setting “buffers,” standards evenmore restrictive than the law, in order toprevent violations of the law; focusing on betterstaffing to reduce reliance on younger workers;and providing greater education and training ofboth managers and employees to makeadherence to good practices top of mind.

• McDonald’s also provides scholarships andother incentives to show student employeeshow much we value their education.Around the world, the number of scholar-ships granted to student-employees are inthe thousands. McDonald’s France partnerswith AFPA so that employees withbaccalaureate degrees can earn certifiedqualification approved by the Ministry ofLabor. McDonald’s France also haspioneered an employee assessment programdesigned to help employees clearly identify acareer plan, whether within or outsideMcDonald’s. McDonald’s United Kingdom(UK) makes annual Scholarship Awards to100 student employees to assist with theirstudies. These awards have been endorsedby UK Government Ministers and leadingsports personalities who recognize themotivational benefits.

• McDonald’s Romania, Poland, and CzechRepublic motivate management employeesby providing opportunities for them to workat McDonald’s in other countries, gaining abroader work experience and enablinggreater diversity of career opportunities.McDonald’s Croatia provides this oppor-tunity to restaurant employees. McDonald’sArgentina and the University of Morónjointly developed a program leading to aBachelor in Retail Marketing degree, withMcDonald’s Argentina providing 50scholarships per year to employees studyingin this program. McDonald’s Argentina’s“Becamos tu Pasión” (“We Award YourPassion”) provides scholarships to

restaurant employees who demonstratedexcellence in their studies, sports, or art, aswell as in their commit-ment to their workat McDonald’s. McDonald’s Russia has anofficial scholarship program for studentemployees to help them successfullycombine work and studies. Public officialsfrom the Ministry of Education and theMinistry of Labor attended the awardsceremony honoring dozens of employees.McDonald’s Austria has implemented acooperative apprenticeship program,generating knowledgeable employees andpositive feedback from vocational educationteachers.

RESOURCES TO GET THE JOBDONEProviding the right tools to do the job enablesemployees to do their best. Providing re-sources takes many forms: eliminating barriersand burdens, streamlining processes to removeinefficiencies and increase productivity, andenabling others to increase their capacity anddesire to perform.

• McDonald’s Portugal and other marketshave launched an intranet site to provideemployees with information on our history,policies, compensation, and benefits.McDonald’s Bahrain works in cooperationwith the Ministry of Labor and Social Affairsto employ local Bahrain citizens and providethem with English language training. Englishas a Second Language (ESL) training pro-grams are implemented to help employeesin many McDonald’s USA regions.McDonald’s Pakistan (Karachi) pays foremployees to receive English languagetraining. McDonald’s Saudi Arabia (Riyadh)provides Arabic language training to itsexpatriate workers.

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• Following a successful pilot, McDonald’sJapan is expanding its program to teachJapanese sign language to employeesnationwide. This will enhance McDonald’sJapan’s efforts to create a barrier-freeenvironment for hearing-impairedcustomers, and at the same time furtherintegrate hearing-impaired employees intothe McDonald’s workforce.

• McDonald’s Performance DevelopmentSystem (PDS) enables each employee to playa key role in driving his or her ownperformance to achieve McDonald’s businessresults. Online, PDS contains a hyperlink toLearning Navigator, a professionaldevelopment tool enabling each individual tofind development resources specificallytargeted to his/her own development needsand learning styles.

• Both McDonald’s USA and McDonald’s UKhave developed Human ResourcesConsulting Centers, designed to provideexpertise, consulting, and advice to field HRpersonnel, staff, and restaurant managers.

• McDonald’s Denmark has developed anelectronic HR information system tooptimize the ability of restaurant managersto handle people-related tasks. McDonald’sFinland instituted an annual HR Reportsummarizing their efforts to continuouslyimprove people practices. McDonald’sHungary has developed an intensivemanagement training program, designed tofully train outside hires to be competentpeople-oriented managers in less than ayear. McDonald’s USA has instituted aHuman Resources Design Center to createstrategies and business solutions to helpfield personnel deliver on the PeoplePromise. McDonald’s UK also hasdeveloped an innovative recruitment andretention guide to assist restaurantmanagers in hiring and keeping employeeswho most want to provide customers withan unparalleled quick-service restaurantexperience.

