Wendy's President David Karam: "The discipline of reviewing the business every month at every level, from shift manager up to me, is critical."

David Farkas writes at Chain Leader that Wendy’s President David Karam: “The discipline of reviewing the business every month at every level, from shift manager up to me, is critical.”

Investors are betting Wendy’s is finally building momentum after company restaurants posted a surprising 330-basis-point improvement in operating margins. Credit Wendy’s President J. David Karam, who owns the 150-unit Cedar Enterprises, among the Columbus, Ohio-based restaurant chain’s largest franchisees. He expects to add another 100 basis points in 2010 in his quest to top 500 by 2013.

Karam explains the advantages he has as a franchisee in the top corporate spot to Chain Leader Senior Editor David Farkas.

Franchisees, especially those with large operations, often say that corporate can’t run stores the way franchisees can. You’re living proof given the last 18 months at the helm of a troubled chain.

It was troubled. We had been losing share since 2002, and frankly we are not out of the woods yet. We have a long, long way to go. There are no generalizations that apply in life, and certainly not in situations like this. I have also heard the indictment that franchisees don’t have the skill to manage a franchisor’s challenges. It’s another form of bias that really that clouds judgment. It’s a case-by-case basis. I certainly haven’t been the only one responsible for Wendy’s turnaround. We have the support of our franchise community.

Since you bring them up, what conflicts loom between you, now president of the company, and Wendy’s franchisees?

Honestly, I don’t see any conflict. Franchisees have a long-term perspective. Their investment is illiquid. It’s not just their net worth at stake, but their life work. Wendy’s has tried to avoid [signing] financial engineers as franchisees. Historically, we’ve typically nurtured operators. If you have that long-term perspective and you are also given the opportunity to steward the brand, I don’t understand or see the conflict.

For the sake of argument, let’s say the board wants to increase the royalty by a half of a percent. Where would you stand?

If there came a point where I felt I was being directed or asked to embrace a policy I couldn’t support, I would not do a disservice to the board by trying to play the middle ground. I would be clear in my perspective on what’s best for the business in the long run.

Yet you bring a different perspective from that of a professional manager.

It is different, in part because I am more entrepreneurial. What you see in a lot of people who have only worked in large corporations is they oftentimes are missing that entrepreneurial ingredient that understands risk and reward. When you understand that and are disciplined in the way you make decisions, it binds that relationship between franchisor and franchisee even more tightly. Trust me, it doesn’t mean we aren’t tackling issues that some franchisees are opposed to, at least at some level, whether that’s value, reinvestment, breakfast advertising or raising operational standards. These are often lightning-rod issues.

Some of these franchisees are no doubt friends of yours.

Absolutely. It is critical in management—but particularly in these kinds of situations—to have good conflict-management skills. You don’t have to run from the conflicts, but you don’t have to personalize them, either.

Do you worry that the board may see you as someone who can more easily persuade franchisees to do its bidding?

That’s possible. But I have to tell you I am very pleased with the engagement of our board, particularly [Wendy’s/Arby’s Group Chairman Nelson Peltz]. They do have a long-term perspective. Look how long they have owned Arby’s. I say that because some people perceive financial investors as financial artists. That’s just not the case.

You tried buying Wendy’s a couple years ago. As a franchisee, what problems did you identify during due diligence that another buyer might have missed?

Having been a franchisee for 25 years, I was fortunate to have had the opportunity to witness the methodical and disciplined approach of a management team and the consequent impact on the brand’s performance.

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