Business News

Papa John's founder John Schnatter resigns as chairman after apologizing for N-word comment, shares surge

Key Points
  • John Schnatter, founder of Papa John's, resigns as chairman of the company's board.
  • Schnatter apologized for using the N-word during a May conference call after Forbes magazine reported the incident.
  • The stock surged Thursday morning, recouping Wednesday's losses — and then some.
Papa John's founder John Schnatter resigns as chairman after apologizing for N-word comment
Papa John's founder John Schnatter resigns as chairman after N-word comment

Papa John's founder John Schnatter has resigned as chairman of the board after admitting and apologizing for using the N-word during a May conference call.

Shares of the pizza chain surged 11 percent Thursday morning — recovering all of the $96.2 million, and then some, in market value the company lost after Schnatter's comments were reported by Forbes the day before.

Papa John's said in a statement late Wednesday night that it will appoint a new chairman in the coming weeks. Olivia Kirtley, the board's lead independent director, will run the board until a permanent replacement is found, it added.

News of Schnatter's resignation came shortly after Major League Baseball indefinitely suspended its Papa Slam promotion — a campaign that both sides have collaborated on since 2016. In addition, the Miami Marlins announced Thursday that the team was suspending its relationship and all promotions with the brand.

The conference call in May came to light after Forbes magazine detailed the incident in an article Wednesday. The report, which was later confirmed by Schnatter, said he was on a call with marketing agency Laundry Service when he tried to downplay comments he made about the National Football League last fall by saying, “Colonel Sanders called blacks n-----s" and never faced any public backlash at KFC.

Papa John's founder used racial slur during exercise intended to prevent PR snafus
Papa John's founder used racial slur during exercise intended to prevent PR snafus

According to Forbes, Schnatter added that people used to drag African-Americans from trucks until they died. Although his comment was apparently intended to convey his distaste for racism, Forbes said multiple people on the call were offended. The call was part of media training for Schnatter to prevent future public relations fumbles.

“News reports attributing the use of inappropriate and hurtful language to me during a media training session regarding race are true," Schnatter said Wednesday in a statement released by Papa John's. "Regardless of the context, I apologize. Simply stated, racism has no place in our society.”

His departure as chairman comes just seven months after he abruptly exited the C-suite. Schnatter faced backlash in November for critical statements he made about the NFL that ultimately caused the league to remove the pizza chain as an official sponsor.

These incidents underscore the risks of using an individual to represent a brand, said crisis communications consultant Dan Hill, CEO of Hill Impact.

“This is the danger when organizations are too tied to a personality,” Hill told CNBC. “We saw it with Subway and Jared ... when things are going well and those people are popular, and they are doing smart things, it works. But then you have a single point of failure and it’s that person’s actions that reflect on the entire organization.”

While Schnatter is no longer the CEO or chairman of Papa John's, he is still tied with the brand's image and is featured prominently on the company's pizza boxes. Schnatter, who owns a 24 percent stake in the company, also remains on the company's board.

“I think the big thing for them going forward is how do they distance themselves entirely from John?" Hill said.

Papa John's fell by as much as 5.9 percent Wednesday to a 12-month low before rebounding Thursday. The company's stock was down nearly 14 percent year to date before Schnatter's resignation but has recouped much of those losses. Domino's shares have gained 47 percent so far this year.