ADVANCED TRAINING ANDDEVELOPMENT

HAMBURGER UNIVERSITYOur management development centers, such asHamburger University (HU), have evolved andgrown by creating an extensive curriculum toserve the learning and development needs ofemployees throughout their careers. The HUcurriculum provides employees blendedlearning solutions that include shoulder-to-shoulder training within the restaurant,classroom sessions, on-the-job reference toolsand electronic solutions. Our e-Learningprovides just-in-time training and developmentfor our employees, allowing them opportunityfor simultaneous visual and auditory learning,while challenging them with job simulationsthat assess knowledge and skills.

The Mid-Management Program continues todevelop employees as they move frommanaging a single restaurant to managing andconsulting with groups of restaurants. Typicalcourse offerings include Partnering for Results,Training Consultant Course, Managing theOrganization, and Foundations of Leadership.All of the courses taught in the RestaurantManagement and Mid-Management Curriculaare accredited by the American Council onEducation (ACE). Restaurant Managementcurriculum has been granted 12 college credithours through ACE; the Mid-Managementcurriculum, including both HU and Regionalcourses, has been granted 22 college credithours. By participating in our McDonald’scourses, individuals can accumulate numerouscredit hours toward a college degree.

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Executive development is directed at thecompany’s top executives in the organizationworldwide and tailored to the unique learningneeds of this group of leaders. Executivedevelopment also includes external seminars atleading universities or centers of excellenceand executive coaching.

DIVERSITY

“None of us is as good as all of us.”- Ray Kroc

Achieving diversity goals is a factor inevaluating the performance of leaders withinthe McDonald’s system. Diversity goals areintegrated through strategic business plans.

Our collaborative programs and activitiespromote the corporate vision for diversity andstrategic business initiatives.

DIVERSITY EDUCATIONWe have developed a framework to providediversity education throughout the organizationthrough formal presentations, workshops, andseminars. Presentations and training materials,both customized and informal, are provided forintegration into team and department processes.

Seminars and workshops like LeveragingDiversity, GenderSpeak, Asian CareerDevelopment, Black Career Development,Hispanic Career Development, and Women’sCareer Development , and White Male Forumserve as the cornerstone for bringing diversityto life in the organization in the U.S. Diversityeducation is an ongoing process, creatingawareness and building skills for managing aninclusive, diverse workforce at McDonald’s.

WORKING WITH COMMUNITYPARTNERSAt McDonald's, we are committed to buildingour brand value and sustainable partnershipswithin the communities in which we dobusiness. In the United States, McDonald's isproud to partner with national organizationssuch as Catalyst;Women's Foodservice Forum;National Urban League; National Associationfor the Advancement of Colored People;Organization of Chinese Americans; President'sCommittee on Employment of People withDisabilities; National Council of La Raza andthe United States Hispanic Chamber ofCommerce, as well as other national and localcommunity organizations. As a result,McDonald's has been named the BestCompany for Minorities, one of the Top 25Companies for People with Disabilities, BestEmployer for Asians, and among the Top 100Companies for Women to Work.

Originally begun in the basement of a McDonald’s restaurantin 1961 (shown in top picture); HU currently translatescurriculum materials into 28 languages and provides livesimultaneous interpretation of as many as six languages duringcourse sessions. Campuses exist in Australia, Brazil, Germany(pictured above), Hong Kong and the United Kingdom.

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GOALS AND PRIORITIES� Ensure that each country’s McDonald’s

develops and implements strategies to:

• Educate employees and owner/operators about the People Promise and actions to be taken

• Demonstrate, as role models, the values and behaviors underlying the People Promise

• Develop a reward and recognition system for individuals who champion and model People Promise practices

• Review existing people practices, with input from stakeholders, including applicable employee representative bodies,and develop priorities for improvement

• Review existing training materials regarding people practices and develop improved methods for including the importance of people practices on a daily and ongoing basis

• Hold themselves accountable for people practices via:

- Annual audits of restaurant people systems

- Surveys of employee sentiment

- Decision-making criteria, including employee promotions

- Determine the best methodology for applying people principles to owner/operators

- Reporting on strategies

� Develop systems for holding country management and senior corporate management accountable for corporate People Promise implementation

� Develop and disseminate to system,including owner/operators, business case research on the positive economic impact of consistent implementation of sound people practices

� Develop forums for broadly sharing positive examples of People Promise implementation

� Explore the feasibility of a centralized analysis of common issues raised in audits and surveys

