Karcher’s Fateful Hiring Began His Own Demise : Corporations: Carl’s Jr. founder’s own star started dimming the day he ordered out for a new president.
The dimming of Carl Karcher’s star began the day the legendary entrepreneur went outside his immediate orbit to recruit a leader for the Carl’s Jr. fast-food chain.
Events of recent months have focused on founder Karcher’s dispute with the company’s directors and new president over their rejection of his plan to sell another chain’s Mexican foods at Carl’s Jr. restaurants.
But interviews Saturday with Karcher’s personal attorney and with three of Carl Karcher Enterprises’ board members make clear that founder Karcher and President Donald E. Doyle Jr. have been on a collision course almost since the beginning.
Karcher has called Doyle and other board members turncoats. Doyle, director Kenneth Olsen and the board’s new chairman, Elizabeth A. Sanders, have characterized Karcher as an autocrat who cannot stand being denied.
The conflict grew so tense that Margaret Karcher, Carl’s wife of more than 50 years, was moved to rise during a board meeting and chastise the directors for what they are doing to her husband.
Finally, the board Friday removed Karcher as chairman of the company he founded in 1941.
In an interview Saturday, Sanders said that Karcher “is a giant of a man in many ways” but is also “a strong, domineering man who has a tremendous disregard for other people’s ideas and inputs.” Because of that, she said, “there has been an oppressive and paralyzing atmosphere” growing in the company for several years and hurting its performance.
It is not clear what will happen next, but it is almost certain that Karcher will escalate hostilities.
His Costa Mesa attorney, Andrew F. Puzder, said Karcher’s supporters fervently hope that the company will see things Carl’s way.
If no peace is made, Karcher’s options include bringing in another company to buy Karcher Enterprises and fire all current officers and directors, or regaining control through a proxy battle in which shareholders who support Karcher would vote to remove the existing board.
One thing that won’t happen, Puzder said, is capitulation by Karcher, who owns 34% of the company’s stock.
“This man is a fighter. He’s an amazing person, and he is probably in better emotional shape right now than I am,” Puzder said. “I think that he is devastated by what his friends are doing to him, but he is not going to let himself be taken advantage of.”
The conflict became public Sept. 1 when Karcher issued a press release criticizing the board for rejecting his proposal to test a dual marketing program with Green Burrito, a restaurant chain based in Anaheim.
But the struggle actually began a year ago, when Karcher--then 75--agreed with other directors that it was time to bring in someone new to run the company’s daily operations. Karcher, who began with a single hotdog cart in downtown Los Angeles in 1941, had been president and chairman until 1980, when he brought in his brother, Donald, to take over the presidency. The pairing of the two brothers worked well, but in 1992 Donald Karcher died of lung cancer.
Management specialists say that one of the most wrenching but critical decisions any company’s founder must make is when to step aside.
“But ever since we went public (in 1981), Carl never has acknowledged that this is not his private company any longer,” said Olsen, a retired president of the Vons Cos. supermarket chain and a member of the Karcher Enterprises board for 13 years.
Karcher, who declined Saturday to be interviewed, apparently tried to let go. That was clearly demonstrated, personal spokesman Steven B. Fink said, by the founder’s agreement to go outside the family and the company for a new president.
Puzder said that Karcher began having problems with Doyle soon after he was hired, though, and that “there already were serious questions in Carl’s mind about Doyle” before the Green Burrito proposal was made.
Exactly what those questions were, Puzder would not say. “We can’t get into that until we file a proxy statement, if that is what we do.”
Doyle, who had headed Kentucky Fried Chicken’s domestic operations, said the problems are rooted in Karcher’s belief that Carl’s Jr. is still his company.
“I spent a whole day with him” during the recruiting courtship, Doyle said of Karcher, “and he was very pleasant. . . . The independent members of the board told me I worked for them and that Carl’s role was not to run the company anymore.
“But I also talked to others in the industry and to people in his own senior management. And from that I was very clear that Carl was very autocratic and would have great difficulty giving up authority.”
The blowup happened “about when I thought it would, a few months after my management team and I had developed our own plans for the company,” Doyle said. “What I didn’t expect was for Carl to attempt to get rid of the board if it supported me.”
