- WHITE PAPERS
If you want a top-quality leader for your business, you've got to offer the three Cs — cash, cars and club memberships — right?
Not to Tim Taft.
The new president and chief executive officer at The Colony, Texas-based Pizza Inn demanded none of above when taking the helm at the 400-unit chain on March 31. The princely salary of $1 — plus the long-term reward of stacks of company stock if he can turn it around — are the terms.
Whether the bargain hire will be the deal or the dupe of the century rests squarely on Taft's shoulders. The buck-to-be-the-boss plan was his, not Pizza Inn's.
"The more I learned about Pizza Inn and some of its recent history, I didn't want the salary of the CEO to be an issue or a distraction," said Taft, referring to former CEO and president Ronald Parker's annual $1.1 million compensation package. Parker was fired by Pizza Inn
In February, Taft stepped down from the post of president and chief operating officer of the 745-unit Whataburger chain in Corpus Christi, Texas. By so doing he became one of 50 candidates considered in a nationwide search for Pizza Inn's new leader. Since Parker's sacking, the company has had two interim CEOs.
Taft is taking over immediately, and Pizza Inn's largest shareholder, Mark Schwarz, is happy to have him.
"Tim is someone who's got an extraordinary amount of passion," said Schwarz, president of Newcastle Partners, which owns 36 percent of Pizza Inn. "He's a tremendous leader ... who cares about doing the right thing. That means putting the company, the people, the franchisees and customers first ... . That is a big departure from the prior management's culture here."
Many hope Taft's appointment will mark the beginning of the end of more than two tumultuous years in the chain's boardroom. The trouble started in August of 2002 with the forced resignation of then-CEO and president Jeff Rogers. Three years earlier, Rogers received a company-secured loan to purchase Pizza Inn stock. The stock's value eventually collapsed, leaving his investment upside down.
Believing Rogers couldn't repay the loan's $1.9 million balance, Pizza Inn's board warned investors the chain would have to absorb the loss, ensuring Rogers departure from the company he'd steered out of bankruptcy 12 years earlier (Rogers steps down at Pizza Inn, company posts 4Q loss).
In December of that year, Rogers surprised the company by paying off the loan with proceeds from the sale of his 2.7 million shares of Pizza Inn stock (27 percent of all outstanding shares) to Newcastle Partners (read also Pizza Inn ex-CEO pledges stock for loan to pay off debt to company). The transaction made Dallas-based Newcastle the majority shareholder and sent tremors through Pizza Inn's executive suite.
Concerned Newcastle's increased influence might jeopardize their jobs, Parker and vice presidents Keith Clark, Shawn Preator and Ward Olgreen rewrote their employment contracts and key Pizza Inn bylaws to protect their positions. The new contracts included golden parachutes that positioned Pizza Inn to lose $7.4 million should it undergo a change of control at the board level. Parker alone stood to reap $5.4 million, while the other three would grab six-figure sums.
After a bitter proxy battle (read also Battle for the Board at Pizza Inn) waged between Pizza Inn and Newcastle, 87 percent of shareholders voted in February 2004 to seat an additional Newcastle-appointed member (for a total of three) on the chain's board. Three months later, Pizza Inn's legal counsel determined the board shuffling did not constitute a change of control and thus trigger the executives' parachute payments (read also Board battle over ''change of control,' millions in parachute payouts, ends at Pizza Inn).
In June of that same year, Clark resigned from the company and renewed the change of control dispute, claiming he was owed more than $700,000. The dispute remains in arbitration.
When Parker was fired in December for violating his employment agreement, he also claimed he was owed the change-of-control payout. A day later the company added his name to the list of defendants in a lawsuit against Pizza Inn's former law firm, Akin, Gump, Strauss, Hauer & Feld LLP. The chain accuses the firm's lawyers of colluding to rewrite the four executives' labor contracts and place Pizza Inn at great financial risk.
The suit remains in discovery.
Pizza Inn has foundered amid the struggle, enduring unit closures and sinking same-store sales. Ironically, the price of its thinly traded stock has risen from a low of less than $1 to a high $3.26 in October. Though it has fallen some since, rumors of Taft's appointment sent shares creeping upward in the days prior to the official announcement. It leapt 12 percent to trade at $2.75 when the appointment was made official.
Neither Taft nor Schwarz would say how much stock Taft could earn if he turns the company around, though upcoming filings with the Securities and Exchange Commission will provide details.
"There is a lot of stock involved, and believe me, I want him to make a lot more than a dollar," Schwarz said, adding that Taft's meager salary proves he wants to earn his compensation, rather than have it handed to him.
"I believe so strongly in the vitality of this brand that I'm going to come in for a buck," he said. "If the company does well, then I'll do well. If the company doesn't, then I won't."
Setting a new course
By all accounts, Taft's 10 years at Whataburger were good ones. Though hired as its vice president of marketing in 1994, he quickly assumed broader duties and began an ascent through the ranks. By 2001, he was its president and chief operating officer.
During his tenure the company grew from 260 units to 745, and it pieced together a 47-quarter string of positive comparable-store sales growth. In 1994, average unit sales were $750,000; today they are $1.4 million per store.
With such success, why would Taft leave? Sterling May, a Dallas securities broker who owns a 14 percent stake in Pizza Inn, wonders as much. "I don't think Whataburger has the problems we have, so why leave something good for a dollar salary?"
Schwarz said Taft's departure was connected to differences between Taft and Whataburger CEO and chairman Thomas Dobson, son of the company's founder. Though Taft didn't strongly dispute Schwarz's view, he said his departure centered more on living full-time with his family.
"I'd work in Corpus Christi all week and then, on Friday night, I'd drive to Austin," said Taft, who moved his family there to obtain advanced care for his 10-year-old daughter, who suffers from an auditory dysfunction. "On Sunday nights, after I put my kids to bed, I'd get back in the car and drive to Corpus Christi. I did that for four-and-a-half years.
"Overall, it was time for me to leave Whataburger because I wanted to live with my family. Still, I was blessed by the time I spent there."
Taft sees many positive parallels between Whataburger's turnaround and the one needed at Pizza Inn, namely the preponderance of operators who are experienced and passionate about their brand and their products. What the former lacked a decade ago is what the latter lacks now: a clear vision and a strong leader who can convey that vision to the operator base.
Taft also warned that those looking for a sexy turnaround plan may be disappointed. Long-lasting revivals, he said, typically occur via unspectacular means.
"Swinging for home runs is all about ego," he said. "With Pizza Inn, you're going to see a series of singles and doubles and an occasional triple. We're going to build our future on a platform of concrete versus sand."
Initially, those singles and doubles will take the forms of perfecting Pizza Inn's new prototype facility and improving existing restaurant sales. That back-to-basics focus has many franchisees calling him with approval, he said. "They keep saying we are all on board to make this company what it used to be. You can't ask for anything more than that."
Five-unit franchisee Hap Squire said he hasn't met Taft yet, but said he's heard nothing but positive comments about him from other franchisees.
"What encourages me is the attitude of Tim and the fact that he met at length with the franchisee committee," said Squire, who did some independent research on Taft when he heard he might become the new CEO. "Everybody I've talked to was hoping he would be the choice and would accept the position. We're all very excited. With the problems we've had in the past, I think he's the right choice."