� Ensure that each McDonald’s market reviews laws and current practices regarding the employment of minors and determines how to ensure that labor market pressures do not result in violations of law or policy

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• Introduction: Integrating SocialResponsibility into QSC&V

• Supplier Social Compliance: Sustainsupplier compliance - promote supplierresponsibility

• Working with Experts• Animal Welfare• International Scientific Advisory Council

(ISAC)• Happy Meal™ Toys and PlayPlace™

Safety

• Goals and Priorities: Next steps

INTRODUCTION

INTEGRATING SOCIALRESPONSIBILITY INTO QSC&V Because QSC&V – Quality, Service, Cleanliness,and Value – are McDonald’s business funda-mentals, these marketplace issues may appearon the surface to be separate from, andindependent of, social responsibility. But thescope of marketplace issues has expanded inrecent years, partly as a result of increasedcommunication and transparency, along withincreased interest by consumers, non-governmental organizations, and other stake-holders. Business for Social Responsibility(BSR) states: “There has been a shift away from‘buyer beware’ toward an ethos in whichcompanies are expected to bear a greaterresponsibility for the integrity, use, andconsequence of their products and services.”

McDonald’s recognizes its fundamentalobligations to provide QSC&V to its customersand also to influence, act positively, andcontinually challenge our system to identifynew ways to protect health, safety, and qualitywithin our system of people, products andservices.

In practice, this is demonstrated by the way weapproach many marketplace practices, such asthese actions:

• Encouraging positive changes in the area ofanimal welfare, including creation of theindustry’s first independent board ofacademic, industry, and animal protectionexperts to advise us on issues related to thehumane treatment of farm animals

• Creating a panel of independent experts –McDonald’s International Scientific AdvisoryCouncil – to provide advice on additionalsteps we can take to protect beef safety

• Being among the first in the quick-servicerestaurant industry to implement theHazard Analysis and Critical Control Point(HACCP) systems

• Working with independent, third-party labs,and government leaders to advance toysafety research that has already helped toraise toy safety standards

These marketplace issues are areas in whichMcDonald’s has demonstrated socialresponsibility leadership. They show that welearn from and listen to outside experts,interested stakeholders, and open our businessto innovations and new ideas.

MARKETPLACE

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SUPPLIER SOCIALCOMPLIANCE

SUSTAIN SUPPLIERCOMPLIANCE – PROMOTESUPPLIER RESPONSIBILITY

Our CommitmentAs a responsible citizen of the globalcommunity, and a vital member of neighbor-hoods in 121 countries around the world,McDonald’s is committed to high standards ofbehavior and performance on issues of socialresponsibility. We hold our suppliers to thesesame high standards.

Through our Supplier Code of Conduct, whichdescribes how we expect our suppliers to treattheir employees, we strive to be a leader in thearea of social responsibility.

We believe that compliance means far morethan issuing a Code to our suppliers.Compliance is a process, not an end in itself.This means that we will continually challengeour suppliers to identify new ways to protectthe health, safety, and human rights of theiremployees. Compliance also involves workingclosely with our supply chain to addresschallenges in a responsible manner thatconsiders the needs and expectations of ourshareholders.

Our ValuesIn all our efforts, we strive to abide by thevalues that guide our actions and frame ourprogram.

Protecting suppliers’ employees:

• To understand important issues that affectour suppliers’ employees

• To make our suppliers’ employees aware oftheir rights

• To do business with suppliers that upholdour standards and respect the rights of theiremployees

Correcting the problems:

• To focus our efforts on dialogue, training, andclear guidelines

• To seek solutions to compliance issues thatare effective today and sustainable tomorrow

• To be open about the challenges we face andpersist in finding solutions

COMPLIANCE PROGRAMDEVELOPMENTIn 1993, McDonald’s formalized its Code ofConduct. We began to use the Code as one ofmany tools to set our expectations for oursuppliers and to review supplier performance.In 1997, we refined the Code and distributed itto all of our suppliers. We also communicatedour expectation that compliance is a conditionof doing business with McDonald’s.

In 1998, our goal was to focus on a region andindustry that would serve as a laboratory forthe development of a compliance process thatcould be rolled out more broadly to otherregions or industries in which human rightsconcerns might justify closer scrutiny of oursuppliers. On this basis, we focused our initialattention on our premium suppliers in China.