Puzder said that Karcher was concerned about falling sales at the chain’s 648 restaurants. That issue was weighing on his mind when he was approached in April by William M. Theisen, chairman of Green Burrito’s parent company. Karcher and Theisen worked out a marketing plan under which Green Burrito items would be added to the menu at some Carl’s Jr. outlets.
Karcher had no idea that the board--whose members he had personally selected over the years--would rebuff him.
“Carl always kept ahead of the competition. That’s why Carl’s Jr. grew and other hamburger places didn’t,” Puzder said. “Carl was first with a drive-through, first with a salad bar and first to add a sit-down restaurant. . . . He felt that the steps Doyle was taking were insufficiently entrepreneurial to save the company.”
Karcher made that point at a July 14 board meeting.
He brought with him Theisen, several other Green Burrito executives and the owner of an Arby’s roast beef sandwich restaurant in Long Beach that has begun selling Green Burrito products. Karcher told his board that he liked the idea, that it would improve sales and that it could be tested at no cost to Karcher Enterprises.
Puzder was there, too, to offer personal testimony. “Carl had dragged me to at least three Green Burritos to test the food,” he said. “Even though I don’t really like Mexican food, I thought it was very good.”
Puzder said the directors all expressed interest, “but Doyle immediately said he didn’t want to do the test, that it wasn’t the right thing for the company. The directors had to order him to put together a business plan” to be presented at the next board meeting.
Doyle recalls it differently. Directors asked him to prepare a feasibility study, he said, but expressed grave concerns about a letter Theisen distributed. The letter, Doyle said, offered to buy $6 million worth of stock from Karcher in return for a board seat for Theisen and an infusion of Karcher Enterprises cash into money-losing Green Burrito.
Since then, Doyle and other Karcher board members have made the founder’s personal financial woes a key element in the corporate fight, saying in effect that Karcher wants the Green Burrito deal not to benefit Karcher Enterprises but to reline his own pockets.
Puzder called that “nonsense” and said Karcher has repeatedly told board members he has no deal with Theisen. The letter distributed at the meeting, Puzder said, was unsigned and not binding on anyone.
Karcher does face personal financial problems. He has lost millions of dollars in soured real estate and other investments, prompting his personal attorney to recommend that he consider filing for bankruptcy. Karcher has been adamant, however, that he has no interest in using the Green Burrito plan to fix his own finances, Puzder said.
At an Aug. 19 board meeting, the board voted 5-2 to reject Karcher’s proposal, and all hell broke loose.
Karcher told Puzder after the meeting that “they are trying to take my company away . . . they are trying to pick my pockets.” Those comments, Puzder said, reflected the founder’s concern about management: “He said he thought this was now a fight over who controlled the company, not about Green Burrito.”
In the next few days, Karcher personally met with three directors: Sanders, Peter Churm and Daniel Holden. He asked each to step down.
“But they met with the company’s attorney and among themselves and decided they would not resign,” Puzder said. When Karcher got the word, he huddled with his advisers and agreed that a proxy fight might be necessary. He then hired a New York law firm that specializes in such matters to advise Puzder’s firm.
Karcher also issued a press release that made the boardroom battle public for the first time.
For the next four weeks, Puzder said, “Carl continued to try to persuade directors to see it his way and to either resign or agree to do the test.”
Karcher, despite his reputation as an innovator, did not offer any solutions--other than the Green Burrito plan--for turning the company around. That made Doyle and his supporters suspicious of Karcher’s motives.
“He didn’t make any other proposals,” Puzder said, “because it was obvious that we were not talking any longer about anything to do with anything but control of the company.”
That impasse led to the final confrontation.
On Tuesday, Karcher and wife Margaret--who has been attending board sessions with her husband as a director emeritus--went to the meeting expecting to hear more objections to the Green Burrito plan. What the couple heard instead was an offer--Puzder calls it an ultimatum.
“They made him an offer to buy $16 million of his stock and appoint three new, mutually acceptable board members if he would forget Green Burrito and give up the right to vote the rest of his shares in the future,” the attorney said. “And they wanted an immediate answer and said that they would fire him if he didn’t accept. We said we would not respond until Friday, and they accepted that.”
Doyle said the offer was merely an opening bid and that the board would have accepted a reasonable counteroffer from Karcher, but none ever came. The offer, which would have swelled the Karcher board to nine members and required an incumbent to resign, also would have put Karcher in a new post: chairman emeritus.
“Carl said he thought they were being disloyal,” Puzder said. During that session Tuesday, “Margaret stood up and told them that none of them knew what they were doing to Carl, that none of them had ever built something from nothing like he did.”
The anger and frustration, Puzder said, were palpable, but there was no yelling, no tears. “Carl said the whole thing was part of a plan to take the company away from him, but they denied it.”
During the next two days, Karcher and his team pounded out a compromise they hoped to sell to the board despite the growing hostilities.
On Friday, Carl and Margaret Karcher met at daybreak with Puzder and several supporters, including one of their 12 children, son Carl Leo Karcher. The younger Karcher has been his father’s only ally on the board of late.
At 8 a.m., the three Karchers met with their advisers.
“We wanted,” Puzder said, “to make sure everyone knew what our plan was and what we would be saying.”
The group then drove from the Karchers’ home in Anaheim for a 10 a.m. board meeting at the nearby corporate headquarters, a building owned by the Karcher family trust and leased back to the company.
“We knew something was up when we walked in and saw a press release on a secretary’s desk that announced that Betsy (Elizabeth) Sanders had been named chairman,” Puzder said. “This was before the meeting even started.” Director Olsen said there was a second press release that lauded Karcher for accepting the board’s offer.
Karcher opened Friday’s meeting with his counteroffer: He would keep his stock; nominate five new directors and allow the current board to veto any two of them; remain as chairman and give the company the right to make the first offer for any stock he wanted to sell in the future.
In return, he asked the board to go ahead with the Green Burrito test.
“It was an offer that had no personal benefits for Carl in it,” Puzder said. “But they rejected it, and then they fired him.”
Doyle says the proposal would have given Karcher and his new directors a 5-4 majority on the expanded board. “He would have ended up with control of the company, and then he could have done anything he wanted.”
When Friday’s meeting adjourned at midday, Karcher, a devout Catholic, went to Mass and communion at St. Boniface Catholic Church in Anaheim. He rested during the afternoon, then drove to Los Angeles for a Mass and dinner with another church group, the Knights of Malta.
Olsen, a fellow Knight, also attended. He has known Karcher for 20 years and is considered his closest friend on the Karcher Enterprises board. “I still love him as much as before all this happened,” Olsen said. “And when he has a chance to calm down, I believe Carl will say the same about me.”
That might take awhile. At dinner Friday, Olsen approached the man he’d voted to fire earlier that day. “I went over to him and shook his hand and asked him how he was feeling,” Olsen said. “He told me that, after what had happened that morning, he wasn’t feeling too good.”
MEMBERS OF THE BOARD The directors of Cal Karcher Enterprises Inc. on Friday removed founder Carl N. Karcher as chairman of the company and replaced him with 10-year board member Elizabeth A. Sanders. Karcher rema1768846112 Member: Carl N. Karcher Age: 76 Elected: 1966 Shares: **6,193,441 Percent: 34.2% Background: Single hotdog stand that opened in 1941 expanded into nationwide chain
Member: Donald E. Doyle Jr. Age: 47 Elected: 1992 Shares: 17,121 Percent: * Background: Former president of Kentucky Fried Chicken
Member: Daniel W. Holden Age: 58 Elected: 1966 Shares: 21,966 Percent: * Background: Heads Holden & Fergus, an Anaheim law firm
Member: Carl L. Karcher Age: 44 Elected: 1992 Shares: 65,546 Percent: * Background: Son of Carl N. Karcher, president of CLK Inc., a Karcher Enterprises franchisee
Member: Peter Churm Age: 67 Elected: 1979 Shares: 11,824 Percent: * Background: Chairman emeritus of Furon Co.
Member: Kenneth Olsen Age: 74 Elected: 1980 Shares: 16,750 Percent: * Background: Retired president of Vons Cos.
Member: Elizabeth A. Sanders Age: 48 Elected: 1983 Shares: 4,950 Percent: * Background: Head of the Sanders Partnership, management consulting firm; former general manager of Nordstrom Inc. * Less than 1% ** Including 6,160,186 Karcher Trust shares Source: Carl Karcher Enterprises Inc.; Bloomberg Business News; Times reports; investNet Researched by JANICE L. JONES / Los Angeles Times