Analysis
Denny's
Challenger
Jack in the Box
Tylenol
Union Carbide
Analysis
Case
Study: Denny's Class Action Lawsuit
This
is a case study of a major restaurant chain that faced a crisis as a result
of race discrimination against its customers practiced by several employees
of the chain. The first act of discrimination came December 31, 1991,
when 18 youths visited a Denny's restaurant in San Jose, Calif., and claimed
racially discriminatory application of a late-night pre-payment procedure
(Chin, Naidu, Ringel, & Snipes, 1998). Essentially, because the youth
were African-American and it was late at night, they were asked to pay
their bill before they could be served.
Almost immediately the company worked with the NAACP to learn how the
company could improve in areas of diversity, resulting in a "fair
share" agreement. Denny's representatives met with NAACP representatives
and legal representatives of the youths to resolve the youths' concerns.
Denny's agreed to immediately suspend pre-payment procedures in San Jose
and to review its practices at other Denny's restaurants around the country.
Although Denny's received negative press coverage because of this incident,
the crisis soon passed. It didn't grow into a major crisis until a more
highly publicized incident occurred 2 years later in a Denny's restaurant
in Annapolis, Md. May 24, 1993, six members of the uniformed division
of the U.S. Secret Service filed suit against Denny's, claiming racial
discrimination when they were trying to receive service April 1 of that
year (Chin et al., 1998). Less than a week after signing an agreement
with the youth in the 1991 incident, a waitress at the Denny's restaurant
in Annapolis refused to serve breakfast to 6 black Secret Service agents.
This set the stage for a full fledged public relations disaster.
Primary Evidence. March 25, 1993, Denny's issued a press release
(Chin et al, 1998) stating the chain reached an agreement with the U.S.
Department of Justice to communicate and reinforce the restaurant's policies
regarding the equitable treatment of all customers, regardless of race
or color. This release was in response to the discriminatory act in San
Jose. The agreement focused primarily on actions to be taken at California
restaurants. The procedure to ask customers to pay in advanced was eliminated
as a result of the agreement. In the press release, Jerome Richardson,
chairman and chief executive officer of TW Services, Inc., parent company
of Denny's, said "Our agreement with the Justice Department is an
affirmation of our commitment to treating all customers fairly and we
intend to go even further with our own programs.
Our company does not tolerate discrimination of any kind. Any time evidence
of such behavior is brought to our attention, we investigate and appropriate
disciplinary action is taken." (Denny's, 1993a, p. 2). Also as part
of the agreement, Denny's developed a plan to communicate its stance against
discrimination to its employees. This plan included special video training
programs for all Denny's employees, public notification of Denny's non-discrimination
policies, as well as the hiring of an administrator to keep records of
the plan and its progress. The plan also called for seeking ways to enhance
opportunities for minorities in hiring, promotion and franchising. Finally,
the plan called for diversity and sensitivity training for company leadership.
In conjunction with the press release, Denny's issued an open letter to
Denny's customers and communities. The letter was posted near the cash
registers of all Denny's restaurants. The letter, signed by Richardson,
declared "we want to make it clear to all of our valued customers
that Denny's does not and will not tolerate discrimination of any kind"
(Denny's, 1993b, p. 1).
In addition to this pledge, the letter acknowledged problems in the California
restaurants but denied any pattern of discriminatory behavior at its restaurants.
The letter also pledged to terminate any employees engaged in discriminatory
acts against its customers. It concludes by giving customers a toll free
number to call if they have questions or comments.
Taking such an active stance against discrimination, company officials
felt they had put a stop to the potential disaster.
However, it was only one week later that the second major incident took
place at the Denny's restaurant in Maryland. The Maryland incident couldn't
have been worse timing for the company. It appeared that Denny's wasn't
taking its own policies seriously. It appeared the company was reneging
on its antidiscrimination pledge.
Immediately, the company issued an internal memo to all of its employees.
Again, the front man was chief executive officer Richardson. The memo
encouraged employees to call a special telephone line established by the
company to report any other incidents of discrimination. Richardson stated
"I am distressed that some people in our company haven't gotten the
message that we will not tolerate unfair treatment of customer" (Denny's,
1993c, p. 1).
In addition to the firm message contained in the memo, it also addressed
the greater majority of hard working employees who do not practice discrimination
and support the company's policies. In the memo, Richardson also stated
"We know that those of you who work in our restaurants have a difficult
job. We are here to support you" (Denny's, 1993c, p. 1). The letter
singled out Denny's African-American employees by acknowledging the difficult
position they have been placed in due to the transgressions of a few.
Chin et al. (1998) cites Denny's (1993) television commercial, which highlights
a corporate pledge that was signed by all Denny's employees to support
the anti-discriminatory policy. The commercial features Richardson and
several employees, each repeating different lines of Denny's pledge. A
voice over in the commercial states "All of us at Denny's want you
to know that we care about your feelings, which is why all 46,000 of us
have signed this pledge and reaffirm our commitment to you" (Chin
et al., 1998, p. 185).
Advantica, now Denny's parent company, has many articles of evidence of
its anti-discriminatory policy.
Under its diversity programs web page (2002), it has four subtopics: initiatives,
philanthropy, awards, and "what's new." Its initiatives Web
page claims that acquisition boards consist of 11 directors, of which
36 percent are women and people of color. It also states that several
of the members of the Advantica Board of Directors are minority members.