Throughout 1998, PriceWaterhouseCoopersworked closely with McDonald’s personnel andwith representatives of the agencies that sourcepremiums for McDonald’s. Out of this process,we developed a comprehensive set of materialsdesigned to enable external social accountabilitymonitors and internal compliance staff toevaluate the compliance progress of productionfacilities manufacturing McDonald’s premiums.

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UNDERSTANDING THE ISSUES –ACTING ON THE ISSUES

AssessmentWe conduct monitoring through externalauditors. These auditors use the McDonald’sstandardized verification process that includeson-site inspection, record verification, andemployee interviews. The audits requiremonitors to be trained in a wide spectrum ofworkplace issues and to possess the interviewskills to validate the different areas ofcompliance.

However, external audits are only one of severalmethods we use to assess the compliance ofour suppliers. We also use stakeholderdialogues, training and education, self assessmentprocedures, and benchmarking to raise the levelof awareness and continuous improvementwithin the supplier base. We realize theimportance of developing a balancedunderstanding of this complex issue. We listento and learn from our stakeholders. Throughstakeholder dialogues we have enhanced ourassessment tools, our data collection processes,and employee interview methods and haveimproved our understanding of suppliercompliance challenges.

Corrective ActionAs important as the various assessmentprocesses are, the real measure of progress isour corrective action process. Through thecorrective action plan, compliance is reinforcedin a tangible way by:

• Ensuring suppliers create specific plans toremedy areas of non-compliance

• Promoting the enactment of policies by oursuppliers that will support ongoingcompliance

• Verifying that the facility has established aprocess to ensure compliance

• Facilitating the communication of correctiveactions by the suppliers to their employees

Corrective action plans are created by theproduction facilities with assistance from ourdirect suppliers. We persist in identifyingopportunities and working through issues withour suppliers to address the root causes ofproblems and to create lasting solutions to thefollowing:

• What is a safe and healthy workenvironment and how can this bemaintained today and in the future?

• How can we ensure the properadministration and delivery of workplacebenefits?

• What are appropriate management andworker practices to ensure rights arerespected on a daily basis?

We believe that, by adopting an approach thatunderstands the workers’ challenges and theissues facing suppliers, we can find sustainablesolutions that will be effective today andappropriate for tomorrow.

As a result of our auditing and engagementwith the suppliers, many facilities in China havebuilt new dormitories to provide better livingconditions for their workers.This is but one ofthe many examples of improvements we haveachieved through our compliance program. Formore detail regarding corrective actions, seeMcDonald’s Corporation Shareholder Reporton Supplier Social Compliance.

RESPONDING TO ALLEGATIONSIn August of 2000, a series of articles in the SouthChina Morning Post alleged that a facility that wasthen producing Happy Meal™ premiums forMcDonald’s was employing child labor andforcing employees to work and live in squalidconditions. The allegations were serious, and wetook them seriously. The China facility had beenaudited the previous year and was charged withimplementing a corrective action plan to resolveissues identified during that audit (none of whichresembled the allegations in the news reports).

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Nevertheless, McDonald’s immediatelydispatched a multinational team of auditors fromfour different social compliance monitoring firms– SGS, ITS, BVQI and PwC – to conduct a full-scale audit of the facility.

This audit did not uncover evidence of childlabor or below standard conditions in the facility.However, it did uncover serious record-keepingirregularities and related problems that causedMcDonald’s to question the supplier’s commit-ment to our program. As a consequence, weterminated this supplier, meaning that none ofthe facilities owned or operated by this suppliercould produce goods for McDonald’s. Termina-tion is always a last resort. Our philosophy onthese issues is to protect the workers andcorrect the problems. We want facilities to raisetheir operations to the proper level, therebykeeping the plant open and jobs ongoing whilethe corrective action plans take hold.

Two important learnings grew out of thisexperience. First, while some groups havesuggested that this incident exposed supposed“failings” of McDonald’s compliance program, webelieve that this experience demonstrates thatour program works. Compliance programscannot guarantee compliance, but they mustincorporate processes that can deal swiftly andeffectively with non-compliance. McDonald’sprogram did precisely that – continually educatesuppliers, remediate nonconformance, andterminate only as a last resort. Later in the year,McDonald’s compliance program once againcame under scrutiny from the South ChinaMorning Post. This time, an editorial in the Postread:

“Finding solutions to problems and remedying badpractices are by far the best options because theyavoid throwing people out of work. By being openabout the problem and attempting to solvedifficulties, McDonald’s is taking an enlightenedapproach that is an example to others.”

