Private Company Directors

Leading with Confidence: Subway’s CEO John Chidsey navigates the pandemic.

John Chidsey has both depth and breadth to his 25-year career. Currently the CEO of Subway, the privately owned franchiser of Subway sandwich shops, he was formerly the chairman and CEO of Burger King, a public company. He helmed Avis and Budget car rental companies and Jackson Hewitt, a tax-preparation firm. Prior to that, he was in management at PepsiCo. He also worked in private equity between his positions at Burger King and Subway. When he took his most recent position, he stepped down from the board of casual dining company Brinker International. He currently serves on the boards of Norwegian Cruise Lines and Encompass Health. And while all three of the companies he serves are in different industries, they all have faced great challenges during the COVID-19 pandemic.

This interview was conducted as much of the country was still sheltering in place in response to COVID-19. At that time Norwegian Cruise Lines were shut down, Subway sales were bouncing back and plans were being made to resume elective procedures for which Encompass Health provides rehabilitative care. It was still unclear how the country would reopen.

Answers were lightly edited for clarity and length.

You have a number of different perspectives — public, private, private equity companies. And now you serve on a diverse selection of boards. Many companies were taken by surprise by the COVID-19 pandemic. As this health crisis developed, was there a difference in how your boards, and Subway, follow new information?

The cruise industry has had to worry about people getting sick on board for a very long time, not just with the current pandemic. Luckily, Norwegian has not had any incidents on any of its brands. Cleanliness, germs and viruses, and things like that have certainly always been around the cruise industry and probably even more so in the last 10 years, because the industry has lived through SARS and other incidents. I would say the same for Subway and Burger King, where I was. Food safety has been an issue — everybody knows that certain brands have had to deal with this over the years.

The cruise industry and the restaurant industry were aware of these issues and probably spent more money and attention on safety than they would have 10 or 15 years ago. But I don’t think any of us — whether you’re on a cruise line board [or] you’re sitting at a restaurant board meeting — thought about the global nature of this crisis. If you have a food-borne illness at a restaurant chain, you know you have some contaminated lettuce or tomatoes from country X or Y. If you had norovirus on one cruise ship, not all 35 of your ships are completely closed off. I’d say it was the speed [of the pandemic] and the global nature of it that was something I had never, ever really seen.

With this pandemic sweeping around the globe so quickly, how do you feel about how quickly you have been able to get up to speed and really operational on dealing with this crisis on your boards and with Subway?

I think in those two industries [food service and cruising], we probably had a leg up because, as I said, it’s already in our DNA. We’re accustomed to things like this happening either to competitors or to ourselves. And so I think just the way these companies are wired in terms of their mentality and the way employees deal with crisis management is at a higher level, let’s say, than other companies I’ve been associated with.

If I was running Jackson Hewitt, the tax return company, it would probably slowly dawn on us what this was going to do in terms of affecting their tax preparers. How do you get the office cleaned? Are customers feeling good about coming in to do their taxes? Whereas in the cruise industry, we had a better idea of what was coming.

You are also on the board of Encompass Health. What were the initial conversations there about what to do now?

Encompass Health is focused on post-acute care. We’re there to take care of you when you leave the hospital after your stroke or your car wreck and you need rehab. But having said that, we worked very closely with nearby hospitals in case they needed overflow beds because we are fully staffed with physicians and nurses.

We went into crisis mode. We had helped in the same way when a hurricane hit Louisiana, but this was, “What can we do to help across the country?”

If you’re going to have a stroke or you’re in a car wreck, those are things that you can’t control. But, you know, a fair amount of our business disappeared due to elective surgeries, like knee replacements, that went away. So the question became, what can we do with our assets to help society as a whole and act as an overflow almost for the entire industry?

Encompass is also in an industry where if you dip, you’re going to be able to recover, because once the pandemic is under control people will start getting knees replaced again and go back to other elective surgeries. I imagine that’s a different kind of recovery plan as well.

If you’re a restaurant or certainly a cruise line, you wonder if you’re going to come back in six months, 12 months, 24 months. In a healthcare setting, you’re pretty confident that it’s coming back. If it doesn’t come back entirely, it’s going to come back to 90, 95%.

What guidance are you able to give management from the boardroom? What is management asking you? And as a CEO, what do you look to your board for now?

If you have a good board, hopefully you have people that have been through, let’s call them comparable crises. So you may be looking for capital markets advice. What’s the best way to raise money? Should we be willing to dilute existing shareholders to make sure we survive or should we wait a little bit longer? Do you let people go permanently, or furlough them? I think you want as many different perspectives from people who’ve been through things like this.

As you’ve been working through these issues, how easily have your boards adjusted to meeting virtually and sharing information digitally?

I think it depends on the committees. I’m on the audit committee. I don’t think a full board is necessarily used to working so much remotely, but audit committees frequently do because of capital markets financing or other reasons that make you meet off-cycle. I would say for committee members used to Zoom meetings and looking at data on a computer, the transition wasn’t an issue. For the board as a whole, even though most people have some technological savviness, the first couple of meetings were less than ideal. But I think eventually people get the rhythm and they figure out patterns. Within a couple of meetings, board meetings have become pretty efficient, even though I think it’s still not as good as meeting in person.

Three months into the pandemic, what is your board meeting schedule like now? How many meetings were there at the beginning of this crisis compared to now as boards are discussing recovery?

