Up until now, the leadership at Papa John’s has opted to take the high road, but after founder John Schnatter released a letter accusing current CEO Steve Ritchie of mismanagement and asserting the board was ready to fire Ritchie in June, a special committee of independent directors at Papa John’s released their own letter.
“John Schnatter is promoting his self-interest at the expense of all others in an attempt to regain control. John 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,” reads the letter, released Wednesday night, from the special committee of independent directors.
It later states, “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. John Schnatter has demonstrated a continued pattern of ignoring decisions of the Board, both in his role as CEO and as nonexecutive Chairman of the Board.”
The letter lays out multiple accusations against Schnatter:
- The board says Schnatter misinformed them as to why the company’s contract with marketing company Laundry Service was terminated. (Laundry Service says it terminated the contract after Schnatter used a racial slur.)
- Schnatter has ignored attempts by Papa John’s fellow board members to meet in person and only reached out last week through his attorney.
- He agreed to meet only if the company allowed Schnatter to reschedule its annual Operators Conference to the time, date and location of his choosing. OpCon, an annual meeting of about 1,500 franchisees and employees, is set for this week. “John Schnatter’s demand that it be canceled 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,” the letter states.
- Schnatter defied a directive by the board in November 2017 when he blamed NFL players for Papa John’s slumping sales.
- When the company wanted to change its spokesperson and advertising strategy following independent market research, Schnatter commissioned his own research and produced commercials starring himself.
- Schnatter went behind the backs of Ritchie and other directors to give management directions to staff and wanted all communication between management and the board of directors to go through him first. He also held meetings with another restaurant company’s executives without Ritchie present.
The letter also denies Schnatter’s recent assertion that the board agreed in June that Ritchie should go and that it wanted to make Schnatter executive chairman.
“It is unfortunate that John Schnatter continues to make allegations in the public domain. The Special Committee has an ongoing independent outside audit and investigation to review any allegations, which we are striving to complete in the most expedient way,” according to the letter. “John Schnatter’s attacks on the Company, its Board and management seem to serve only his interests. As the independent directors, we will defend the Company against his actions and continue to do what is right for Papa John’s and our stakeholders.”
The special committee’s letter came in response to a letter Schnatter posted on his new website, SavePapaJohns.com. On the site, Schnatter says it’s a way for him to communicate directly with staff and franchisees and get around attempts by other Papa John’s executives and directors to silence him.
In his letter, Schnatter makes the accusation that it is, in fact, Ritchie who is to blame for diving sales numbers and asserts that the board planned to place him back in charge as executive chairman of the board after firing Ritchie — which the special committee denies.
“I developed a detailed performance review for Steve, as his periodic evaluation was coming due, and I also identified a list of senior management to be replaced. That list included Steve Ritchie,” Schnatter wrote. “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.”
“Events like these are what lie behind the current efforts to drive me from the Company,” he continued. “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. ”
Schnatter stated that he owns 31 percent of the company’s shares and, therefore, is deeply invested in its performance.
“Papa John’s is not just an investment for me. It’s my life, my job and my passion. I care about this company. I care about its franchisees, employees, customers and shareholders,” he wrote. “My name is on every pizza box. I will do everything I can to make sure Papa John’s thrives, not only as a shareholder, but as someone who loves this company and the people who dedicate their lives to it.”
Schnatter said Ritchie is “out of his depth” and a “destructive” force in the company. He also accuses Ritchie’s inner circle and other directors of sexual misconduct, harassment and intimidation.
Previously, rather than going tête-à-tête, Papa John’s management and board of directors (excluding Schnatter who remains on the board) has hired professional fixers to help mitigate the headlines Schnatter is making with accusations of wrongdoing and attempted to right the ship, which has seen decline sales since the third quarter of last year.
The company has hired the international law firm of Akin Gump Strauss Hauer & Feld to conduct a cultural audit and investigation into the company operations. It also brought in a new marketing agency, Endeavor Global Marketing.
Papa John’s removed Schnatter’s image from its marketing and packaging materials, instituted an assistance program for franchisees, debuted a new advertisement promising to do better and is requiring bias training for all, as well as sending executives on a listening tour to hear franchisees’ concerns.
The board also adopted a “poison pill” to prevent Schnatter from trying a hostile takeover of the company and hired the investment banks Bank of America Corp and Lazard Ltd., duties of which will include vetting outside offers to buy Papa John’s, according to Reuters.