1 12
1 12
Papa John’s founder and chairman of the board John Schnatter resigned in the aftermath of reports that he made a racial slur during a meeting in May with the pizza chain’s media agency, Laundry Service. Laundry Service had terminated its relationship with the pizza chain at that time.
Sports teams across the country began to distance themselves from the brand. Major League Baseball suspended its Papa Slam deal as individual teams and players denounced Schnatter, and the University of Louisville removed Papa John’s from the name of its stadium.
CEO Steve Ritchie announced that Schnatter would “no longer be in any of the advertising or marketing materials associated with the brand.” Schnatter then called his resignation as chairman “a mistake” and questioned the board’s handling of the issue in a letter sent to directors.
Papa John’s took legal action to try to prevent a takeover, presumably by Schnatter, who still owns about a third of the company. In an action known as a “poison pill,” the board of directors issued a plan that allowed current shareholders to buy more shares at a discount in the event of a takeover attempt.
Schnatter also sued the company to get access to records to see the decision-making process behind his removal as the company’s spokesperson. A company spokesman via email called the lawsuit “needless and wasteful.”
Papa John’s named Olivia Kirtley chair of its board of directors. She had been the lead independent director on Papa John’s board since 2017.
The company also hired Endeavor Global Marketing as its new agency of record, replacing Laundry Service.
Papa John’s announced that same-store sales had continued to slide in the second quarter, with North American comparable sales down by 6.1 percent in the quarter that ended on July 1, before the tumult even began. Schnatter blamed Ritchie and the board of directors for the poor performance and said he planned to remain involved with the company.
Papa John’s offered financial assistance to franchisees in the United States and Canada in the form of cut royalties and other fees.
Schnatter heightened pressure on the company by promoting a new website to communicate directly with employees and shareholders. He set up the SavePapaJohns website and ran a full-page ad in the Louisville Courier Journal.
Papa John’s then set up new diversity initiatives and published an open letter from Ritchie. He said an independent audit of the company’s diversity and inclusion practices was underway, adding that the company’s leadership had recently completed “unconscious bias” training. He also said the company was looking at long-term initiatives to increase the number of minority-owned franchise owners.
In another attack on management, Schnatter accused Ritchie of malfeasance, incompetence and fostering a toxic corporate culture marked by sexual misconduct and internal espionage. The company denied the claims. The board of directors fired back in a statement, saying that “Schnatter is harming the company, not helping it.” The special committee of independent directors accused Schnatter of ignoring the board’s decisions, citing at least five examples.
A shareholder also sued Papa John’s, Schnatter, Ritchie and former chief financial officer Lance Tucker, over what she said were misleading statements that inflated stock prices, resulting in her and other shareholders buying overpriced shares.
John Schnatter, in a second lawsuit, accused Papa John’s upper management of pushing him out and bullying employees who supported him. In the suit, his lawyers accused Ritchie and board members of breach of fiduciary duty in putting their own interests above the company.
Later in the month, Papa John’s launched a new ad campaign seeking to move beyond the controversy. The new campaign called “Voices of Papa John’s” featured 24 franchisees and managers who volunteered to be in the ad, with one franchisee saying, “You’ve heard one voice of Papa John’s for a long time,” a clear reference to Schnatter.
Papa John’s share prices were buoyed by purchases from an activist shareholder and rumors of a possible sale to Trian Fund Management LP. Amid the speculation, Schnatter asked the chain’s management to revise the “poison pill” provision that prevented him from working with potential buyers.
The company restructured and added new roles in an effort to help improve customers’ experience and accelerate growth.
Papa John’s then hired Havas Media as its media agency of record, covering media strategy, planning, buying and analytics. According to its website, Havas specializes in creating “meaningful connections” for brands and its customers.
Following another disappointing quarter in which same-store sales slid 9.8 percent, Papa John’s franchisees hired industry specialist attorney Robert Zarco to represent them as they continued difficult discussions with the parent company.
