Papa John's
Papa John’s to remove founder from advertising Joe Raedle/Getty Images News/Getty Images

Schnatter accuses Papa John’s leadership of misconduct, incompetence

Founder blames pizza chain’s declining sales on ‘rot at the top’

John Schnatter, in his latest attack on management at Papa John’s International inc., has accused CEO Steve Ritchie of malfeasance, incompetence and fostering a toxic corporate culture marked by sexual misconduct and internal espionage. 

In a letter to franchisees posted on Schnatter’s own web site, savepapajohns.com, the founder and former CEO and board chair of the pizza delivery chain said, “The source of the company’s poor performance is rot at the top. The company’s [human resources] department has detailed evidence of sexual misconduct, harassment and intimidation by virtually everyone in Steve’s inner circle, and relating to board members as well.”

The company denies the claims, saying in a statement that: “John Schnatter is making untrue and disparaging statements in a self-serving attempt to distract from the damaging impact his own words and actions have had on the company and our stakeholders.”

In his letter, Schnatter went on to say that Ritchie “is out of his depth as CEO” and is blaming Schnatter for the company’s failings. He added that he recommended that Ritchie be removed as CEO in June.

“Right now, he’s blaming me. Tomorrow, it might be you,” Schnatter told franchisees. “It will never, however, be Steve’s responsibility.” 

Among the board members singled out in Schnatter’s letter was Mark Shapiro, who has been on the board since Feb. 2011, according to Papa John’s website. Noting that Shapiro was CEO of a company that went into bankruptcy — he headed Six Flags Inc. when it filed for Chapter 11 bankruptcy in June of 2009 and emerged from it in May of 2010 — Schnatter said, “it’s hardly a coincidence that Endeavor, the marketing agency Steve just hired, costing millions of dollars, is owned by the same company where Shapiro is co-president.”

Shapiro is co-president of WME|IMG, which owns Endeavor Global Marketing, which Papa John’s named as its marketing agency earlier this month.

That hiring came following Schnatter’s resignation as chairman of the board amid allegations that he used inappropriate, racially charged language during a conference call with its previous marketing agency, Laundry Service, after which Laundry Service severed ties with the company. 

Schnatter’s series of conflicts with the chain he founded started in a November earnings call, when Schnatter, who was CEO at the time, blamed flagging sales in part on the National Football League’s failure to quell the silent protests of some of its players during the playing of the national anthem before games.

Papa John’s was an official sponsor of the NFL at the time. It has since been replaced by Pizza Hut. 

Schnatter stepped down as CEO at the end of 2017 and was replaced by Ritchie, who was president at the time and was hand-picked by Schnatter as his successor. Schnatter then became chairman of the board, a position he held until his July 11 resignation. 

He then said that resignation was a mistake and has been seeking to reclaim a leadership role in the company. He still owns around 30 percent of the company and is still a board member. Schnatter has sued Papa John’s for access to papers detailing the decision-making process behind the board’s request that he resign — a lawsuit Papa John’s said was frivolous — and set up the Save Papa John’s website to tell his side of the story.

In his letter to franchisees, Schnatter said he told the board in June “that Steve needed to go. At the time, the board agreed — and asked me to become executive chairman.”

Papa John’s also denies that claim.

“At no time has the board asked John Schnatter to become executive chairman,” the company said. “In fact, the company has taken multiple steps to separate itself from him. John Schnatter also publicly supported Steve Ritchie’s appointment as CEO at the end of last year.”

Since Schnatter stepped down as chairman, Papa John’s has moved to remove Schnatter’s image from its marketing materials, to evict him from his offices at Papa John’s Louisville, Ky., headquarters and to terminate a 2007 “Agreement for Service as Founder” that allowed Schnatter to attend major corporate events, visit franchises, participate with management and investors and act as brand spokesperson.

It also adopted a “poison pill,” to forestall attempts at corporate takeover without the board’s approval.

In his letter, Schnatter said that as part of his move in June to oust Ritchie, he prepared a performance review of the CEO “as his periodic evaluation was coming due, and I also identified a list of senior management to be replaced. That list included Steve Ritchie.”

He then described Byzantine machinations that resulted in his ouster.

“It now appears that one of Steve’s direct reports was having an affair with someone in our IT department, and she secretly accessed my draft review of Steve and shared those drafts with her ‘boyfriend’ who then gave them to Steve. Steve then decided, and communicated to others, that he needed to get rid of me to save his own job,” he said.

“Bad financial decisions, insufficient management skills to correct them, a toxic senior management culture, and serious misconduct at the top levels of our leadership team have prompted some in the company to use me as an excuse to distract from those cold realities,” he added. 

In its latest earnings report, Papa John’s domestic same-store sales fell by 6.1 percent for the quarter ended June 30. They fell further in July amid Schnatter’s resignation: For the period of July 2 to July 29, same-store sales were down by 10.5 percent.

Papa John’s responded by offering financial assistance to franchisees in the form of reduced royalties, food pricing and online fees. 

It also has undergone a public-relations campaign distancing itself from Schnatter, apologizing for its insensitivity and spearheading new diversity initiatives.

In July, following Schnatter’s resignation, Papa John’s established a “special committee” of independent directors of the board to examine policies related to Papa John’s corporate culture and issues related to diversity and inclusion. 

“We have taken important steps to move the company forward and create a better future,” Papa John’s said Tuesday. “The Special Committee, franchisees, employees, and shareholders are supportive of these steps and the new business priorities being executed by the leadership team, led by CEO Steve Ritchie. We are confident in the company and the new direction we are headed.”

Contact Bret Thorn at [email protected]

Follow him on Twitter: @foodwriterdiary

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish