Carl’s Star Not Likely to Quietly Fade Away : Versions of His Ouster Differ, but One Thing Seems Certain: Carl N. Karcher Will Put Up a Fight

The dimming of Carl N. Karcher’s star began the day the Orange County entrepreneur went outside to recruit a leader for the Carl’s Jr. fast-food chain.

Weekend interviews with Karcher’s personal attorney and three board members of Carl Karcher Enterprises make clear that Karcher and company President Donald E. Doyle Jr. have been on a collision course almost since Doyle took over operations Jan. 1.

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 were doing to her husband.

On Friday, the board removed Karcher as chairman of the company he founded in 1941.

In an interview, Sanders--a former Nordstrom Inc. executive who also serves on the boards of Wal-Mart Stores Inc., Vons Cos. and H. F. Ahmanson & Co.--called Karcher “a giant of a man in many ways” but also “a strong, domineering man who has a tremendous disregard for other people’s ideas and inputs.”

She expressed regret at the ouster of the company’s founder and pitchman, but said it had become inevitable.

“We have been advised time and time again that Carl was acting inappropriately and that if the company was to operate smoothly, we were going to have to move him aside,” said Sanders, 48, a management consultant.

Though she said Karcher declared at Friday’s board meeting that he had suspected the board of plotting against him since June, Sanders insisted his removal was “the very last thing anyone on the board and on the management team wanted to do.”

It is not clear what will happen next, but it is almost certain that Karcher--who owns 34% of the company’s stock--will escalate the hostilities.

His Costa Mesa attorney, Andrew F. Puzder, said Karcher’s supporters fervently hope that the company will see things Carl’s way. Karcher for months has been at odds with his board and Doyle over their rejection of his plan to sell the Green Burrito chain’s Mexican foods at Carl’s Jr.

If peace can’t be 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.

“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 Anaheim-based Green Burrito.

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 hot dog 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 Donald Karcher died last year of lung cancer.

Management specialists say 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 interview requests, 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.

But Puzder said Karcher began having problems with Doyle soon after he was hired, though he declined to specify the nature of the problems: “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 occurred “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 Karcher was concerned about falling sales at the chain’s 648 restaurants. The situation 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 selected personally over the years--would rebuff him.

At a July 14 board meeting, he was joined by Theisen, several other Green Burrito executives and the owner of an Arby’s 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.

According to Puzder, 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 in stock from Karcher in return for a board seat 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 benefit him personally.

Puzder called that nonsense, noting that 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.

At an Aug. 19 board meeting, the board voted 5 to 2 to reject Karcher’s proposal.

Afterward, Karcher told Puzder that “they are trying to take my company away. . . . They are trying to pick my pockets.” In the next few days, Karcher 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.

The dispute came to a head last week.

On Tuesday, Karcher and wife Margaret went to a board meeting expecting to hear more objections to the Green Burrito plan. What they heard instead was what Puzder calls 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. The board also wanted Karcher to give up the company’s chairmanship and become chairman emeritus.

“They wanted an immediate answer and said that they would fire him if he didn’t accept,” Puzder said. “We said we would not respond until Friday, and they accepted that.”

He described the scene as one of palpable anger. “Carl said he thought they were being disloyal,” Puzder said. “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.”

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 early in the morning 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.

Later, the group 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 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.”