Today’s Toxic Boss: 'The Emperor is Naked'

Barbara Lynch has won James Beard awards, been one of Time's most influential people, and built some of Boston’s best restaurants. But the deaths of two employees have exposed a dark culture.

Good Morning!

Here are today’s highlights:            

• The IRS wants to change the way tips are reported.

• Are you willing to make a counteroffer to a departing employee?

• The war between franchisees and franchisors is heating up.

• The humanization of dogs seems to have no limits.

MANAGEMENT

Today’s toxic boss story is about renowned Boston restaurateur Barbara Lynch: “One cold evening in late January, the family and friends of Rye Crofter gathered for a memorial service at Menton, Barbara Lynch’s acclaimed restaurant in Fort Point. The 35-year-old, Menton’s executive chef, had died suddenly, and the grief was palpable: A mentor to everyone on staff, Crofter was proudly sober for 10 years, and had tried to make his kitchen a safe space for anyone struggling with substance abuse. To lose him to his own addiction was a blow. People in the room shared stories of Crofter. A few pulled aside one of his young acolytes, Ayesha Mohammed, telling her how proud she had made him. ‘He was willing to sit down and talk to people and meet them at where they were,’ said Tim Dearing, a longtime friend of Crofter who had been working with him at Menton. ‘Rye always wanted people to feel seen.’ One person wasn’t there: Lynch.”

• “Then in March came another blow: Mohammed, too, died suddenly, at age 24. The following day, Lynch came to address Menton’s kitchen. Instead of offering support, she launched a tirade that appalled many of the nearly two dozen employees in the room. People who were there say Lynch was visibly intoxicated as she issued an ultimatum, asking for the team’s commitment to working alongside her. An argument ensued. Someone recorded it on their phone.”

• “That recording, which was played for a Globe reporter, captured a heated exchange. Dearing said he was upset that Lynch had failed to talk to the crew after Crofter’s death. She fired him on the spot. Enraged, Dearing told Lynch he would ‘drag her.’ She threatened to put his head through a window.”

• “The incident would result in the departure of much of Menton’s kitchen staff. It was also an inflection point for Lynch and her restaurant group. For years, employees say, Lynch’s success has been borne out of a toxic culture that had festered within her restaurants unchecked.”

• “And so, as that phone recording ricocheted among staff and alumni, many have become more emboldened to speak out. Last month, two former employees filed a lawsuit alleging that Lynch’s collective had shorted them tips in the early days of the Covid-19 pandemic. A March 23 anonymous review of Lynch’s company on jobs website Glassdoor issued a warning: ‘The Emperor is Naked.’” READ MORE

Meanwhile, the “pity city” CEO has apologized: “The CEO and president of the office furniture giant MillerKnoll apologized to her staff on Tuesday after a video of her telling employees not to live in “pity city” went viral, saying that she understands her language ‘seemed insensitive’ but that she meant it as a ‘rallying cry’ amid a difficult moment for the company. CEO Andi Owen’s now-infamous comments came at the end of a March town hall, after she was asked, ‘While things are tough right now, how can we help our teams stay motivated?’ In response, Owen launched into a tirade about bonuses, telling people to stop worrying ‘about what you’re going to do if you don’t get a bonus’ and otherwise ‘leave pity city.’”

• “‘What I’d hoped would energize the team to meet a challenge we’ve met many times before landed in a way that I did not intend and for that I am sorry,’ CEO Andi Owen wrote to her staff over email.”

• “MillerKnoll, which produces some of the most well-regarded chairs in the country, including the Aeron chair, has struggled in recent years as companies have reconsidered their need for a traditional office environment.” READ MORE

HUMAN RESOURCES

Big changes are coming to the tipped economy: “For the past two decades, tipped employees have had the responsibility of reporting their tips to the Internal Revenue Service. Like salaried wages, tips are subject to income and payroll taxes. Waiters, for instance, are technically required to report tips to their employer, who then withholds and pays the proper taxes. There are a number of voluntary programs designed to encourage compliance by tipped employees but, you know. Tax gap studies conducted by the IRS found that the agency collects 55 percent of the taxes owed on tips, compared with 99 percent for salaried wages. Now, a new reporting system is being proposed by the IRS that would utilize existing point-of-sale technology to collect electronic payment data to streamline the reporting of tipped wages. This could mean some big changes for businesses, including:”

• “The SITCA program will track tips automatically and doesn't require a tax-reporting commitment from employees. It can also do the math for indirectly tipped employees like food runners or bussers. This means no more napkin or cellphone calculations at the end of a shift to determine hourly rates.”

