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'Rot at the top': Papa John is in a full-blown war with Papa John's

Daniel Roberts
Senior Writer

The ongoing battle between Papa John’s and its ousted founder John Schnatter is the news story that will not go away. This saga has it all: pizza, politics, boardroom intrigue, and football.

On Friday, Schnatter sued the Papa John’s board and CEO Steve Ritchie, “to stop the irreparable harm those individuals are causing.” This comes exactly one month after he sued the company seeking access to documents related to his ouster.

Meanwhile, a Papa John’s shareholder also sued the company this month, claiming it misled shareholders by failing to disclose bad behavior by Schnatter and other executives.

This week, a special committee from Papa John’s released a blistering statement about Schnatter, accusing him of untrue statements, undermining the company, and revealing that the Papa John’s board “specifically directed John Schnatter not to talk about the NFL controversy related to the National Anthem on the 2017 third-quarter earnings call.”

Schnatter, on that fateful earnings call in November 2017, blamed Papa John’s flat quarterly sales on the NFL protests and said the protests should have been “nipped in the bud” by the NFL much sooner.

All of this amounts to an ugly P.R. war that is damaging to both the company and Schnatter. And it’s unlikely to get either party what it wants.

Banner image from Schnatter’s web site savepapajohns.com.

‘The Board will not let me talk to you’

Papa John’s stock ($PZZA) is down 20% in 2018 so far, and down 25% since November 2017 when Schnatter made his initial controversial remarks about the NFL protests. Schnatter still owns 31% of Papa John’s shares.

John Schnatter wants to return as the face of the company, even as the company devotes $150 million to scrubbing his image from pizza boxes, delivery vans, and corporate logos.

Papa John’s wants to move on from the scandal and wants Schnatter to go away quietly, but it continues to respond to Schnatter’s letters, which fuels the fire.

On the company’s second-quarter earnings call last month, CEO Steve Ritchie said, “Our future will not be defined by the words or actions of one person.” But right now, that is what’s happening: Schnatter’s public statements and P.R. campaign is successfully defining the narrative around the company, even if it’s unlikely to get him re-installed as chairman.

Schnatter resigned as chairman of Papa John’s in July, and shortly afterward said he regrets resigning. Ever since he has been attempting to rally support to regain control. The company in response adopted a limited-duration stockholder rights plan or “poison pill” to prevent him from gaining control.

Last week, Schnatter took out a full-page ad in the Louisville Courier-Journal for an open letter to Papa John’s employees, telling them, “The Board will not let me talk to you… I am very sorry you all have to go through this.”

This week, he posted a second open letter on his website, savepapajohns.com, this time addressing Papa John’s franchisees. Schnatter blamed the company’s recent decline on “rot at the top,” namely new CEO Steve Ritchie. Papa John also accused Ritchie of protecting one of his direct reports, who was having an affair with a fellow employee in I.T. who accessed documents of Schnatter’s and gave them to Ritchie.

‘Schnatter is making untrue and disparaging statements’

It all sounds like a soap opera, and Schnatter didn’t provide much evidence for his claims. But the company publicly responded, lending Schnatter’s claims some legitimacy simply by acknowledging them.

“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,” the company said.

Graphic by David Foster/Oath

If you ask Mike Murphy, CEO of Rosecliff Capital, Schnatter’s situation became untenable when he lost the support of his board.

“I’ve been fortunate enough to meet John on several occasions,” Murphy, who sits on the board of several companies, said on the Yahoo Finance Midday Movers show this week. “He got to a point where the board turned on him. … I think [for] any founder out there who is raising money for their business, it’s vitally important to have a team surrounding you that believes in you and wants to help you achieve your vision.”

Daniel Roberts is the sports business writer at Yahoo Finance. Follow him on Twitter at @readDanwrite.

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