Papa John’s and John Schnatter Issue

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In his heightened emotional state from the recent ‘Take a Knee’ stand certain members of the NFL were taking and his stance on the matter, Papa John’s founder John Schnatter broke down when he used a racial slur during a conference call. To most members of the media and to Schnatter himself that was probably just supposed to be a temper tantrum that would be in the spotlight for a couple days, but his company sought a different option and decided to push for Schnatter’s resignation. So following the media coverage of the situation John Schnatter stepped down as CEO of Papa John’s, the company he worked so hard to build up.

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The company over the past several months has been in the spotlight in regards to further action the franchise and other individuals have decided to take in regards to John Schnatter. The University of Louisville had decided to remove the pizza company’s name from its football stadium, The Major League Baseball association put a league wide suspension on all Papa John’s promotion. The company itself has decided to pull any images associated with Schnatter off and to distance their association with him, and Schnatter himself has resigned from his position as Chairman of the Board. Thankfully no laws or regulations are in place regarding the use of racial slurs or the company would likely have been fined.John Schnatter suffered from a failure of ethical leadership. Leadership meaning the ability to guide and direct others. The act of leadership involves the ability to create an ethical culture and to enforce norms and policies that can influence the corporate culture. By acting in the way that he did, Schnatter failed to model proper ethical conduct for his employees. And by failing to model the right values for his organization he also failed his shareholders who expect him to maintain strong relationships and increase profits, both of which you cannot have if you are not a strong ethical leader.

While we can say that the media coverage probably played a role in Schnatter’s ousting as CEO, it is also true that corporations in today’s society are viewed in a higher standard and are held accountable for their actions. As Henry Ford has been known to say, “There is a most intimate connection between decency and good business.”

So with regards to the issues plaguing Papa John’s I would recommend a few choice strategies. The main one being installing a routine Ethics Audit, presumably done by a unaffiliated third party organization so that there is some veracity to their results. It would be best if the audits were also monitored by an independent committee, appointed by a governmental agency like the Securities and Exchange Commission or another credible agency, so that the company can claim it is following the best practices of corporate governance as recommended by the Sarbanes-Oxely Act.

To show how this model would help the company, let us use it in the scenario Schnatter found himself in. For example, a few criteria that can be focused on in the audit could be ‘Does any form of discrimination occur within the organization’ or ‘Is there consistent enforcement of standards and punishment within the organization’. Both of these are valuable criteria to use in regards to the Papa John’s situation.

If they knew that Schnatter would act in the way to say a racial slur, the company could have reached out to him and either talked him down from using that language or explained to him the consequences of actions if he chose that route. And if the company maintained strong ethical standards, starting from management down then you would have had an ethical committee doing what is best for its employees and its shareholders and would have been able to handle the Schnatter situation more professionally without it going and blowing out of control in the media.

Now because of this mess and the actions Papa John’s has taken they have to deal with the fact that Schnatter, the former founder owns 30 percent of the company iand is no longer their CEO or Chairman of the Board, but still has a high stake in the direction the company goes. So they have to be extremely careful in the actions they take now regarding him.

So with regards to having Schnatter on the Board still, I would enact some Risk Management programs and develop a scenario in which Schnatter was against a Board decision and decided to use his 30% ownership rights. The company would have a hard time dealing with that situation as well as the potential media coverage that type of situation will bring, so it would be prudent of the company to start some Disaster and Recovery planning.

My reasoning for this course of action is because now you have a disgruntled figure that can affect the direction of the company and may be vindictive enough to use their high stake and connections to do so. It is best to take an extremely cautious approach since that is what this situation demands.

Overall with regards to Papa John’s the most they can hope for now is minimizing any potential damages and building up their ethical framework so that they can reduce any chance of future misconduct. Hopefully by employing stringent policies they can build back any trust and reputation they have lost from this incident and hopefully their new CEO is more well versed in dealing with the current political climate.

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