• “Sam Zietz, CEO of Grubbrr, a technology company that sells POS systems, ordering kiosks, and mobile ordering for businesses, says it should be one of the easiest things a business owner can do. Zietz emphasizes that for business owners, SITCA should be a big win. ‘You would have your audit trail right there to be able to provide to the government, and that would alleviate any liability for the business owner,’ he says.” READ MORE

SOCIAL MEDIA

Are businesses destroying social media? “Social media is, in many ways, becoming less social. The kinds of posts where people update friends and family about their lives have become harder to see over the years as the biggest sites have become increasingly ‘corporatized.’ Instead of seeing messages and photos from friends and relatives about their holidays or fancy dinners, users of Instagram, Facebook, TikTok, Twitter, and Snapchat now often view professionalized content from brands, influencers, and others that pay for placement.”

• “Today, Instagram and Facebook feeds are full of ads and sponsored posts. TikTok and Snapchat are stuffed with videos from influencers promoting dish soaps and dating apps.”

• “The change has implications for large social networking companies and how people interact with one another digitally. But it also raises questions about a core idea: the online platform. For years, the notion of a platform — an all-in-one, public-facing site where people spent most of their time — reigned supreme.”

• “But as big social networks made connecting people with brands a priority over connecting them with other people, some users have started seeking community-oriented sites and apps devoted to specific hobbies and issues.”

• “‘Platforms as we knew them are over,’ said Zizi Papacharissi, a communications professor at the University of Illinois-Chicago, who teaches courses on social media. ‘They have outlived their utility.’” READ MORE

FRANCHISING

The war between franchisees and franchisors is heating up: “Conflict is inherent in that relationship, but it has hit a boil in recent months, as franchisees say they’re being squeezed out of the profits their business generates through new fees, required vendors and constraints on their ability to sell. On Monday, the Government Accountability Office released a report finding that franchisees ‘do not enjoy the full benefit of the risks they bear,’ citing interviews with dozens of small business owners who said they lacked control over basic operations that determined their ability to earn a profit. They’ve found a sympathetic ear in the Biden administration and in several state legislatures, giving rise to a growing wave of proposals to limit the power of franchisers. Franchisers have been largely successful in heading off new laws and rules, which the chief executive of McDonald's, Chris Kempczinski, has described as an existential threat.”

• “‘The reality is that our business model is under attack, he said in February at the convention of the International Franchise Association, a trade group for franchisers, franchisees and franchise suppliers. ‘If you’re not paying attention to these pieces of legislation because you think they don’t impact you, think again.’”

• “In Arizona, legislation introduced to enhance franchisees’ ability to sell their businesses and prevent retaliation from franchisers if they band together in associations has also faced resistance. The bill was approved by two committees in February and March, but the International Franchise Association hired two lobbying firms to fight it.”

• “In a Republican caucus meeting, opponents attacked the legislation as a ‘sledgehammer’ that would bring the government into private business relationships. The bill’s sponsor, Representative Anastasia Travers, a freshman Democrat, said she was taken aback by how quickly opposition snowballed, and ultimately gave up on it for the 2023 session.”

• “Laura Lee Blake, the chief executive of the 20,000-member Asian American Hotel Owners Association, said hoteliers had reached desperation. ‘There comes a point when you’ve tried and tried to meet with the franchisors to ask for changes, and they refuse to listen,’ she said.” READ MORE

THE ECONOMY

In March, home prices posted their biggest annual decline in 11 years: “U.S. existing-home sales decreased 2.4 percent in March from the prior month to a seasonally adjusted annual rate of 4.44 million, the National Association of Realtors said Thursday. March sales fell 22 percent from a year earlier. March marked the 13th time in the previous 14 months that sales have slowed. The housing market had a surprisingly strong February, when sales rose a revised 13.75 percent from the previous month. But after mortgage rates ticked higher, March sales resumed the extended period of declines.”

• “March’s home sales declines don’t bode well for the spring season, which is usually the most active time for home sales because families with children often want to move homes between school years.”

• “Mortgage rates have fluctuated in recent months since hitting 20-year highs above 7 percent in the fall. The average rate for a 30-year fixed mortgage was 6.39 percent this week, up from 5.11 percent a year earlier and the first increase after five straight weeks of declines, according to Freddie Mac.”

• “Most people who bought homes in recent years don’t yet need to move again, and many homeowners are reluctant to give up their low mortgage rates, said Daryl Fairweather, chief economist at real-estate brokerage Redfin Corp.” READ MORE

21 HATS OFFICE HOURS

Sarah Segal will be the featured guest at the next 21 Hats Office Hours, Monday at 5 ET, when she will take questions about all things public relations. We expect a few of the other podcast regulars to attend as well. It’s an open conversation where anyone can ask anyone anything. All 21 Hats Founding Members are invited—click the subscribe button below for more info—but if you’d like a free-trial invite, just let me know in a reply to this email.

