John Schnatter isn’t just leaving his role as chairman of the board at Papa John’s; he’s also exiting the company’s public image. The Associated Press reported July 13 that the pizza chain is pulling its founder’s image from marketing following reports he used a racial slur in a May conference call. The AP said Schnatter, Papa John’s founder and former CEO, who resigned as executive chairman July 11, already had his face taken off some marketing materials. The company said details and exact timing for the overall changes are not yet confirmed. It also said there are no current plans to change its name.
On Sunday after a night board meeting, Papa John's announced the creation of a special committee of the board of directors, consisting of all of the independent directors, to “evaluate and take action with respect to all of the company’s relationships and arrangements” with Schnatter. The committee is being advised by independent outside legal counsel.
The committee didn’t take long to get started. Papa John’s said it approved and directed the company to terminate Schnatter’s founder agreement, which defined his role with Papa John’s “as advertising and brand spokesperson for the company.” The termination takes 30 days to go into effect.
“Since Mr. Schnatter no longer has an active role with the management of company’s business, the special committee also approved and directed the company to terminate a sublease agreement granting Mr. Schnatter the right to use certain office space at the company’s corporate headquarters in Louisville, Kentucky,” it said. The eviction goes into effect in 90 days.
Papa John’s “specifically requested” that Schnatter also cease all media appearances, and not make any further statements to the media regarding the company, its business or employees.
Lastly, the special committee is overseeing the external audit and investigation into Papa John’s existing processes, policies, and systems related to diversity and inclusion, supplier and vendor engagement, and Papa John’s culture.
CEO Steve Ritchie issued an open letter to guests Sunday, saying “this past week was the hardest week in my 22 years with Papa John’s.”
“I know the words of John Schnatter were offensive, and nothing pains me more than knowing they hurt you. To be clear, those words in no way represent my views or the values of our company. As the leader of Papa John's, I'm sorry,” he said.
“Papa John's is not an individual. Papa John's is a pizza company with 120,000 corporate and franchise team members around the world,” he added. “These are the people in your communities from all walks of life who work hard to provide you with better service and better pizza. These are your local owners and operators who do so much in your community."
Schnatter remains on the board at Papa John’s and is its largest shareholder, owning about 30 percent of the company's shares. It just appears his time touting the brand he brought to market in 1984 in TV ads and logos has come to an abrupt end.
Major sports organizations have split since the blowup. Major League Baseball indefinitely suspended its Papa Slam deal where customers received a 40 percent off orders following a grand slam. The Miami Marlins cut ties with Papa John’s, including closing its related concessions at Marlin’s Park. The Seattle Mariners “suspended our relationship with Papa John’s,” according to a statement on social media. Same goes for the Baltimore Orioles, Washington Nationals, and New York Yankees.
“In response to the reprehensible remarks made by Papa John’s founder and owner, the New York Yankees are suspending their relationship with the company,” a written statement from the Yankees read.
The University of Louisville also said it would remove the Papa John’s name from its football stadium. It plans to rename the John H. Schnatter Center for Free Enterprise at its business college. Schnatter resigned from the university’s board of trustees as well, with Neeli Bendapudi, the president of the University of Louisville, saying during a press conference: “These comments were hurtful and unacceptable, and they do not reflect the values of our university.”
On Friday, the University of Kentucky announced it would discontinue its financial relationship with Schnatter and that he would no longer be recognized by the Gatton College of Business and Economics or the Institute for the Study of Free Enterprise.
Eli Capilouto, president of the University of Kentucky, said in a statement: “We appreciate Mr. Schnatter’s understanding that his unacceptable language is contrary to the values of the University of Kentucky. We believe in his sincerity to try to make amends. But attempting to continue any financial relationship with Mr. Schnatter would be a painful and unnecessary barrier to our efforts of building a community where everyone is welcome and belongs."
Morehouse College also said on Twitter: “The college is exploring all options for removal of the franchise from campus in light of this highly offensive behavior."
Can Papa John's turn around the negative tide?
Cathy Dunkin, a public-relations expert and longtime practicing professional and leader in business communications at Washington University in St. Louis’ Olin Business School, said Papa John’s needs to “emphasize the new leadership team and strong company values that don’t include such insensitive attitudes,” in a release. She said Papa John’s could benefit from a shift similar to the one Subway made when spokesman Jared Fogle pled guilt to distributing child pornography and traveling for paid sex with girls in 2015.
“This could mean that all-company training would be a great idea as part of an overall strategic plan with messaging and stakeholder engagement,” Dunkin said.
And what about a name change? That’s the obvious and most drastic change, but hard to imagine when you consider the scope. At the end of the first quarter that ended April 1, there were 670 domestic company-owned stores and 2,745 franchised North American units. There were an additional 1,788 restaurants internationally, bringing the total store count to 5,212.
Dunkin said Papa John’s should monitor sales results, social media, and even consider polling consumers before deciding what steps to take next. “The name may be salvageable with some sort of ‘new generation taking over’ messages, but we don’t really know,” Dunkin said.
“Obviously it’s expensive to build an entirely new brand—when they might be able to show that new people, new thinking and new practices are in charge. It’s too early to say that a drastic name change or rebranding is necessary; again, something like that requires intensive research and information. Short-term, they might be able to survive and thrive after some kind of public campaign starting with an apology stating clearly those aren’t the beliefs of the company, along with actions to support the assertions of new thinking.”
Reports from Forbes surfaced earlier in the week that during a May conference call arranged between Papa John’s executives and marketing agency Laundry Service, one that was meant as an exercise to prevent future public-relations issues, Schnatter used the “N-word” when asked how he would distance himself from racist groups online. He allegedly responded: “Colonel Sanders called blacks [racial slur],” and then complained about Sanders not facing the same kind of public outcry he did after an NFL controversy earlier in the year.
Schnatter admitted fault, saying in a statement: “News reports attributing the use of inappropriate and hurtful language to me during a media training session regarding race are true. Regardless of the context, I apologize. Simply stated, racism has no place in our society.” Late Wednesday, Papa John’s released a statement announcing it accepted Schnatter’s resignation as chairman of the board and that Olivia Kirtley would act as the company’s lead independent director. A new chairman of the board will be appointed in the coming weeks.
The call was almost certainty in response to Schnatter’s controversial investor call November 1 when he railed against the NFL’s handling of player protests to the national anthem. He exited as CEO January 1 and COO Ritchie stepped in.
“The NFL has hurt us. And more importantly, by not resolving the current debacle to the player and owners' satisfaction, NFL leadership has hurt Papa John's shareholders," he said at the time.
In reality, the statement hurt Papa John’s stock more than the NFL’s issues probably did. It slipped shares 11 percent at the time. The two parties also parted ways in regards to Papa John’s official sponsorship of the NFL, although no direct correlation to the incident was drawn. Pizza Hut is now the current official sponsor. Sales have also sagged, although, again, whether that’s related to the controversy or to other factors, is difficult to say for sure.
The brand’s same-store sales dipped 3.9 percent in North America in Q4 and then 5.3 percent in Q1 fiscal 2018, year-over-year.
Here is Ritchie’s full letter:
"This past week was the hardest week in my 22 years with Papa John's. I know the words of John Schnatter were offensive, and nothing pains me more than knowing they hurt you. To be clear, those words in no way represent my views or the values of our company. As the leader of Papa John's, I'm sorry.
Racism and insensitive language—no matter the context—will not be tolerated at any level of our company. Period.
Papa John's is not an individual. Papa John's is a pizza company with 120,000 corporate and franchise team members around the world. These are the people in your communities from all walks of life who work hard to provide you with better service and better pizza. These are your local owners and operators who do so much in your community.
Still, you deserve actions, not just words, so here's what we're going to do about it:
- We're in the process of bringing in outside experts to help audit our company's culture and diversity and inclusion practices. This will allow us to identify our strengths and weaknesses. We will then set clear goals to do better.
- Our senior management team will be on the road, listening to our employees and franchisees and getting their feedback on a path to move forward.
- We'll be transparent with you along the way. We want you to hold us accountable.
I will personally be leading this effort because there is nothing more important for Papa John's right now. We want to regain your trust, and we will work hard to earn it. I know this will take time.
The entire team at Papa John's wants to thank you for your loyalty. We are only in business because of you. And it's our sincere wish that we'll continue to have the honor of serving you."