A New Denny's Diner By Diner

A sweeping overhaul chips away at the company's racist past

When Charles E. Davis bought a Denny's Inc. restaurant in Syracuse, N.Y., last year, he knew many blacks wouldn't readily stroll through the door. Denny's, everyone assumed, was racist. So Davis traveled the city's bars and churches and got a well-connected black public-relations man to introduce him to local Urban League and NAACP officials. He bought airtime on black radio stations, set up a youth mentoring program, and ran ads in fraternity and sorority publications--and black business has more than doubled. "Every opportunity I got, I was telling people that Denny's was in town with a new attitude," he says.

That's for sure. Just two years ago, Denny's Inc. still was a snow-white export of the Old South. Some managers routinely barred black customers; others required African Americans to prepay dinner bills. Just one of the chain's 512 franchises was minority-owned. Denny's money-losing parent, Flagstar Cos., paid $54 million in 1994 to settle two civil rights class actions.

But a sweeping cultural overhaul has transformed the restaurant company. Senior management no longer is the exclusive preserve of white men. Store managers' pay is linked to diversity goals, and African Americans own 27 franchises. Flagstar Chairman and CEO James B. Adamson has consolidated authority for restaurant operations, setting strict rules and sending a clear warning to employees and franchisees alike: "If you discriminate," he says, "you're history."

NO TIME TO WASTE. It's a blunt mandate, and not everyone has bought in. A former Denny's manager says many whites resented mandatory diversity training and felt they had to "bite their tongues" when black customers charged them with discrimination. Eight of Flagstar's 12 top executives--all white males--have left the company. Now, Adamson's management committee includes a Hispanic American male, two white women, and a black woman in a newly created position responsible for diversity initiatives.

Adamson, the widely respected former Burger King Corp. CEO who arrived at Flagstar early last year, has set the tone. He recently fired off a letter to the local Greenville Newsprotesting its use of a stereotypical illustration of a black waitress. On employee resistance: "Some people just ain't savable, they won't get it, and I don't have time to waste on them." On Flagstar's landmark 1993 deal with the NAACP that laid out hiring and purchasing goals: "If former management thought they were signing a solution, that's idiotic."

The NAACP pact simply was too timid a start, Adamson says. Real change, rather, required nitty-gritty reengineering of Denny's kitchens and counters. With little centralized management, managers of Denny's 933 company-owned restaurants historically had run things their own way. The result: both blatant and covert racism. The "black-outs" and prepay requirements, the company says, represented managers' attempts to stem losses from customers who left their restaurants without paying.

Did headquarters encourage such practices? Flagstar says not. Its solution, though, clearly is aimed at educating both restaurant managers and their Flagstar supervisors. Adamson replaced regional and district managers with one layer of 300 managing partners overseeing company-owned units and 22 franchise managers. Representatives meet quarterly with Denny's President C. Ronald Petty to discuss operations and strategy; this spring, Petty will start hourlong weekly satellite broadcasts to all managers. Franchisees get monthly memos on corporate policies. And 12.5% of managers' bonuses is tied to diversity hiring and promotions.

WEAK SPOTS. At the home office, African Americans now account for 17% of Flagstar's managers, and minority purchasing contracts exceed $50 million, four years ahead of the NAACP goal. Whether such changes attract black diners is unclear, since Flagstar only recently began tracking demographic trends. But Denny's 1995 same-store sales were up 0.9%, while its peers struggled.

Denny's cultural reformation has weak spots. Of its new managing partners, only 5% are black. Some restaurant owners argue that targeted marketing funds--such as $500,000 spent to sponsor Soul Train's 25th-anniversary TV special--could be better used to help finance more minority franchises, whose numbers still lag those of rival chains. And Ronald McPherson, president of the Santa Clara County Black Chamber of Commerce, says he hasn't heard from Flagstar eight months after he inquired on behalf of members interested in becoming suppliers. "Given their history, you would think they would get back to me right away," he says.

Given Denny's past, indeed, every transaction can come under scrutiny. Miles Holland, a black franchisee in southern California, hosts black fraternity meetings at his restaurants. But the resulting goodwill didn't stop a black customer from crying discrimination when a cashier marked his $100 bill to be checked for counterfeiting--but not a white patron's $20 bill. The cashier calmly explained the policy to mark only large bills. "Now, once a question is raised, we have to answer it politely, calmly, not defensively," Holland says. "If not, you're skating on thin ice."

Slowly, diner by diner, Denny's is breaking down its racist reputation. Certainly, "mere exhortations and structural changes will not generate attitude changes," observes Hayagreeva Rao, associate professor at Emory University. Adamson knows a transformation won't come overnight. But he won't tolerate any vestige of the old status quo, either. How to end racism? "You hit people in the face, and then it becomes natural," he says. Or you fire them.

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