In this segment from MarketFoolery, host Mac Greer is joined by analysts Jason Moser and Taylor Muckerman to consider the difficult needle that Papa John's (NASDAQ:PZZA) will have to thread in distancing itself from John Schnatter, the ego-driven, foot-embedded-in-mouth founder. He was pushed to resign as chairman after word got out that he had used a racial slur during a corporate training session.
Now, the company's board has booted him from its corporate offices and is moving to expunge him from its advertising and branding. The question is whether that's feasible. And how far can Papa John's go in this disentanglement when Schnatter still owns 30% of it?
A full transcript follows the video.
This video was recorded on July 16, 2018.
Mac Greer: Let's begin with the ongoing soap opera that is Papa John's. This story is a mess. More fallout from reports that founder John Schnatter used a racial slur, the n-word, in a conversation with the company's former media agency. That happened last week, Jason. Schnatter acknowledged using the slur. He said it was in the context of a training exercise. And, he resigned as chairman.
Now, Papa John's has decided to evict Schnatter from the company's headquarters. They're scrubbing all of their marketing, trying to get rid of him from all of their marketing materials, and they're going to review all the ties that the company has with him. But the company is named Papa John's! What do they do?
Taylor Muckerman: What isn't tied to him?
Jason Moser: Like you said, this is a really tough situation. I think they are ultimately doing the right thing in trying to take action here quickly, as opposed to deliberating what they may or may not want to do. He's already fanned the flames in regard to other issues, whether it was the NFL situation ... he's had a really not good couple of years.
I think this really shines the light on the risks involved with any business where the individual is so closely associated with the brand. I mean, it's in the name, Papa John's. His likeness is on the pizza boxes. I think they're smart to try to get out in front of this thing and erase his existence. I don't know that people were buying the pizza because of him. I think people buy the pizza because they either like it or it's just really easy to do it from the app on your phone.
Greer: And they are getting his face off the boxes.
Moser: This just gives you the opportunity to set this business up for success for many years to come, if you can navigate this de-affiliation.
Greer: Taylor, what do you do here, if you're Papa John's?
Muckerman: I don't know. That's tough. It's certainly going to involve some costs. They'll probably have to retape every single commercial they've had over the last five or ten years. Probably won't be seeing any Papa John's spots during your commercial breaks over the next few months. It seems like they're going full bore. It'll probably be a little costly. They're going to be busy over there in the Papa John's marketing department.
Moser: He owns a good chunk of shares. That doesn't mean he can do whatever he wants to do. Really, that is the benefit of having a board and having leadership that is somewhat separated from executives or founders. You're not just stuck with one person calling all the shots.
Muckerman: Peyton Manning is no longer a quarterback. He sold his stores, but maybe he could come out of retirement and be the new CEO of Papa John's. [laughs]
Moser: What's the over-under on Peyton Manning starting some Pizza Hut franchises now that Pizza Hut is the NFL --
Greer: Do you rename it Peyton Manning's Pizza? Or PJ's?
Moser: [laughs] I think a lot of people would probably still feel like Peyton and John are a little too ...
Greer: Too tight.
Muckerman: They're still friends, yeah.
Moser: There's too much association there.
Greer: This quote really struck me. Papa John's is based in Louisville, Kentucky. A former Papa John's marketing director, a guy named Gary Langstaff, had this to say about Schnatter's problems. He said, "When you have an ego the size of Louisville, you say things without considering the ramifications."
Greer: I this once again -- I have to trademark this, it's the Mac Greer Humility Index. This guy lacks humility. He has a big mouth. When you throw in the racial insensitivity, then you have a bad, bad combination.
Moser: I kind of like that. Say that again, the Mac Greer ...
Greer: It's the Mac Greer Humility Index. The most humble CEOs I know, like Jim Sinegal -- not that I know a lot of CEOs, but just go with it.
Moser: [laughs] OK, I was waiting until this conversation was going toward Costco.
Greer: It's hypothetical. I just think that humility is a business advantage. It's not just a nice attribute, it's a business advantage.
Moser: I 100% agree, and I like that you're coining phrases with your own name in them.
Muckerman: That's true. Very humble.
Moser: It's a very humble act.
Greer: That's so true. I'm pathetic.
Moser: Last week, I was looking at Costco's June comps, remember? I was showing you, that was what we coined the Mac Greer Effect. It was your bump on Costco's sales --
Greer: OK, let's get my name out of it. I don't want my name in it.
Greer: It's a fair point. Gosh.
Moser: I think you have hit on a very important issue, in all seriousness, because clearly, he lacks the humility needed. I think you see other CEOs out there, they're figuring out ways to tap dance around these types of things, too. Let's use Elon Musk as an example, because recently he got in a skirmish on Twitter and blah blah. That's not the first time he's done that. You look at Elon Musk and Tesla. Now, Elon's likeness is not used for Tesla, and Tesla doesn't have his name in it, but that association is so close that he has to be very careful with stuff like that.
Muckerman: Oh, for sure.
Moser: And whether it was this back and forth with someone in regard to the cave rescue, or it was the political contributions --
Muckerman: The Republican Super PACs, yeah.
Moser: You see people on Twitter now going crazy, like, "I'm canceling my Tesla because I don't want to have this," and it's like, whatever. But, you see the problems when you have a company that's so levered to the individual. The individual has to be able to temper themselves. You have to learn when to just shut your mouth. In today's day and age, it's very easy to be heard anywhere, anytime.
It's easy for us to sit here and say it, I think it's a little bit more difficult in practice. People who are that successful, particularly that quickly, I mean, part of it is the hubris that got them there. Having to figure out how to temper that is, maybe, a little bit more difficult.
Greer: I'm going to take your advice. Now it's just the Humility Index, and I'm not trademarking it. Anyone can use it.
Moser: I'm keeping the Mac Greer Effect for my own purposes.
Greer: No! I want that out! I wish I had never said that! I apologize.
Jason Moser owns shares of TWTR. Mac Greer owns shares of COST. Taylor Muckerman owns shares of TSLA and TWTR. The Motley Fool owns shares of and recommends TSLA and TWTR. The Motley Fool recommends COST. The Motley Fool has a disclosure policy.