Advantica's philanthropic page shows evidence that the company supports
several charities that focus on minorities, such as Save the Children
and the National Civil Rights Museum.
The philanthropic pages also show evidence that its diversity through
minority-owned franchises and the company's contracts with minority groups
continues to increase. The site also shows evidence that the company is
being recognized, through awards, for its increased focus on diversity.
For example, Advantica was ranked number 1 by Fortune magazine in its
list of "America's 50 Best Companies for Minorities" for two
consecutive years - 2000 and 2001. Interestingly, the site claims that
the Anne Arundel Branch of the NAACP in Annapolis, Md., named Denny's
Corporation of the Year in 1996. Annapolis is where Denny's class-action
suit with the 6 Secret Service Agents originated. One of the company's
best evidences that it has committed itself to the fair treatment of its
customers is the 27-minute video that can be displayed on line or ordered
for free from the company.
In a 1998 editorial in the Weekly Newspaper of the Food Service Industry
(Adamson, 1998), new Advantica chief executive office James Damson outlined
how a company could overhaul its culture. He states that there are 10
driving factors behind Denny's success: diversify your board of directors,
be a zealot about diversity, make someone accountable, make sure everybody
in the company owns diversity, and set clear policies and communicate
them. He also said that a company must train its people, find out impediments
to inclusion, monitor, measure and report, reward progress, and celebrate
success.
Secondary Evidence. Although Denny's faced an explosive public
relations crisis, it appears that its public relations team made all the
right moves, as can be evidenced in numerous articles that appear in the
mass media. A Fortune article (Faye, 1996) titled Denny's Changes its
Spots, outlines the steps taken by Denny's to overcome its crisis. According
to the article, Richardson moved quickly to resolve the law suits filed
against the company. By 1995, Denny's paid $54 million to 295,000 aggrieved
customers and their lawyers. As part of the settlement, Denny's promised
to treat all customers equally in the future. The consent decree also
mandated that Denny's publicize its nondiscriminatory policies and train
employees in diversity issues. An independent civil rights monitor was
appointed to supervise the restaurant chain for 7 years and to investigate
further claims of discrimination.
A Restaurant's & Institutions article (Rousseau, 1997) focused on
Denny's attention to diversity in its new television commercials which
aired shortly after the crisis. The new campaign "rolled out a new
$4 million-plus ad campaign targeted to African Americans" (Rousseau,
1997, p. 22). The campaign built on the theme "You work hard for
your money." The message is "Welcome back to Denny's; we respect
you, know that you have choices on how to spend your money, and want to
be your top choice. The article also states that Denny's created a Spanish
commercial targeting Hispanic Americans. In another Fortune article (Faircloth,
1998), the author asks "how did these racial sinners become role
models for diversity? Hint: quickly, decisively, and sincerely."
(p. 109.).
The article states that although Denny's overcame its negative image after
the lawsuits, some question its motives. The article quotes Joseph Lowery,
former head of the Southern Christian Leadership Conference, who stated
that he compares the corporate initiative to a church offering. "Maybe
you put your money in the plate because you're scared of going to hell;
maybe you do it to support the good works of the church. Motivation is
not important, what we want is results" (Faircloth, 1998, p. 109).
Another Restaurants & Institutions article (Dailey, 1998) states that
Denny's not only focused on putting a stop to discriminatory practices
toward its customers, it also focused on making the restaurant chain one
of the most diverse in the nation. The article states that in 1993, only
one Denny's franchise belonged to a minority. By 1998, 35% of the franchised
stores were minority owned.
The secondary evidence examined has some commonalities. By and large,
the media reacted positively toward Denny's immediate actions to admit
blame for the discriminatory acts. Also, the media reacted favorably toward
the immediacy and urgency Denny's placed on the situation. Some hold Denny's
up as the model for others to follow in similar circumstances.
Scholarly Journals. Chin et al. (1998) stated that Richardson's
visibility during the crisis helped Denny's credibility with the media.
Another credibility booster came when the company teamed with the NAACP
to create real and sincere solutions to the crisis. One criticism made
by the authors is that Denny's never mentioned the lawsuits in any of
its commercials, which may have led to some confusion by customers. The
article also states that Denny's overcame its crisis through other works
such as making contributions to minority groups in the sum of $100,000.
The company also pledged increased contracts with minority vendors.
Discussion. Denny's discriminatory practices by some employees
were clearly wrong. However, company leaders and public relations practitioners
should be commended for their actions following the 1993 crises. By accepting
the blame immediately and working with the NAACP, the company employed
forgiveness strategies to resolve the public relations crisis. According
to Coomb's Crisis Type Matrix (1995) the type of crisis Denny's faced
would be considered a transgression. A transgression is a crisis created
by an internal component of an organization that was committed intentionally.
This was the case in Denny's situation. Although there was a set policy
of non-discrimination, some members of the organization chose to ignore
the rules. An acceptance of blame is evidenced by the company's willingness
to settle the class action lawsuit and compensate the injured parties
for a sum of $54 million. This is considered remediation. In several of
its commercials and written advertisements, CEO Richardson directly apologized
to Denny's customers for the discriminatory practices and pledged not
to tolerate discrimination.
Furthermore, any employee engaging in discrimination would be fired if
found to be practicing discrimination. This was considered repentance.
Finally, the company moved to rectify any further problems with discrimination.
In addition to working toward diversification in its contracting and franchising
practices to include larger minority parties, the company worked diligently
to train its employees to eliminate discrimination. This was the rectification
phase.