Business Gets Personal in Karcher Enterprises Battle : Corporations: Board dispute over founder’s ambitious plans clouds Carl’s Jr.’s future. Old friendships are strained.

Weary of adult conversation, 4-year-old Allison wandered off to play with the other children at Carl and Margaret Karcher’s 50th wedding anniversary bash.

When Betsy Sanders went to retrieve her daughter from the recreation room, she discovered--much to her delight--that the host himself also had stolen away to cavort with the little ones. “There was Carl, in the middle of the floor, surrounded by kids,” she said. “He was just so cute.”

Today that warm recollection of an evening in 1989 is almost bittersweet. Suddenly, Sanders and three other handpicked board members of Carl Karcher Enterprises are locked in a very public, very uncomfortable battle with the 76-year-old founder and chairman over the future of Carl’s Jr., the company’s fast-food chain.

For the board and for Karcher himself, the ordeal is a painful one. The outside directors have all served together with Karcher for 10 years or more. Some worked with Karcher for the United Way and for Catholic charities; they taste-tested new foods during board meetings; they endured a messy controversy over an insider-trading lawsuit against Karcher family members; and they saw close up the lingering illness of Carl’s younger brother, Donald, once seen as a successor to Carl. Donald Karcher died of cancer last year at age 64.

And now this. The summer’s events, culminating last week in a threat of an all-out battle for corporate control, have been “extremely difficult for everyone--the board members, Carl, his loyal employees. I’m sure his family must be suffering too,” said Kenneth Olsen, one of Karcher Enterprises’ outside directors. A former president of Vons Cos., Olsen, 74, became acquainted with Karcher 20 years ago at Catholic fund-raisers and joined the board in 1980.

Karcher, who owns 34% of outstanding shares, wants to boost sales and profits at Carl’s Jr. by test-marketing Mexican food from Anaheim-based GB Foods’ Green Burrito restaurant chain. As part of the plan, Karcher also wants a seat on the board of directors for Green Burrito principal shareholder William Theisen.

Karcher, who is also suffering from personal real estate investments gone bad, may benefit from personal business transactions with Theisen, the company’s directors say.

The board of directors has refused to go along, saying the marketing plan isn’t a good deal for company stockholders.

“We have had to step aside from our friendship with Carl and look at what’s best for the business,” Sanders said. “This is a publicly held company, and we have to act in the interest of all shareholders.”

Karcher is threatening a proxy battle to oust the outside directors and regain control of the company he created 52 years ago. He went public with the feud nearly two weeks ago, shortly after board members rejected his Green Burrito plan.

In a memo distributed Friday to employees at Karcher Enterprises’ Anaheim headquarters, the founder denied that that “concealed financial deals” are driving the marketing plan that he proposed two weeks ago.

Company President Donald E. Doyle has said that the Green Burrito proposal might bolster the founder’s fortunes but would have little value for the company or its shareholders.

Sanders and the other directors share that view.

“Carl has characterized our decision as a vote against him, but we don’t feel that way,” said Sanders, 47, a former executive with Nordstrom department stores. “The real sadness comes from the fact that all four of us have reached the same conclusion with such conviction, yet he still feels we are misguided.”

Sanders got to know Karcher in the early 1980s while working for the United Way of Orange County, one of the many philanthropic organizations in which he has been active over the years. He asked her to sit on the board in 1983, and Sanders is still the newest member except for Doyle, 46, appointed president and chief executive officer of Karcher Enterprises late last year.

Her elders are Orange County attorney Daniel W. Holden, 58, on the board since 1966; Furon Co. Chairman Peter Churm, 67, a director since 1979; and Olsen, who joined the board in 1980. Karcher and his son Carl L. Karcher, 44, also serve as directors.

For years, the directors--compensated $18,000 annually--have congregated regularly at the company’s Anaheim headquarters. “The board meetings were always informal and enjoyable,” Sanders said. “Carl loved brainstorming. And many times the kitchen would bring us new things to try, and we’d say, ‘That’s too salty,’ or, ‘This isn’t spicy enough.’ ”

Karcher himself refers to earlier times in a letter he sent to the board Friday. His point, though, is to argue for a departure from the past.

“I believe our company would be much smaller or nonexistent today if I had not had the timing to know when a larger change was necessary,” he wrote. “One such change was opening the first Carl’s Jr. walk-up restaurant in 1956. In 1957, we made another major change by opening a walk-up restaurant with a drive-through window.

“Many people advised against these changes at the time, arguing that they were too risky. . . . It is my belief that the Green Burrito dual concept is a good opportunity not to be missed.”

The other board members, though, stand united against that plan.

“We would do anything to help Carl, but we just don’t think (the proposal) is the best solution for the company,” Olsen said.

Karcher could not be reached for an interview. His attorney, Andrew F. Puzder, described Karcher as “very distressed over being at odds with these people.”

Son-in-law Gary Wiles, married to Karcher’s oldest daughter, said the ongoing battle “runs counter to his management style and personality.”

“I’m not aware that any friendships have been dissolved,” said Wiles, who operates about a dozen Carl’s Jr. franchises in Southern California. Karcher “always has counted on (the board members) as friends and confidants--and good business advisers as well.

“But he’s also a very principled man. He’s not going to compromise his principles to (settle) an argument.”

Olsen’s image of Karcher is one of a generous man forever handing out Carl’s Jr. coupons. “I think of him as a great big lovable Santa Claus with a pocketful of those hamburger cards wherever he goes,” he said.

But all the sympathy and admiration he can muster for Karcher will not sway him to break ranks with his co-directors, Olsen said. “I’m very supportive of our new management, which is one of the best I’ve experienced since I’ve been on board.”

Under the direction of Doyle, the company has joined the nationwide trend toward offering “better value” to diners. Doyle is simplifying the chain’s menu and cutting costs--in part through the layoff last spring of 70 corporate staffers.

Restaurant industry watchers say that Doyle’s efforts have put the company on the right track.

“This is the first time in several years that we have seen Carl Karcher Enterprises actually have a well-thought-out strategy, and the board members are trying not to get sidetracked by the personal interests of Carl,” said Douglas Christopher, an analyst with the brokerage Crowell, Weedon & Co. in Los Angeles.

At one time, corporations’ independent directors routinely endorsed any proposal put on the table by the chairman. But in recent years, board members nationwide have come under increasing pressure to exercise their duty to shareholders.

“A lot of companies have not been performing up to snuff, and shareholders have started to become assertive in demanding greater profits,” said Margarethe Wiersema, professor of management strategy in UCI’s Graduate School of Management. “The directors may have been personally selected by the founder and chairman, but their legal responsibility is to the shareholders.”

Sanders, who also serves on the boards of Wal-Mart Stores Inc. and Vons, said she has learned from experience, however, that many company founders balk at relinquishing control.

“I’ve been involved with several companies where the founder’s presence is still strongly felt, either in person or through an anointed successor,” she said. “It’s only natural for a founder-entrepreneur--particularly one like Carl who owns 34% of the stock--to feel very personal about the ownership of that company.

“It’s hard for him not to say, ‘Doggone it, my name is on the door.’ ”

Times staff writer Greg Johnson contributed to this report.