[Update: Schnatter resigned as chairman late yesterday after admitting the allegation and the board accepted it.]

John Schnatter, founder and chairman of Papa John's, found himself in another controversy for using the n-word on a conference call, according to a Forbes story that came out today.

Schnatter is hardly a newcomer to controversy, whether it's remarks about health care for employees or blaming NFL players' taking a knee as a protest against racism for a bad company quarter in 2017.

In a May call between Papa John's management team and a marketing agency called Laundry Service -- which became the pizza company's creative agency of record last October -- someone asked Schnatter how he could deal with online racist groups as a continued impact of the 2017 statement.

He responded by downplaying the significance of his NFL statement. "Colonel Sanders called blacks n-----s," Schnatter allegedly said, before complaining that Sanders never faced public backlash.

Laundry Service has a diverse leadership, as seen on the firm's team page.

Schnatter then talked about growing up in Indiana and incidents of racists dragging African Americans behind trucks until the victims died. Apparently, the intent was to show his disapproval of racism, but according to Forbes, multiple people at the agency were offended. The firm's owner, Wasserman Media Group, reportedly moved to terminate the contract with Papa John's and, as a result, took a financial hit that sparked a 10 percent workforce layoff. (The agency declined to comment when I asked.)

Papa John's sent Forbes a statement this morning that didn't dispute the reporting. Instead, it said, "Papa John's condemns racism and any insensitive language, no matter the situation or setting. ... We take great pride in the diversity of the Papa John's family, though diversity and inclusion is an area we will continue to strive to do better."

According to the story, Papa John's has been trying to keep Schnatter in a low profile and out of company ads. Ultimately, Schnatter supposedly pushed CMO Brandon Rhoten out of the company.

Racism is ugly in any context. Unfortunately, like other forms of bigotry, it's been all too easy to be brought up with influences that can become unconscious attitudes.

When you run a business, however, unconscious attitudes aren't an excuse, even when they're an issue of employees' and not official company practices. Just look at what Starbucks has faced over the past few months.

If companies are on the hood for their employees, they are even more so when it comes to management, like a company's founder and chairman.

Allowing any attitudes of bigotry to have free rein is a problem. But there are certain things that should be absolutely impossible. There are words you don't get to use if you're not African American, just as there are terms you don't get to use if you're not Jewish, Italian American, Native American, Asian, Hispanic, or any other group that has been marginalized.

You don't get to decide that there is a situation in which you can use them if you aren't part of the groups in question.

Netflix had an issue with its chief communications officer's using the n-word in front of colleagues on multiple occasions. CEO Reed Hastings wrote about it and his own failings in addressing the problem earlier:

As I reflect on this, at this first incident, I should have done more to use it as a learning moment for everyone at Netflix about how painful and ugly that word is, and that it should not be used. I realize that my privilege has made me intellectualize or otherwise minimize race issues like this. I need to set a better example by learning and listening more so I can be the leader we need.

John Schnatter overstepped important bounds. He's lost an important marketing relationship for the company. Words, even when small, have power. As an entrepreneur, be careful of the ones you use and where you use them.

Published on: Jul 11, 2018