We have not found all of the answers, and weanticipate that issues will continue to arise thatwill require reflection, growth, and improvement.However, we believe that we are working toachieve our vision while balancing theeverchanging needs of all our stakeholders onthis issue.

WORKING WITH EXPERTS

ANIMAL WELFAREMeat makes up a significant part of our menuand is integral to our supply chain purchasingmanagement. Our size and scope bring aresponsibility for the quality management of ourmeat supply chain.

McDonald’s cares about the humane treatmentof animals, so we are continuing to find ways toimprove conditions and operations at oursuppliers’ facilities. Although McDonald’s doesnot typically own, raise, or transport animals, wedo recognize that our responsibility as apurchaser of food products includes workingwith our suppliers to ensure good animalhandling practices. McDonald’s believes that thehumane treatment of animals is an integral partof our world-class supplier system. We buy ourbeef, pork, and poultry products from supplierswho commit to our high standards and shareMcDonald’s commitment to animal welfare.

McDonald’s requires its suppliers to meet orexceed all applicable government laws andregulations and meat industry standards relatedto animal welfare. McDonald’s has developedglobal guiding principles for our approach toanimal welfare. McDonald’s Corporation willcontinually look for ways to improve ourstandards and work toward achieving them.Many McDonald’s suppliers are surpassing thesestandards already. McDonald’s continues toexpand and integrate a comprehensive andobjective measurement system for

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good animal handling practices, based on animalbehavior science and the work of Dr.TempleGrandin (see below). Abbatoir audits are in placeand in practice globally with our suppliers.

ANIMAL WELFARE COUNCILMcDonald’s is educating our suppliers and keystaff on animal welfare practices. McDonald’sworks with outside experts who share scientificinformation and research results that assist oursupply chain. McDonald’s has created theindustry’s first independent advisory board onanimal welfare issues. The Animal WelfareCouncil is comprised of leading academic andanimal protection experts.

Dr.Temple Grandin is McDonald’s chief advisor onanimal welfare. Dr. Grandin is Assistant Professor ofAnimal Science at Colorado State University and aworld-renowned expert and advocate for animalwelfare. She has visited dozens of McDonald’s suppliersand has been instrumental in implementing an animalwelfare auditing system with our suppliers.

“McDonald’s integrating animal welfare into itsquality assurance program has made a hugedifference. I have been in this business for morethan 25 years, and I have never seen such atransformation.”

Dr. Grandin,Assistant Professor of Animal ScienceColorado State University

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INTERNATIONAL SCIENTIFICADVISORY COUNCIL McDonald’s established the InternationalScientific Advisory Council, a panel of leadingscientists and medical experts, to advise us onbovine spongiform encephalopathy (BSE).Members of this council review industrypractices and McDonald’s system initiatives inBSE prevention. This helps to promote themost effective policies and procedures.

With this council, McDonald’s is strengtheningour beef safety program. McDonald’s under-stands that independent validation of our foodsafety programs is key to ensuring the trust andconfidence of our consumers.

McDonald’s has built extra safeguards toprotect against BSE. We require our suppliersto certify that their animals have been raisedonly on approved feed. We specifically excludecentral nervous system tissue from cattle feed;this includes no use of Advanced Meat Re-covery systems. At meat packing facilities, wehave established strict procedures for stunninganimals to prevent contamination.

HAPPY MEAL™ TOYS ANDPLAYPLACE™ SAFETYFor years, we have been driving state-of-the-arttechnology to scientifically analyze the safety oftoys and other promotional items for theMcDonald’s system. We also have beenworking with the world’s leading manufacturersand installers of safe playground equipment andrenowned safety consultants so that playtime atMcDonald’s meets our strict specifications.

For example,“McBaby,” a one-of-a-kind, multi-million dollar computerized “virtual child” andworking model developed exclusively forMcDonald’s, was given to the United StatesConsumer Product Safety Commission (CPSC).

This safety technology is now enhancingAmerica’s official safety oversight for toys –including those available from our competitorsand toy stores.

GOALS AND PRIORITIES� Explore ways to increase customer

awareness and knowledge about the nutritional choices at our restaurants

� Evaluate current cooking oils and consider alternatives to reduce saturated fat and trans fatty acid levels

� Provide research and development funding to leading scientists that will assist in detecting and further preventing BSE

� Continue to demonstrate animal welfare leadership

• Explore sow gestation housing alternatives

• Continue to integrate our global minimum standards for all animal species we purchase

�Work with other companies in our industry to promote animal welfare standards and leadership

The following social compliance goals describeour existing and planned efforts for oursuppliers to achieve sustained compliance.

