Carl’s Jr. Founder Ousted as Chairman of Burger Chain : Business: Board says Carl Karcher’s debts led to poor marketing strategy. He attacks opponents as ‘turncoats.’
Carl N. Karcher, who founded the Carl’s Jr. fast-food chain as a single hot dog stand and helped it gain attention serving as its colorful TV pitchman, was ousted Friday as chairman in a dispute over how to revive the company’s flagging fortunes.
The vote sets up a battle for control of the Anaheim-based parent company, Carl Karcher Enterprises, in which Karcher holds 34% of the shares. The escalating feud between the 76-year-old Karcher and the company’s board and management could prove a costly distraction for the hamburger chain that has been pummeled in Southern California by the marketing clout and discount pricing of giant national fast-food companies.
The board vote left Karcher in shock, his personal spokesman said. After leaving the meeting with his attorneys, he went to St. Boniface Catholic Church to pray.
“This is a man with hamburger flowing through his veins,” Karcher spokesman Steve Fink said. “Now his position has been taken from him by those whom he once considered to be his friends.”
Karcher said in a statement released immediately after the board meeting: “I feel like I’ve been stripped of my office by a bunch of turncoats.” He also said he may seek shareholders’ support to replace the board.
Karcher was at odds with Chief Executive Donald E. Doyle and the other six members of the company’s board of directors, saying that they were making marketing decisions that were causing the company’s stock to fall and profits to drop. Board members, however, said that Karcher was pushing irrational marketing strategies, partly because of huge personal debts.
Over Karcher’s objections, Carl’s Jr. has been following the lead of other fast-food companies, offering low-cost items and revamping menus and advertising to attract patrons and reverse a revenue slump.
But the chain’s prices are still higher than competitors, a key issue for many consumers in a sluggish economy.
Consumers are telling Carl’s Jr. that “the food is really good, but it’s not worth the pricing,” Doyle said in June in an attempt to explain the firm’s recent poor performance to shareholders gathered for the company’s annual meeting.
Karcher Enterprises lost $5.5 million in its last fiscal year and profits for the second quarter of the current year fell 29%.
Karcher Enterprises stock has been falling steadily in recent months. The stock traded at $11.125 last October. But in over-the-counter trading Friday, the company’s stock closed at $8.625--up 12.5 cents. Karcher’s ouster was announced after the market closed in New York.
Karcher was immediately replaced by board member Elizabeth A. Sanders, 48, a onetime Nordstrom executive who has been on the board of Carl Karcher Enterprises for 10 years.
Although he is no longer at the helm of the enterprise he started 52 years ago, Karcher remains on the board until his term expires in June, 1994, company officials said. The board also approved a lifetime retirement salary of $200,000 a year for the founder.
Karcher, who until recently appeared in Carl’s Jr. TV commercials, has been fighting with Doyle and the four outside board members since last month, when Karcher issued a scathing press release challenging the company’s new marketing strategy.
He threatened to replace the board with members who would be more amenable to his ideas, which included selling another company’s Mexican-style food at some of the 650 Carl’s Jr. restaurants.
Doyle, however, said that the board has been struggling to compromise with Karcher and has made several proposals, all of which were rejected. One offer, Doyle said, was to pay Karcher $16 million for his company stock, to help him get out of debt.
Doyle and other company officials have said that Karcher’s disenchantment with the company’s strategy is motivated by the pressures of his personal financial problems, including a number of real estate investments that have gone sour.
Karcher has defaulted on $30 million in personal bank loans. About two-thirds of his company stock is pledged as security for those loans.
Union Bank had declared that $25.1 million in personal loans to Karcher must be paid, while Commercial Center Bank in Santa Ana had told him that he would be in default on $5 million in loans if he did not repay them by Thursday. It was not known Friday if Commercial Center has taken any action to collect the money.
Karcher has said his plan would boost the value of Karcher Enterprises stock. He has been trying to sell some of his stock to pay off his debt, but says the current price is inadequate.
Doyle said the board members “were going into this with a view toward an amicable resolution.”
But Karcher rejected all offers, forcing the board to vote on whether to remove him from the chairmanship, Doyle said.
Doyle, a former Kentucky Fried Chicken executive, was hired by Karcher Enterprises in January to replace Karcher as chief executive officer. He moved quickly to simplify the menu and cut prices at Carl’s Jr. outlets.
Karcher, however, insisted on boosting the fast-food chain’s stagnant sales by adding items from Green Burrito, a Mexican-style restaurant chain owned by GB Foods in Anaheim.
The financial community was divided Friday over the wisdom of Karcher’s removal.
Doug Christopher, an analyst with the brokerage Crowell, Weedon & Co. in Los Angeles, said the founder had become a hindrance to the operation of the company at a critical point in its history.
“This is almost a story for the National Enquirer,” Christopher said. “It’s so ridiculous that it came to this. I think it’s sad, really sad.”
Laurie Lively Smith of the brokerage Seidler Amdec in Los Angeles said anything that either side does to resolve the conflict would be a positive move. She noted, though, that a large group of shareholders continue to support Karcher.
Times staff writers Susan Christian, James S. Granelli and Debora Vrana contributed to this report.
Shake-Up at Carl’s Jr.
After a bitter public fight, Carl N. Karcher was ousted Friday as chairman of the company he started 52 years ago. Directors elected board member Elizabeth A. Sanders as chairwoman of Carl Karcher Enterprises.
IN
* Elizabeth A. Sanders, 47
* Experience: Management consultant, former Nordstrom executive, Karcher board member since 1983.
* Challenge: Leading Carl’s without Carl.
* Quote: “It’s only natural for a founder-entrepreneur . . . 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.’ ”
OUT
* Carl N. Karcher, 76
* Experience: Company founder and owner of 34% of company stock.
* Challenge: Persuading shareholders to replace the directors who ousted him.
* Quote: “I feel like I’ve been stripped of my office by a bunch of turncoats. After 52 years, I’m on the outside looking in.”
CARL’S JR. FACT SHEET
* Chief executive: Donald E. Doyle Jr.
* Headquarters: Anaheim
* Founded: 1941
* Employees: 14,000
* Outlets: 648
* 1993 sales: $502.6 million, down 7%
* 1993 net income: $5.5 million loss ($13 million profit in 1992)