If you take Norwegian as an example, we have a finance committee on which I serve. We were initially meeting two to three times a week as we looked at how much capital we should raise or whether we should issue additional equity, which could dilute existing shareholders. What were all of our options? Management did the bulk of the work, but we have a retired vice chairman from Citibank on our board and private equity guys, so we had a fair amount of capital markets expertise. Once we figured out our strategy, we issued four different kinds of securities. Now, obviously, there’s no need for that many meetings.

The board as a whole was meeting weekly on issues like, “How are we going to get crew off ships, and how are we going to get them home? What are we going to do with these ships, and what are we going to do in terms of dry dockings?” But about six or seven weeks into it, the board knew what was happening and the ground wasn’t changing quite as fast. We then went to a cadence where we’d meet once every two weeks. Now, I think unless something comes up, once every two or three weeks is probably not a bad rhythm.


Subway is a private company owned for 55 years by two families, so you’re not required to have the same public disclosures. The company also has absolutely no debt, and while the ground was changing fast, we were never in the situation like a Norwegian or even Encompass Health. I would call our board and give an update every couple of weeks. But there wasn’t that sense of intensity.

Norwegian’s share price is currently recovering at twice the rate of its competitors. What would you say makes the difference? What work in the boardroom helped you start the rebound?

First of all, Norwegian is an incredibly well-run company. As an example, over the last four to five years, Norwegian has always had the highest onboard revenues per passenger — that is, the difference between the cost of the ticket and what you can sell them on board.

I think Norwegian initially traded at a discount because the company only went public probably seven or eight years ago. Usually when a company goes public, it takes some years before Wall Street starts to trust you. We’re the smallest of the three cruise lines. But I think the Street is seeing that, year after year after year, the company has operated really well. Therefore, I think we’ve gotten a bigger lift now.

So many times boards have people all from the same industry or people that all are of the same age group or have the same skillset. The Norwegian board has done a really good job of having a very different skillsets, whether it’s a retired Coast Guard admiral, a guy who ran capital markets for Citibank, the CEO of a spirits company or somebody like me who’s more consumer-facing. It’s a very eclectic mix of people. And that mix is probably the most value you can provide to the management team.

During this crisis, how are these companies addressing compensation? Is the CEO drawing a full salary? Are directors?

At Norwegian, our management deferred and/or waived a significant amount of compensation. They’ve also furloughed workers and suspended their 401(k) match.

At Subway, we definitely waived and then we deferred comp at the highest levels. We got rid of the 401(k) match. We eliminated raises.

Compensation cuts depend on the industry you’re in, how long you think this is going to last, and the message you’re trying to send to shareholders and to other stakeholders. I think it’s as important to send out the right signals as it is to preserve liquidity. If you’re asking other people to make sacrifices, it’s only fair that you’re showing your sacrifice as well.

Do you have any concerns about compensation cuts and their effect on retention or recruitment?

All of us are going to have to reassess what can we do to make sure we don’t lose talented people in general. As the comp committee chair for Norwegian, I have conversations with our larger shareholders. That’s where you need to get out and explain to a Blackrock, a Putnam or a Fidelity that we’ve had this great performance over the last five years, and they would agree. And I would say, “I know you guys don‘t like it, but you have to recognize we have to do something for our team to make sure that they don’t flee to our competitor or an adjacent industry. So let’s sit down together and figure out what you’re comfortable with.” Generally speaking, when you involve institutional investors in the process, they’re much more willing to support you and probably even better understand the pressure that a company feels to retain talent, particularly after a crisis. And given that we have had three of these events since the year 2000 [9/11, the recession of 2008-2009, COVID-19], this is not exactly new ground for the institutional investor.

Are you discussing benchmarks for bonuses that are more long-term? When do you think management will be able to demonstrate the company has recovered and is growing again?

At Encompass Health, they have a really good bead on this. Hospitals have started reopening, even in the state of New York. Now you can do elective surgery. They can probably tell you by the month when the hospitals will be back full again. They’ll be able to build you a really solid plan for the back half of ‘20 and a good plan for ‘21, which you could base compensation decisions on.

At Norwegian, I don’t think anybody has any confidence on what day we can all start taking passengers again. Right now, it’s premature to talk to shareholders and say, “Here are the metrics we think you should judge the company by.” Will there be ports closed in parts of Europe? Are itineraries going have to be completely different? How many ships can you put back out to sea? There are just too many unknowns to go have an intelligent, responsible conversation about compensation.

What changes do you see in a board’s approach to risk as a result of this crisis?

You’ll see companies run with a lot less debt and a lot more liquidity. Wouldn’t surprise me if, like post-recession, you see a slowdown in stock buybacks because boards want to be more conservative. But it’s just pure psychology, how long this goes on before people start to forget and think they can run the balance sheet a little more aggressively or leanly. But I would certainly think in the first couple years you will see lower debt levels, fewer stock buybacks, maybe less aggressive dividend increases, and pushing maturities out on debt. It’s smoothing out your liabilities. That is exactly what we saw in 2008 and 2009. I see no reason why that wouldn’t happen again.

But on the flip side, I always remind people that if you pile up a ton of cash, and you don’t have a lot of debt sitting on your balance sheet, you become a more attractive target for a private equity company or a competitor. I think we’ll always have that natural tension in running a company conservatively, but not so conservatively that you leave yourself a sitting duck. ■

Directors Record