Papa John International, Inc.’s board of directors fired back at the company’s founder and largest shareholder, former CEO and board chair John Schnatter, in response to his accusations of malfeasance and incompetence.
“John Schnatter is promoting his self-interest at the expense of all others in an attempt to regain control,” the board’s special committee of independent directors said in a statement released Wednesday night.
“Schnatter is harming the company, not helping it, as evidenced by the negative impact his comments and actions have had on our business and that of our franchisees. We have tried to meet directly with John Schnatter to discuss how we can move forward in the best interest of all stakeholders.”
The committee was established after Schnatter’s resignation as board chair in July following accusations of his using inappropriate, racially charged language in a conference call in May. The committee’s mission is to examine policies related to Papa John’s corporate culture and issues related to diversity and inclusion.
Since then, Schnatter, who owns about 30 percent of the company’s shares, has said his resignation was a mistake and that he has been blamed inappropriately for the pizza delivery chain’s poor performance since last year. He has set up his own web site savepapajohns.com, to tell his side of the story.
Schnatter himself, during a Nov. 1 quarterly earnings call last year, blamed the chain’s declining sales in part on the National Football League’s failure to clamp down on silent protests by its players during the singing of the national anthem. In the aftermath of that, share prices fell and Schnatter eventually stepped down as CEO. He was replaced by his anointed successor, Steve Ritchie, at the beginning of 2018.
“The Board specifically directed John Schnatter not to talk about the NFL controversy related to the National Anthem on the 2017 third quarter earnings call,” the committee said in its statement. “In direct defiance of these instructions, John Schnatter made unscripted comments about the NFL controversy.
The committee listed that act along with other instances of Schnatter’s “continued pattern of ignoring decisions of the Board.”
Also on that list:
• “When independent market research showed that a change in spokesperson [from Schnatter to someone else] and advertising strategy was warranted, John Schnatter commissioned his own research and produced separate commercials that starred himself.”
• Schnatter reportedly met with the chain’s management and staff “on numerous occasions” without Ritchie’s knowledge and gave directions to that management without informing Ritchie or the board. “John Schnatter was reminded on many occasions that the CEO is to direct management, not the non-executive Chairman [Schnatter’s position at the time],” the committee said, adding that Schnatter had proposed having communications between management and the board go through him, which “was totally rejected by the Board.”
• Schnatter violated board instructions in July when he met with another restaurant company’s executives without Ritchie being present.
• Schnatter “misinformed the board about the circumstances surrounding the termination of the Company’s relationship with Laundry Service,” a marketing agency that Papa John’s had hired in October and that quit in May after the reported meeting in which Schnatter used the inappropriate language.
The committee also denied accusations by Schnatter that the board had asked him to be executive chairman.
“It is simply not true," it said.
“Rather, John Schnatter suggested to individual Board members that he should become Executive Chairman and even directed a member of management to make unauthorized contact with the Compensation Committee’s independent consultant in July 2018 to ask for peer compensation data.”
It also called “not true” Schnatter’s assertion that the board agreed that Ritchie should step down as CEO.
“The Board’s decision to appoint a new CEO at the end of last year was unanimous as was the later decision to appoint a new Chairman [Olivia Kirtley who was appointed in late July]. John Schnatter praised Steve Ritchie in his own book as a ‘model of what a leader should be’ and fully supported his appointment as CEO. However, when the Company decided to implement a new marketing plan that did not feature John Schnatter, he began to criticize the management team and undermine the new CEO’s leadership.”
The committee said it tried to meet directly with Schnatter “to discuss how we can move forward in the best interest of all stakeholders.” But Schnatter didn’t respond to those requests until last week, and then the conditions were unreasonable, according to the committee. They included cancelling the company’s annual Operators Conference, which is scheduled to take place next week, and allowing Schnatter alone to reschedule it.
It said that conference of around 1,500 team members and franchisees was “a critical annual meeting.”
“John Schnatter’s demand that it be cancelled just one week in advance was unreasonable and does not support his purported concern for the future success of Papa John’s, franchisees, employees and team members.”
Contact Bret Thorn at [email protected]
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