UPDATE: Papa John's founder John Schnatter says stepping down as chairman was a 'mistake'
UPDATE: Papa John's founder John Schnatter says the pizza chain doesn't know how to handle a "crisis based on misinformation" and that he made a "mistake" in agreeing to step down as chairman.
Schnatter says the board requested that he step down as chairman without "any investigation" and he should not have complied, according to a letter his representative says was sent to the board Saturday.
The contents of the letter were first reported by the Wall Street Journal.
Papa John's, which has started scrubbing Schnatter's image from its marketing materials and says it is evaluating all ties with Schnatter, did not respond to a request for comment.
The company said over the weekend it "specifically requested that Mr. Schnatter cease all media appearances, and not make any further statements to the media regarding the company, its business or employees."
Schnatter, who remains on Papa John's board, is the company's largest shareholder.
"I will not allow either my good name or the good name of the company I founded and love to be unfairly tainted," Schnatter says in the letter.
A representative for Schnatter declined to comment on whether he was considering legal action.
In the report last week, Forbes said Schnatter used the N-word during a media training session in May, and that the incident led the marketing agency to sever its ties with the company.
Schnatter says he used the word while describing how Colonel Sanders spoke, but that he would never use it as an epithet.
He also said in the letter to the board that the agency asked for a higher payment than had been agreed to. The marketing firm, Laundry Service, did not respond to requests for comment.
Schnatter had already resigned as CEO last year after blaming disappointing sales on the NFL leadership's on the controversy surrounding football players kneeling during the national anthem.
In the letter Saturday, Schnatter said that incident was also mishandled by the company's leadership "from a public relations standpoint" and that what he said was not racist.
PREVIOUS STORY: Papa John's founder John Schnatter admitted to using the N-word during a May conference call and apologized for the comments after Forbes magazine detailed the incident in an article Wednesday.
“News reports attributing the use of inappropriate and hurtful language to me during a media training session regarding race are true," Schnatter said in a statement released by Papa John's. "Regardless of the context, I apologize. Simply stated, racism has no place in our society.”
Schnatter was on a call with marketing agency Laundry Service when he tried to downplay comments he made about the National Football League and allegedly said, “Colonel Sanders called blacks n-----s," and complained that the KFC founder never faced public backlash. The call was a role-playing exercise for Schnatter to prevent future public relations fumbles.
“The past six months we’ve had to take a hard look in the mirror and acknowledge that we’ve lost a bit of focus on the core values that this brand was built on and that delivered success for so many years,” CEO Steve Ritchie said in an internal memo obtained by CNBC that was sent Wednesday to team members, franchisees and operators. "We’ve got to own up and take the hit for our missteps and refocus on the constant pursuit of better that is the DNA of our brand.”
Shares of Papa John's fell by as much as 5.9 percent to a new 12-month low of $47.80 a share in intraday trading Wednesday — erasing $96.2 million in market value. The stock recovered somewhat, closing down 4.8 percent at $48.33 a share. Papa John's is down 13 percent so far this year while Domino's shares are up 48.5 percent.
"Papa John’s condemns racism and any insensitive language, no matter the situation or setting," a company spokesman told CNBC. "Our company was built on a foundation of mutual respect and acceptance."
Laundry Service, which is owned by sports agency owner Casey Wasserman, reportedly cut ties with an unnamed client in late May due to "the regrettable recent events that several employees of Laundry Service witnessed during interactions with a client’s executive,” according a letter obtained by Bloomberg.
Shelley Lewis, a spokeswoman for Laundry Service, declined to comment.
Public relations consultant Eric Schiffer, chairman of Reputation Management Consultants in Irvine, California, told CNBC that it was a "colossal boneheaded move of which they will now have to rethink if they want to use him as a spokesperson."
The incident underscores 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.”
The Forbes report comes just seven months after Schnatter 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 Papa John's as an official sponsor.
He blamed NFL leadership for hurting the company's performance because it hadn't resolved the ongoing controversy over players kneeling in protest during the national anthem.
While Schnatter is no longer the CEO of Papa John's, he is still chairman and is tied with the brand's image and is featured prominently on the company's pizza boxes.
“I think the big thing for them going forward is how do they distance themselves entirely from John?" Hill said.