� Continue to develop improved evaluation tools

• Improve our auditing tools to more effectively monitor workplace issues such as hiring practices, workplace management and disciplinary methods,harassment, and workplace environmental,health and safety conditions.

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• Improve worker interview methods using more insightful questioning techniques and approaches based on the advice of stakeholders and consultants. We have modified the interview process to include on- and off-site worker visits incorpor-ating a broader array of questions to address worker needs and concerns, and we continue to explore additional methods of collecting more candid and open worker feedback, such as an ombudsman program.

� Continually improve communication,awareness, education, and training

• Enhanced Training: We have continued to update our educational materials regarding workplace and worker issues.This training is targeted to suppliers, their facilities, external monitors, and local McDonald’s personnel. In training,dialogues communicate our compliance expectations to our suppliers and, in turn,provide our suppliers with an opportunity to explain their practical challenges to us.Through this exercise, our understanding of workers’ and suppliers’ concerns have grown, and our compliance efforts have improved greatly. The format is created to encourage the “train the trainer” method of information transmission in order to support worker training and awareness.

• Worker Awareness Tools: McDonald’s has supported the efforts of our suppliers to create worker awareness tools to facilitate understanding of our code of conduct expectations by our suppliers’ employees. Each lead supplier has created pamphlets, booklets, and cards that reinforce the elements of the McDonald’s Code of Conduct for Suppliers in a way that workers will understand. We also are working with our suppliers to evaluate the effectiveness of this communication in a continual effort to reinforce the

importance of compliance with the Code of Conduct and respect for workers’ rights.

• Benchmarking and Dialogues: One of the hallmarks of our compliance program is continuous benchmarking with other similarly situated companies. Considerable time and effort are spent working with and learning from other companies. In addition to benchmarking with individual companies,we have engaged industry trade groups in similar discussions. McDonald’s also has reached out to interested non-governmental organizations (NGOs), and we have received useful ideas and suggestions from these organizations. As our program continues to evolve, we will explore opportunities to put these ideas and suggestions into practice.

� Expansion of our program scope

As mentioned earlier, McDonald’s initially focused on a single industry during the creation phase of our monitoring program.Learning from our experiences in China, we have begun to expand the compliance assessment aspects of our program to other industries and geographic regions, as appropriate.

• Our first step in this process has been to conduct an up-to-date inventory of McDonald’s supply chain around the globe and to redistribute the Code of Conduct to the entire supply chain. We have asked our suppliers to certify that they are in compliance with the Code.

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• Our next step, which is ongoing, is a compliance assessment. The process of assessment begins with education of our suppliers on current compliance issues.This education includes assisting suppliers in identifying areas within their unique supply system that may require extra attention due to their geographic location or product conversion process. As these compliance opportunities are identified,suppliers will be asked to work with McDonald’s to perform facility assess-ments. Based on these assessments,appropriate social compliance plans will be developed.

• Each of our goals represents a critical building block in achieving a sustained level of supplier compliance. We need to improve our understanding of the issues and effectively communicate with our suppliers regarding these issues. We also need to continue to improve our training and ensure this training is cascaded throughout the supply system.

Listening to our business partners and ourstakeholders is essential to understanding theirconcerns and adopting practices that areeffective in sustaining compliance.

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As our commitment embraces today’s broadscope of social responsibility, it acknowledgesour accountability (governance, ethics, mission,vision, and values) to place (community), planet(environment), and people (marketplace,workplace, diversity, and human rights). Briefly,we describe some responsibilities withinMcDonald’s to manage these issues.

SOCIAL RESPONSIBILITYSTEERING COMMITTEEWe have a core corporate group thatencompasses diverse business functions thatoversees our social responsibility strategies andactions. This team includes functions such asCorporate Communications and SocialResponsibility, Corporate Compliance, HumanResources, McDonald’s Charities, Strategy, andWorldwide Supply Chain Quality Assurance.

BOARD OF DIRECTORSThe Board of Directors has focused itsoversight responsibility on the company’s socialand environmental performance by establishingthe Corporate Responsibility Committee. ThisCommittee acts in an advisory capacity to thecompany’s management with respect to policiesand strategies that affect the company’s role asa socially responsible organization, including, butnot limited to, issues pertaining to health andsafety, the environment, employee opportun-ities, consumers, and the communities wherethe company does business.

