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    Papa John's Founder Accuses Company of 'Serious Misconduct'

  • John Schnatter went all-in on the company in a letter to franchisees.

    flickr: theimpulsivebuy
    Papa John's is trying to remove itself from its founder, but it's turning out to be a difficult task.

    John Schnatter shot off his most inflammatory critique of Papa John’s to date Tuesday, escalating what’s already been a very public, ugly, and sales crippling battle between the pizza chain and its beleaguered founder.

    Schnatter, who stepped down as executive chairman July 11 in the wake of reports he used a racial slur during a May conference call, sent a letter to franchisees August 28 and posted the correspondence to his new site, savepapajohns.com, which continues to chronicle Schnatter’s efforts to wrestle back control of the company.

    In the letter, Schnatter accused Papa John’s of “serious misconduct at the top levels of our leadership team.” This included direct attacks on current CEO Steve Ritchie, who Schnatter said he told the board in June “needed to go.” Schnatter said, last year, he discussed with the board Ritchie and his senior management team’s performance, citing declining financials across the board. After telling the board Ritchie should leave, “the board agreed—and asked me to become executive chairman,” Schnatter wrote.

    Schnatter then claims he developed a detailed performance review for Ritchie, “as his periodic evaluation was coming due,” and also identified a list of senior management to be replaced, including Ritchie.

    Per CNBC, Papa John’s denounced Schnatter’s claims.

    “Once again, 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. At no time has the Board asked John Schnatter to become Executive Chairman. 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.”

    For some background, Ritchie was promoted to the CEO post January 1 after Schnatter exited the role following controversy around his NFL comments during a November 1 conference call with investors. Well publicized by now, Schnatter said the NFL’s lack of leadership over anthem protesting hurt sales, “and more importantly, by not resolving the current debacle to the player and owners' satisfaction, NFL leadership has hurt Papa John's shareholders.” Papa John’s was the official sponsor of the NFL at the time. Now, that role belongs to Pizza Hut.

    Ritchie started with Papa John’s in 1996 as a customer service representative making $6 per hour. In 2006, he became a franchisee and, in 2010, started upping his duties and was promoted to chief operating officer in 2014. Papa John’s added Ritchie to the succession plan for the company’s top job in 2015 when he was named president.

    Schnatter continued his assault, writing in Tuesday’s letter that “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. Steven then decided, and communicated to others, that he needed to get rid of me to save his own job.”

    Schnatter added that these kinds of events are “what lie behind the current efforts to drive me from the company.” He went on to accuse Papa John’s leadership of bad financial decisions, insufficient management skills, a toxic senior management culture, and, as noted earlier, serious misconduct that has “prompted some in the company to use me as an excuse to distract from these cold realities.”

    Schnatter has referred to his resignation a mistake and sued Papa John’s for documents that would detail the decision-making process behind his ouster. He said in July: “The board asked me to step down as chairman without apparently doing any investigation. … I have checked with corporate governance experts who tell me that this was not a proper action by the board.”

    Returning to the notion of misconduct, Schnatter wrote Papa John’s HR 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.”

    “Like you, I am directly affected by the company’s performance,” Schnatter said. “Like you, my skin is in the game. I own 31 percent of the company. The board and management—all put together—own less than 2 percent. 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. 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 love this company and the people who dedicate their lives to it.”

    Papa John’s is, in fact, doing everything it can to remove his face from the box and other marketing materials. The company has requested that he cease all media appearances, and not make any further statements to the media regarding the company, its business or employees.

    Papa John’s 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.” It also approved and directed the company to terminate a sublease agreement granting Schnatter the right to use certain office space at the company’s corporate headquarters in Louisville, Kentucky. Additionally, it popped a “so-called” poison pill last month in a preemptive move to dissuade any attempt at a hostile takeover. It lays out conditions that will dilute the value of Papa John’s stocks should any party attempt to acquire 15 percent or more of common shares. Such an action would open the door for shareholders to purchase additional stocks at a discount, thus decreasing each individual share’s value.

    Despite these efforts, Schnatter is not going away. Papa John’s announced just last week that its leadership team recently completed “unconscious bias training,” and plans to roll out the program across the country, and that an independent cultural audit and investigation of its diversity and inclusion practices is also underway, “with actionable recommendations to follow.”

    Read more about the upcoming changes here

    The brand’s North America same-store sales dropped 6.1 percent in the second quarter that ended July 1. They decreased about 10.5 percent from July 2 to July 29. In response, the company ballooned its outlook for the fiscal year from negative 3 percent to negative 7–10 percent.

    “Right now, he’s blaming me,” Schnatter wrote of Ritchie to franchisees. “Tomorrow, it might be you.”

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