Image issue: Papa John's still tied to founder under fire

Papa John's founder John Schnatter is no longer board chairman after using a racial slur, but his image is still part of the pizza chain's logo and he remains the company's largest shareholder.

The situation illustrates the difficulty when companies are closely tied to a single person, and that Papa John's may need to publicly distance itself further from Schnatter after dealing with backlashes brought about by his comments.

However it manages its public image, Schnatter is still enmeshed in the company. He owns nearly 30 percent of the shares, and remains on the board even after ceding his role as chairman.

Papa John's announced the change in board leadership following Schnatter's apology for using a racial slur during a conference call in May. He had stepped down as CEO last year after blaming disappointing pizza delivery sales on the outcry surrounding football players kneeling during the national anthem.

Schnatter has long been the face of the brand, appearing on pizza boxes and in TV ads for the chain. Papa John's has noted in regulatory filings that its business could be harmed if Schnatter's reputation was damaged.

Barron Harvey, dean of Howard University's business school, said this is a chance for the company to retool its marketing strategy so it's not so tied to one person.

"They have to see this as an opportunity, not a challenge," Harvey said.

Companies can leverage great personal stories to connect with customers, said Keith Hollingsworth, a professor at Morehouse College's business department. But he echoed the risks that come with marketing strategies that are overly dependent on a single individual.

"Anytime you're dealing with humans, you have no fallback," he said.

Hollingsworth pointed to Subway's Jared Fogle as another example of a spokesman becoming a liability. The sandwich chain in 2015 quickly severed ties with Fogle, who was later sentenced for possessing child pornography and traveling to pay for sex with minors.

Still, Hollingsworth said he doesn't think the latest Schnatter incident will hurt Papa John's over the long run because people often have short memories.

As of Thursday afternoon, Schnatter's image remained all over Papa John's website. Papa John's did not immediately respond to whether the company would keep using it.

The two incidents with Schnatter seem to be linked, as Forbes reported that Schnatter used the N-word during a media training exercise. When asked how he would distance himself from racist groups, Schnatter reportedly complained that Colonel Sanders never faced a backlash for using the word.

In a statement released by Louisville, Kentucky-based Papa John's, Schnatter said Wednesday that the reports attributing use of "inappropriate and hurtful" language to him were true.

"Regardless of the context, I apologize," the statement says.

The incident prompted Papa John's marketing firm to break ties with the company, Forbes said. The University of Louisville also said Wednesday that Schnatter resigned from its board of trustees, effective immediately. The university's president said the school will evaluate the naming arrangement for Papa John's Cardinal Stadium, but noted that the matter involved contractual agreements, according to the Louisville Courier-Journal.

Major League Baseball also confirmed that it suspended indefinitely a promotion with Papa John's that offered people discounts at the pizza chain after a player hit a grand slam.

In Indiana, the city of Jeffersonville where Schnatter began his pizza business also removed his name from a historic gym, according to The News and Tribune.

Schnatter's decision to step down as chairman of Papa John's board comes after Netflix last month fired its top spokesman over use of the N-word. Netflix said Jonathan Friedland used the word in a meeting of public relations staff about sensitive words. Several people told Friedland how inappropriate and hurtful his use of the word was.

Friedland, who is white, later repeated the word with human resources staff trying to address the original incident, Netflix said.

Starbucks also recently fired a store employee for insensitivity, and earlier this year closed thousands of U.S. stores for an afternoon to give employees anti-racial bias training after an uproar over two black men being arrested while waiting for a meeting.

Papa John's began operations in 1984 and had more than 5,200 locations globally. For the first three months of this year, the chain said a key sales figure fell 5.3 percent in North America. The company's shares, which had fallen nearly 5 percent Wednesday, rebounded 11 percent Thursday after the company announced Schnatter's resignation as chairman.

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This story has been corrected to show Schnatter resigned as chairman but remains on the board.

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