Companies that opt for “poison pills” often do so to block activist investors from taking a controlling interest — or to thwart hostile takeovers. But experts say the move has rarely if ever been used against a company founder.
“If it’s happened before, it is circumstantially quite rare,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
It’s the most extreme step to date in actions the company has taken to limit its association with Schnatter. Last week, the board barred him from using his office at company headquarters in Louisville.
Elson described the “poison pill” option as “an antitakeover move” as Papa John’s looks to sever ties with Schnatter in as many ways as possible. Papa John’s could still have the choice of not renominating Schnatter to its board, Elson said.
But the rare “poison pill” option may at least in part be the company’s answer to its “very difficult position,” Elson said.
“What he did isn’t illegal. It’s just very, very disturbing,” Elson said. “He insulted a good deal of their customers, and that’s the problem. But he’s still a large shareholder. And a shareholder, whether you agree with them or not, is still a shareholder.”
Earlier this month, Forbes reported that Schnatter used the n-word during a call between Papa John’s executives and the marketing agency Laundry Service. In a role-playing exercise intended to coach Schnatter on public relations crises, the group asked Schnatter how he would distance himself from racist groups online. Forbes reported that Schnatter responded by “downplaying the significance of his NFL statement.”
“Colonel Sanders called blacks n-----s,” Schnatter reportedly said.
Schnatter resigned as chairman of the Papa John’s board on July 11. He has since said he regrets resigning and the board was wrong to dismiss him without an investigation. Schnatter had already stepped down as the company’s chief executive in January after saying protests from National Football League players were hurting his pizza sales.
After reports of Schnatter’s use of the n-word, Papa John’s stock plummeted to a 12-month low. Prices went up 12 percent after Schnatter’s resignation. Shares fell nearly 10 percent, to $46.56, in trading on Monday.
On July 13, the company said it wouldn’t use Schnatter in advertisements as it sought it “regain trust.”
That day, Schnatter told Louisville’s WHAS that his remarks were taken out of context.
“I can’t talk like that even if it’s confidential and it’s behind closed doors,” he said. “I did it. And I own it. And I’m sorry. And I’m sick about it, frankly.”
Anthony Johndrow, a corporate reputation adviser based in New York, said the “poison pill” move is a distinct way for Papa John’s to create space between itself and its fiery founder, but it is not the same as the company taking a public stance against racism or the use of racial epithets. Unlike Dick’s Sporting Goods announcing it would stop selling assault-style rifles after the mass shooting in Parkland, Fla., for example, the “poison pill” move allows Papa John’s to act specifically against Schnatter.
Any steps Papa John’s takes to rebrand itself and rebuild its reputation will come apart from the “poison pill” move, Johndrow said. That could include finding a new spokesperson or even renaming the company, despite the inevitable challenge that Schnatter “is the ‘John’ in ‘Papa Johns,’” Johndrow said.
“This Papa John’s founder thinks he knows how to run the company, and they think the way he’s been running the company has hurt them,” Johndrow said. “That is important, because maybe he wants to reinstate himself as spokesperson, which I think we can all agree would be a pretty bad idea right now.”
Eli Rosenberg contributed to this report.