Businesses can suffer major consequences when the company leaders violate the law, make unpopular statements or otherwise compromise the business’ reputation and image. One recent example of this is the situation involving the founder of Papa John’s.
In recent months, statements by John Schnatter have put the pizza chain in a position to respond to controversy and dropping stock prices. And despite Schnatter stepping down as CEO and chairman of the board, the board of directors recently took steps to prevent him from regaining control of the company. They did this by approving a poison pill provision.
Pizza and the poison pill
According to reports like this one from CNN, the board approved a measure that will drop share prices for stockholders if Schnatter acquires more than the 30 percent stake he and his associates currently hold without approval. Such a measure would dilute control. This so-called poison pill provision makes acquiring control more expensive and difficult for the interested party, who in this case would be Schnatter.
This approach — called the flip-in — is just one strategy to stop an undesirable or hostile party from taking control of a company.
Controversy over use of these provisions
Not everyone agrees with these provisions. Shareholders, for instance, may not approve of it if they feel a bidder should be allowed to take over because it would be in their best interests.
Under these circumstances, a board has to decide whether to appease shareholders or prevent unwanted takeovers.
What to take away from Papa John’s
Public disputes and conflicts can have far-reaching implications for a company. Not only can they affect shareholders and boards, but they can also affect a company’s reputation and financial earnings.
As such, it is crucial to resolving such business-related matters quickly and amicably, if possible. If a situation becomes unmanageable, business leaders should understand their legal options for resolution through litigation. In either case, having legal guidance from an attorney can be vital.