Papa John’s should replace John Schnatter as CEO to show the public that the com
ID: 2581835 • Letter: P
Question
Papa John’s should replace John Schnatter as CEO to show the public that the company does not agree with the statements that he has made concerning Obamacare and the NFL protests.
Replacing John Schnatter as the chairman of the board is the strategy that we recommend. Splitting the duties will limit Schnatter’s control of the company and satisfy some of his critics, such as a majority of the shareholders. We think that this would give more power to the board in order to restrict John Schnatter vocalizing his opinions publicly. They would be able to create policies restricting social media posts concerning clients, vendors, and customers. This ultimately prevents a loss of shares and popularity and allows John Schnatter to focus strictly on the direction and employees of the company.
Why is this idea better than the others?
What will it cost?
What are the possible downsides?
Have other companies done this?
What was their result?
Explanation / Answer
Answering the Questions
1. Papa John's shares plummeted as soon as the comment on NFL or Obama Care became public. Since social media is a very sensitive tool, its results are quickly observed. Hence comments like the ones on Obamacare and NFL protests suddenly caused a decline in the share price and worth of Papa John. Papa John had to manage its sales expectations based on the comment. This idea is a radical one and could be better than others because
a. It would give the customer's the confidence that the organisation doesn't support anti public opinion even if it comes from the head of the organisation
b. It would satifsy some of the critics including the shareholders
c. It would give a boost to falling sales and a refreshed strategy for moving forward
2. The cost of replacement of the head of an organisation could be significant.
a. Cost of finding a suitable chairman (including added compensation and bonus over John Schnatter's compensation)
b. Cost of missed opportunities for the time the organisation is leaderless; HR cost for disappointed employees separating
c. Dip in Stock levels due to market volatility. (This may be less due to the current market sentiment which is against John Schnatter)
d. Cost of outplacement (including compensation/salaries etc) of John Schnatter if he decides to go sideways. This cost could be significant since most of the strategy would require rework.
3. The possible downsides of this action would be the costs mentioned above specifically related to cost of replacement, cost of lost morale, disrupted operations and dip in stock price.
4. A very old example is from 1985 when Steve Jobs was asked to leave Apple Inc due to his disagreement with the board and John Sculley. The board members decided to fire Steve Jobs and his desire to retain control.
5. The result was that the performance of Apple Inc improved initially, but suffered in the long run and they had to re-hire Jobs in order to make things successful.
Hence in summary, rather than replacing John Schnatter as the chairman, a sound communications policy (For e.g. every public communication would require approvals from the head of marketing) could help fix this issue in the long term.
Hope you find this answer useful
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