Papa John’s Founder Will Not ‘Go Quietly’ as Company Tries to Push Him Away
Posted July 17, 2018 7:21 p.m. EDT
Papa John’s just wants Papa John to go away.
The pizza chain has spent the past week distancing itself from John Schnatter, its founder and pitchman, after it was reported he used a racial slur in a comment about black people.
Schnatter apologized and resigned as chairman of the company last Wednesday. On Friday, the company said Schnatter’s image, a fixture on its marketing materials, would be removed as the “first of several key steps to rebuild trust from the inside-out.”
Then on Sunday, Papa John’s booted him from subleased office space at the corporate headquarters in Louisville, Kentucky, and asked him to stop speaking to the media.
But Schnatter, who opened the first Papa John’s restaurant in 1985, isn’t going to make things easy. Both he and his lawyer sent letters to the board over the weekend suggesting he was pressured to resign without any investigation into the circumstances, which he also described as an extortion attempt. Relinquishing the position, he wrote, “was a mistake.”
“John is not going to go quietly into the night and watch the company he worked so hard to build fall off a cliff,” said Schnatter’s lawyer, Patricia Glaser, who has been hired in the past to handle contract disputes by clients including Keith Olbermann and Harvey Weinstein. “He is going to protect shareholders and the company as much as he can.”
Glaser said the Papa John’s board should conduct an investigation into the claims that led to Schnatter’s removal as chairman. She has sent a letter to the Papa John’s board saying that members cannot remove him as a director without a shareholder vote.
For decades, Schnatter has loomed large over Papa John’s, his personality bound tightly to the chain’s business strategy as he expanded the company into a chain with more than 5,000 locations around the world, appearing in its television ads and even on the boxes its pizza is delivered in.
With a market value of more than $1.7 billion, Papa John’s is the fourth-largest pizza chain in the country, behind Domino’s, Pizza Hut and Little Caesars, according to restaurant market research firm Technomic.
But Schnatter, who also owns nearly 30 percent of Papa John’s stock, has drawn an outsize amount of criticism in a short amount of time.
Last fall, he complained that the National Football League had hurt Papa John’s sales by failing to handle football players who protested racism and police brutality by kneeling during the national anthem.
The comments were praised by white supremacists but decried by many consumers and investors. Schnatter stepped down as chief executive. Papa John’s gave up a longtime sponsorship deal with the NFL and was promptly replaced by its rival Pizza Hut.
The latest furor stems from a May 22 conference call with Laundry Service, a marketing agency, that was intended to prepare him for future questions about diversity.
During the call, he was confronted about the NFL uproar and asked whether he was racist, Schnatter wrote in a letter to the Papa John’s board that was reviewed by The New York Times. He denied the assertion and then, Schnatter wrote, he said Colonel Harland Sanders, who founded the Kentucky Fried Chicken fast-food chain and was its longtime spokesman, used the racial slur to describe black people. Sanders died in 1980.
But Schnatter said he would never use that word.
“Let me be very clear: I never used the ‘N’ word in that meeting as a racial epithet, nor would I ever,” he wrote.
The day after the call, Papa John’s decided to fire Laundry Service, Schnatter wrote. The pizza company owed $1.3 million for the marketing firm’s services, but the Laundry Service said some of its employees had been offended by Schnatter’s comments on the call and demanded $6 million, with one of its lawyers threatening to conduct “a smear campaign,” Schnatter wrote. Papa John’s offered to pay $2.5 million, he wrote.
Laundry Service declined to comment, but in an internal memo reviewed by The Times, the company said “disparaging and outrageous comments” made in news reports about the company and Wasserman, the talent management company that owns it, “are completely false.”
Laundry Service said in the memo that it was planning an on-the-record response disputing the comments and asked employees to refrain from speaking to journalists. Papa John’s did not respond to a request for comment. Board members who suggested that he also give up his board seat “were acting on rumor and innuendo,” Schnatter wrote, adding that Papa John’s “has demonstrated that it does not know how to handle a crisis based on misinformation.”
“I will not allow either my good name or the good name of the company I founded and love to be unfairly tainted,” he wrote.
Last week, when a report about the call appeared in Forbes, Schnatter issued a statement apologizing “regardless of the context.” He also resigned from the board of trustees for the University of Louisville.
Since then, Major League Baseball has suspended a promotion arrangement with Papa John’s. The mayor of Jeffersonville, Indiana, Schnatter’s hometown, stripped a local gym of his name. The New York Yankees and the Oregon State University athletics department cut ties with the company.
Papa John’s has said it will commission an independent audit of its diversity policies and culture and also send its senior management team to stores around the country to hear employees’ concerns.
Still, its best course of action may just be to wait things out, in a political environment with “so much rhetoric and hostility in the air” and confusion caused by differing accounts of the Laundry Service call, said Mark Cohen, a former chief executive of several retail companies who teaches business at Columbia University.
“To a supermajority of the customers of this brand, what just occurred is meaningless,” said Cohen. “The consumer has an extremely short attention span.” Papa John’s now faces the tricky task of disentangling itself from its founder and persuading its customers and investors to move on. The company may need to rebrand itself — a process that is “not fast and not cheap,” said John Danner, a lecturer at the University of California Berkeley’s business school.
“In the short term, it is all about survival and damage control,” he said. “And if you’re going to make a commitment to atone, it had better be genuine and you had better be able to stick to it, because you’re only going to have one bite of the apple.”