Papa John's chairman John Schnatter resigned over using the n-word and making other objectionable comments on a conference call with a marketing company. But even sending off the company's founder hasn't stopped the fallout from the problems.

This is a prime example of how attitudes in a company's employees or executives can turn into a millstone to weigh the business down.

Starbucks has faced a similar problem, in the sense that the actions of employees have turned into a massive PR bruise. But there is a big difference. With Papa John's, it was Schnatter, who had been the face of the company's marketing, that caused the issue.

Schnatter had caused bad PR before, like when he complained about the Affordable Care Act and having to provide health insurance for employees. But that was nothing compared to the backlash from large portions of the populace when he blamed poor corporate performance in a quarter on the NFL and players taking a knee in protest over racism.

In May, during a conference call with a marketing agency called Laundry Service, a participant asked Schnatter how he thought he could deal with the attention of online racist groups he attracted after his NFL comments.

Schnatter mentioned how the original Colonel Sanders, who founded Kentucky Fried Chicken (now KFC), used the n-word, only he was explicit in his language. Schnatter then said some other things that reportedly offended some people on the call. The company's owner, Wasserman Media Group, reportedly terminated its contract with Papa John's, although the result was a financial hit and resulting layoff of 10 percent of the staff.

Since that news came out, the University of Louisville wants to rename its football venue from Papa John's Cardinal Stadium to Cardinal Stadium (although a contract between the school and Schnatter makes that a matter of negotiation). It also will remove Schnatter's name from the John H. Schnatter Institute for the Study of Free Enterprise, which he helped endow in 2005. A number of professional sports teams, including the New York Yankees, the Atlanta Falcons, the Kansas City Royals, and the Baltimore Orioles, have suspended promotions with the company. Olson Engage, a PR firm, ended its contract with the pizza company.

The Papa John's name, and Schnatter's own, have become radioactive for the time being. In an era of #MeToo and #BlackLivesMatter, what else could you expect? Society is making a long-needed shift. Companies that don't move with the times will find themselves quarantined.

Papa John's CEO Steve Ritchie issued an open letter saying, "Racism and any insensitive language, no matter what the context simply cannot--and will not--be tolerated at any level of our company," and "We will be engaging a broad set of stakeholders to chart a course forward that demonstrates our commitment to diversity, equity, and inclusion." There was also a pledge to have an outside audit "of our existing processes, policies, and systems related to diversity and inclusion, supplier engagement, and Papa John's culture."

In addition will be the mandatory "listening sessions with employees in our stores to talk about what they are seeing and give them a platform to voice their concerns."

But there was no apology, which suggests that management still doesn't understand what it needs to do. Schnatter may not be the company, as the letter stresses, but he is, or was, of the company. It was in official capacities, whether as CEO last fall or as chairman in May, as a senior representative of the company that he made his statements.

Until Papa John's understands what responsibility means in a business, and the implications of expressed racism, it won't be able to easily repair the damages done.

Published on: Jul 14, 2018
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