OPERATIONSEach of the countries we operate in hasautonomy for running the day-to-dayoperations. At the lead are local joint venturepartners, managing directors, and countrymanagers, who understand and appreciate thecustoms and cultures of the people they serve.In this method of operation, McDonald’s selectsa local business person who shares McDonald’sbusiness philosophies to start a local company.

SUPPLIERSOur suppliers take the same leadershipphilosophy as McDonald’s with respect tosocial responsibility issues – includingenvironmental stewardship, diversity in theworkforce, people practices, and support of ourcommunities. Together, we have worked closelyin a number of efforts featured in this report.

McDONALD’S CHARITIESMany of the company’s philanthropic activitiesare directed and administered by this group.McDonald’s provides all of the administrativesupport for Ronald McDonald House Charities,along with management of corporate contri-butions and administration of the McDonald’sFamily Charity, which was set up to helpMcDonald’s employees in times of disaster oremergency.

QUALITY AND SAFETYMcDonald’s Quality Assurance Board, alongwith the Global Safety and SecurityDepartment, provides strategic globalleadership for all aspects of food quality andsafety. Further, quality assurance and supplychain specialists around the world work withMcDonald’s suppliers to ensure compliancewith our standards and specifications. Plus, weroutinely interact with our suppliers toencourage innovation, assure best practices, anddrive continuous improvement.

GOVERNANCE

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HUMAN RESOURCESHuman Resources is responsible for driving ourPeople Promise throughout the entire system –from restaurant employees to owner/operators,to regional and corporate staff. Thisresponsibility includes hiring people with theappropriate experience and skills, havingeffective tools to help us hire people who meetour needs, ensuring individual developmentplans are created for each employee,maximizing commitment, and providing rewardsystems that drive higher levels of performance.

DIVERSITY INITIATIVESThis department provides leadership and thedevelopment framework for strategic planningand the future business integration of diversityfor McDonald’s. Furthermore, this groupprovides diversity consulting and support toowner/operator leadership groups.

SUPPLY CHAIN MANAGEMENTThis group works to ensure that our suppliershave completed the required social compliancedocumentation, showing their accountability forthe safety of the food, toys, and manufacturedgoods they provide and their adherence to ourhigh standards of business ethics and integrity.Ongoing relationships with suppliers worldwideare created and developed to ensure they havethe proper kind of social programs, such asthose related to the environment, laborpractices, and animal welfare. We also work todevelop local suppliers, transferring technologyand knowledge to them.

WORLDWIDE RESTAURANTSYSTEMSThis group supports restaurant activity andexecution at all levels around the world, whilealso stimulating innovation that continues toenhance McDonald’s restaurant systemsworldwide. In further support of qualitypractices in our restaurants, this group alsocoordinates management development andleadership training throughout the organization,with specific courses and programs targeted forswingshift managers, manager trainees andassistants, restaurant managers, mid-levelmanagers, and executives.

ALLIANCESMcDonald’s will continue to seek out third-party groups, including government leaders,NGOs, customers, and key experts to helpinfluence our business and social responsibilitypractices. McDonald’s has been enriched bythese alliances, and we continue to look forways to establish meaningful dialogueswhenever and wherever appropriate.

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This report was coordinated by the McDonald’s Social Responsibility Steering Committee,which served as an editorial board for this report.

We have worked with Business for Social Responsibility to help us assess our socialresponsibility programs, strengths, and opportunities for the future. We would like tothank BSR for their work and dedication to helping companies such as ours learn andintegrate sustainable thinking into our culture.

We also thank The Natural Step for their help. TNS directly participates in McDonald’sGlobal Environmental Council and recently began collaborating with McDonald’s to assistus in our ongoing efforts to implement a sustainability framework into our business.

ACKNOWLEDGEMENTS

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McDonald’s Social Responsibility Reportpublished by:

McDonald’s Corporate Communications andSocial Responsibility

• McDonald’s Corporation • • One Kroc Drive • Oak Brook, Illinois, 60523 •

USA www.mcdonalds.com

Content for the report was coordinated by McDonald’s:

Social Responsibility Steering Committee Global Communications Council (GCC)

Global Environmental Council (GEC)

We welcome your comments and suggestionsat our social responsibility web site:

www.mcdonalds.com/corporate/social/