New Chairman Details Karcher Intransigence : Corporations: Elizabeth Sanders says Carl’s Jr. founder ignored directors’ advice, acted capriciously.

Carl Karcher had become an obstructionist who believed that his handpicked board of directors was conspiring against him, the new chairman of the Carl’s Jr. fast-food chain says.

In telephone interviews from her Northern California home Saturday night and Sunday afternoon, Elizabeth A. Sanders, a 10-year veteran of the company’s board, said founder Karcher ignored advice from directors of Carl Karcher Enterprises and acted capriciously to push his own agenda.

Sanders, who rose from salesclerk to regional vice president at the upscale Nordstrom department-store chain, pulled off her white gloves and delivered an account of growing paranoia that precipitated the 76-year-old Karcher’s firing Friday as chairman of the company he started in 1941.

Among other things, said Sanders, 48, Karcher fired former company executive Ray Perry in 1991 without consulting board members--then announced that he had done what the board told him to do.

Sanders also said that Karcher once tried to hire a local businessman to run the company in a deal not authorized by the board. The arrangement, she said, called for Karcher Enterprises to buy the man’s company at a ruinous price.

“He has run roughshod over the people he and the company have put together to run things,” Sanders said. “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. It was the last thing any of us on the board or in management wanted to do.”

Since his ouster, Karcher has not been available for interviews, despite repeated requests. A spokesman said Sunday that Karcher was out of the area at a wedding.

In the past, Karcher and his representatives have characterized events of the past few months as a struggle for control of the company. Karcher says he has been betrayed by a rogue board of directors that has sided with the company’s new president, Donald E. Doyle Jr.

Sanders, despite her criticism, said she “would like nothing better than to be going ahead with Carl as part of the team.”

Sanders, a management consultant since 1990, said that, though she succeeds Karcher as chairman of the board, she is not a replacement: “I am an outside director acting as chairman of the board. My role is to provide feedback and support. . . . Carl is the founder.”

Karcher’s achievements--building a 650-store fast-food company from a single hot-dog stand--have made him a legend in the annals of free enterprise. But as Sanders tells it, Karcher finally became just another aging businessman who didn’t know when it was time to step down.

Karcher’s unwillingness to share authority led to his ouster, she said.

“I think anyone on the board would tell you there were times we have been ignored” by Karcher, Sanders said. “There are times when you give advice and are not too concerned when it is not taken. . . . But there were issues, like the excessive overhead of the company, that we were trying to get Carl to address.”

As Sanders tells it, Karcher’s relationship with other directors began deteriorating over the issue of succession.

When Karcher recruited her for the board in 1983, she recalled, “he said that planning for succession was a critical job. So we brought in consultants to look at people who worked there.” The reviewing went on for nearly eight years with no results, Sanders said.

Then in early 1991 the directors were told that company president Donald Karcher, Carl’s brother, had lung cancer. “The outside members of the board met on our own, and we determined that we were not poised for a successful succession,” Sanders said. “We expressed our concern to Carl and said we had a fiduciary responsibility” to shareholders.

Among the board’s suggestions, she said, was that Donald Karcher be made vice chairman and that a nationwide search be launched for a new president who would also take over Carl Karcher’s role as chief executive officer.

“We said, ‘Let’s do it now,’ while Don was still functioning and was well, so that if, God forbid, he were to die, we would not miss a beat,” she said. “We were in our second year of declining revenue at that time and were very concerned.”

The first thing Karcher did, Sanders said, was to ask about Perry’s prospects of becoming president. “We had some reservations,” Sanders said, “so we suggested that he be considered as a candidate but that others be looked at as well. Carl didn’t move on it for over three months, and then one day he called us in and said that he’d fired Ray, just like we asked him to.”

Board members were stunned, she said. “We had never asked that Ray be fired, and we thought that Carl had acted precipitously and that his recollection of what we’d said was disingenuous at best,” Sanders said.

Perry bounced back and is chief operating officer of the El Pollo Loco restaurant chain in Irvine. Carl Karcher Enterprises, however, went into 1992 with no candidate for its presidency.

Karcher did mention that he had heard good things about a man named Donald Doyle, former president of Kentucky Fried Chicken’s domestic operations, Sanders said. But then, with no prelude, Karcher “brought us a presidential candidate,” she said. “We were stunned.”

Karcher asked the board to confirm the candidate immediately if he passed muster, Sanders said. (She would not identify the person but said he was a local businessman “who didn’t have a big restaurant background.”)

When Karcher asked for approval of his candidate, Sanders said, “I stood up and said that, as far as I was concerned, the best we could do would be to confirm him as a candidate while we continued a national search.”

That meeting was adjourned with no action. Shortly afterward, Sanders said, “Carl called an abrupt meeting and said it was to confirm this man.”