HUMAN RESOURCES

Employer attitudes toward counteroffers continue to evolve: “Experts say the question of whether or not to make a counteroffer to a departing employee is one businesses have typically wrestled with. The pandemic has made it even more difficult and time-sensitive. ‘Depending on the situation, and certainly in this market, you may need to act sooner than later. Dragging it out signals to the employee they are low on your list of priorities and the conversations have been more of a formality,’ said Davonne Helmer, managing partner, global human resources officers practice leader at ZRG Partners. That could hurt morale within the company by showing employees they aren't valued. Some experts say businesses should make it a point to counter within 24 to 48 hours.”

• “Throughout much of 2021 and 2022, recruiters say they were seeing a wave of counteroffers like they'd never seen before as companies desperately tried to retain talent. Things have changed in 2023. Just like with salary increases, counteroffers are still very much a factor — they just aren't quite as aggressive as they were a year ago.”

• “But at least some experts believe that, if an employee has already taken the time to go out and interview — as opposed to receiving an unsolicited offer — then no matter what the counteroffer, they will still eventually head for the exit.”

• “‘The times where it makes the most sense for a counteroffer is when the employee is in a critical role or has some legacy knowledge you cannot afford to lose or may be working on a key large-scale project where missing the deadline would have significant business impact.” READ MORE

BUSINESS MODELS

Restaurants have found another revenue stream: Dog owners “are frequenting an increasing number of restaurants across the country that offer separate menus for their four-legged family members. Dog menus have become the new version of children’s menus at some restaurants. Pet parents can now order their dog a steak or Alaskan salmon with steamed rice. The dog can wash that down with a nonalcoholic ‘beer’ made of pork broth, or a bowl of Dög Pawrignon made with wild-caught-salmon oil. Other restaurants have gone a step further, catering exclusively to dogs, from custom canine birthday cakes to food trucks serving chicken nuggets and burgers. At Dogue, dogs eat a fine-dining tasting menu.”

• “In San Francisco, Jason Villacampa, 40, has treated his corgis, Tony and Captain, to the tasting menu at Dogue four times. It costs $75 per dog, with complimentary sparkling water or mimosas for the owner. On a recent visit, Mr. Villacampa said, the chef, Rahmi Massarweh, explained the dishes the dogs were about to eat, detailing which local farm provided each ingredient and how each meal was prepared.”

• “‘Pets are members of our family, and we equally want to feed them that way,’ said Ron Holloway, who owns Woofbowl, a food truck based in Dumbo, Brooklyn, that caters to dogs. Mr. Holloway and his wife, Solo Holloway, a former biochemical and electrical engineer, started the mobile restaurant after making more nutritious meals from scratch for their French bulldogs, Latto and Dino.”

• “Dog menus provide a new revenue source for restaurants. The Wilson, in the Chelsea neighborhood of Manhattan, estimates that it serves meals to most of the 30 to 40 dogs that come in every day. A dog entree of steak and vegetables costs $24.” READ MORE

STARTUPS

And for those times when you can’t be there with your dog: “Companion just started taking reservations for its $49-a-month device, which is scheduled to start shipping in May 2024. The stationary device — which dispenses treats — ‘provides all-day scheduled and on-demand engagement for your dog with games, behavioral programs, and training,’ the company says. It simultaneously monitors your dog's health, looking for ‘sudden or subtle shifts in your dog's movement or posture that can indicate pain, anxiety, or stress.’”

• “The device uses ‘AI hardware, machine learning and best-in-class positive reinforcement techniques,’ Companion says. For instance, by playing commands like ‘sit’ using an owner's voice, the Companion teaches the dog obedience — while noticing any physical changes that might signal disease.”

• “‘Every dog in the U.S. could benefit from more enrichment,’ says John Honchariw, the CEO and founder of Companion. ‘There's this weird asymmetry between human children and pet children. We don't leave our human children alone, but we do leave our fur children alone, and people are anxious about that.’” READ MORE

THE 21 HATS PODCAST

‘It’s Going to Take $8 Million in Financing:’ This week, Stephanie Stuckey tells Paul Downs and Liz Picarazzi how she and her partners have taken their business from $2 million in annual revenue to more than $13 million in three years. What’s frustrating, she says, is that she could be selling a lot more pecan snacks and candies. But with production at capacity, she’s not doing much sales outreach until they can fully revamp their manufacturing operation, which will require a significant investment. “I spend my days doing financial paperwork,” Stephanie says. Plus: Liz explains why her business picks up when the weather warms up, and after a slow start, Paul gets a boost from a big manufacturer.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren