Papa John’s Saucy Corporate Takeover Issues

You’ve all heard of Papa John’s, one of the world’s largest pizza delivery chains, only this time they’re on fire for having legal issues with their corporate management. Forbes reported that John Schnatter (aka Mr. Papa John), the chairman, founder and face of the company, used a racial slur on a conference call back in May. The slur did not go unnoticed by Wall Street. Now, due to shareholder scrutiny, Schnatter has agreed to give up his board seat after helping choose his successor.

This isn’t the first time we’ve seen the demise of a popular brand due to backlash from a racial slur. Think back to Paula Deen, the sweet little Georgia peach with a knack for southern cuisine. She admitted to using the “n-word” in the past and consequently lost her Walmart deals and Food Network refused to renew her contract for her show, Paula’s Home Cooking, after 14 years of being on the air.  

The Papa John’s case is similar to that of Paula Deen’s, but also different. After the NFL player protests against racism and police brutality began, Schnatter blamed Papa John’s poor sales on the NFL’s handling of the situation. At the time, the company had a sponsorship deal with the league that they later gave up amidst the backlash from Schnatter’s statements. In a conference call that was arranged as a role-playing exercise for Schnatter to prevent future public relations issues, Schattner downplayed the situation by bringing up KFC’s Colonel Sanders using the “n-word” without ever having to face backlash — a rather saucy move. This, in addition to other offensive remarks caused Wall Street to react and Schnatter into resigning as chairman, and Papa John’s to remove Schnatter’s image from marketing and corporate materials and kick him out of their headquarters in Louisville, Kentucky.

Schnatter was Papa John’s largest shareholder before he was forced to step down. After his departure, Schnatter called for an investigation into the circumstances. Papa John’s used defensive measures to fight back against the investigation, causing the fight to continue with Schatter suing the company multiple times.

Finally, after months of shareholder litigation, the two parties came to an agreement. The New York Times reported that Mr. Schnatter said the agreement with Papa John’s would help “avoid a costly and expensive proxy contest by identifying a mutually acceptable and independent director.”  Schnatter also agreed to a modification in the Papa John’s corporate documents, which would preclude him from trying to take control of the company.

Thereafter, a successor was finally selected. Huffington Post reports that NBA Hall of Famer Shaquille O’Neal will join the board of Papa John’s. This will be the first African American Director for the company.

If your company is dealing with corporate governance disputes, shareholder litigation, or hostile takeover issues, the lawyers at RM Warner know exactly how to help. Get in contact today.