Sanders and the other outside directors had a telephone meeting to compare notes. “We determined that Carl was simply ignoring our input,” Sanders said. “He’d hung up on several of us when we didn’t agree with what he was saying. He’d just say something like, ‘Well, that’s it then,’ and slam down the phone.”

And now, without consulting the board, Karcher had invited “this poor man and his wife to come to a confirmation hearing,” Sanders said.

The board was spared the task of rejecting Karcher’s candidate when the chairman revealed that, to hire the man, Karcher Enterprises would have to buy his company. “The price made it impractical and financially impossible,” Sanders said.

The incident, she said, “put us on serious alert. Carl was absolutely forging ahead and ignoring our concerns. . . . He was not taking seriously his board of directors.”

Sanders said that Karcher’s shoot-from-the-hip style worked when the founder still owned the whole company. When Karcher Enterprises began selling stock to the public in 1981, “this was not his company anymore,” Sanders said. “It is a public company, and this was the first real crisis we faced as a board in disagreement with the chairman and founder.”

After that, Karcher agreed to launch a national search, Sanders said, but before anything was begun, Donald Karcher died. That left the company without a president--the exact situation that board members had hoped to head off nearly two years earlier.

When the search for a successor finally did get under way, it turned up the same candidate Karcher had suggested a year earlier: Donald Doyle.

Doyle was eventually hired. The process was interrupted, however, when Karcher made a bid to buy the company with financing from a Los Angeles investment firm, Freeman Spogli & Co.

Ironically, Doyle had been hired by Freeman Spogli as an adviser for the leveraged buyout.

“At our next board meeting,” Sanders said, “Carl asked us to confirm Don as president, but we told him that was impossible, that we couldn’t because Don was Freeman Spogli’s choice and we had not approved the LBO.” To have approved Doyle then, she said, would have been to endorse the buyout--which the board was resisting.

“It was when we turned down the LBO that we first became cognizant of the depth of his personal financial problems,” Sanders said of Karcher, whose losses from failed real estate and other investments have since been publicized. “He said that we’d ruined him. He kept saying we had ruined him.”

But the buyout was rejected, she said, because the board could not find an independent analyst who would issue a so-called fairness report certifying that Karcher’s offer represented a fair deal “to all of the company’s stockholders, not just to Carl.”

When the board met on Dec. 22 to inform Karcher officially that it was rejecting his buyout offer, Donald Doyle was invited to attend and was nominated as president of the company.

“We desperately needed someone to head operations,” Sanders said, and Doyle “was Carl’s choice. So, while saying no to the LBO, we were saying yes to his chosen person.”

But from the day Doyle reported for work, Sanders said, “Carl was not able to deal with having someone else in charge. And more than that, it was somebody he couldn’t push around.”

Karcher became morose and withdrawn, Sanders said.

That was illustrated by one incident in particular, she said: a June meeting with Doyle to discuss her consulting business and whether it would make sense for her to do some consulting work for Karcher Enterprises.

“Carl walked by and was obviously shocked and upset to see me in Don’s office,” Sanders said. “Don said, ‘Oh, God! Now I’ll hear about this.’ ”

Sanders said she asked why Karcher would be upset; Doyle replied that the chairman was upset about everything lately.

Karcher then called Sanders to his office, she said, and asked about the meeting. Then he brought out a laundry list of complaints about Doyle, many of them dealing with the fact that Doyle didn’t keep him informed of his daily activities.

“I told him he was mixing his role with Don’s,” Sanders said, “and that we couldn’t achieve anything that way. When I went back to Don’s office, I told him that Carl was being suspicious and difficult.”

A few days later, Sanders said, “I heard that Carl had started saying that I wanted to run the company.”

On Friday, when Karcher was fired and Sanders was elected chairman at a tense and angry board meeting, the response from Karcher was predictable, she said.

“Carl looked at me and asked if I still claimed I was talking about marketing in that June meeting with Don,” Sanders said.

Karcher spokesman Steven Fink, responding Sunday to the suggestion that Karcher was imagining a plot against him, said the Karcher camp’s position is that “people were conspiring against him. Those doing so were the five people on the board (who voted to fire Karcher). And the action the board took on Friday was evidence of that conspiracy.”

Sanders says the board majority--Karcher remains a director and his son, Carl Leo Karcher, is also a director--backs Doyle fully.

“What we are all attempting to do now is to get this business back on track and to continue to pursue strategies to make it strong again,” Sanders said. “That doesn’t signify a change in direction. . . . It is just a commitment to the very strong foundations that Carl and Don and the management have laid down.

“Our management people, people who are not on the front line of this dispute, are in total agreement,” Sanders said, “that this is the first time we really have a dynamic plan. It is exactly what the board anticipated a man of Don’s caliber would do.”