When I Became President of KFC, Franchisees and Corporate Hated Each Other. But I Believed This Behavioral Theory Could Bring Them Back Together. I was handed the undesirable task of righting the ship at Kentucky Fried Chicken. But the challenge allowed me to test a leadership theory.
By David Novak
This story appears in the September 2024 issue of Entrepreneur. Subscribe »
In 1994, I became the president of Kentucky Fried Chicken. It was a big job, and I was excited. But when the news got out, I got more calls offering condolences than congratulations.
I understood why. KFC had been struggling. It hadn't achieved its business plan and had no same-store sales growth for seven straight years. The company was owned by PepsiCo at the time, and it had become a graveyard for PepsiCo executives. I could have easily been the next one in the grave: I was the COO of Pepsi-Cola, the company's beverage division, and PepsiCo chairman Wayne Calloway had asked me to take this job because of my reputation for turning around struggling businesses.
Now I had my work cut out for me.
To start, I was walking into a deeply distrustful environment. Franchisees owned 70% of KFC restaurants, and they saw Corporate as a bunch of outsiders who didn't enjoy fried chicken and didn't believe KFC could beat its competitors. Franchisees also held a majority of the marketing votes, which meant they controlled everything from advertising to new products, and they often voted as a bloc — against the corporate executives. Trust was so frayed at the time that the franchisees were suing us over territorial rights.
In other words, I had inherited a business in decline and a broken franchise system waging open warfare.
But I had a secret weapon. It's called Theory Y.
The term comes from Douglas McGregor, a management professor at MIT. Back in 1960, in a book called The Human Side of Enterprise, he described two leadership outlooks on human behavior: Theory X and Theory Y.
Theory X leaders believe that employees must be coerced, controlled, and threatened to do good work or take responsibility. Theory Y leaders believe that people are generally creative, ingenious, and ready to take on responsibility — if they are treated accordingly.
I was always a Theory Y guy. And now was my chance to prove it.
I started at KFC on a Monday. We had a conference with the best franchisees in the system scheduled for that Wednesday. The department heads were urging me to cancel it. "Oh, no," I said. "I can't wait to meet these people." Even if all I accomplished was telling them I was looking forward to working with them, I was going to have that meeting.
I believe in running an organization based on the assumption that 99.9% of people want to do good work. I trust in their positive intentions.
My experience at KFC proves that it works. Here's what happened.
Related: Trust Should Be the Foundation of Your Business — Here's How to Earn It.
Active learners understand the power of trust, and they leverage it to learn more, faster. Trusting in positive intentions helps us overcome our natural defensiveness and listen with an open mind. It helps us overcome our bias against ideas from people we may not see as "on our side" — which is often just a story we've made up about them. When we move beyond that kind of thinking, we're more collaborative and we get to better action more quickly.
But that kind of trust doesn't always come naturally. We're overly vigilant for threats in our environment. We're too ready to interpret people's actions through a negative lens, especially when there's a long-standing issue or conflict. I don't want you to think I'm naive, and I don't mean to sound like a Pollyanna. My biggest disappointments in life haven't been in business results or ideas that flopped; instead, they've been in people who have betrayed my trust. But I know that it's still worth starting from a position of optimism.
This is what I was thinking back in 1994, when I became the new president at KFC.
My corporate-level KFC colleagues were mired in battles. They knew the franchisees hated them, which put them in a defensive crouch. That's why they suggested that I cancel my first meeting with the system's best franchisees. They thought nothing good could come from it.
But I wanted to believe otherwise.
We had the call. "I want you to know one thing: I love Kentucky Fried Chicken," I told the franchisees. That was true! Then I said, "Look, I don't know this business, but I'm going to go through the process of learning it. I'm going to find out what the front lines are thinking, and I'm going to listen to our customers. Then I'm going to go out to share what I've learned with you. And then I'm going to ask you how to fix what's not working. Together, we're going to develop a plan to turn this business around."
Related: 10 Surprising Ways KFC's Innovation and Marketing Have Propelled the Brand to Worldwide Success
This was a tough bunch, and I knew that no matter what I said, they were focused on the territory rights issue. This was a battle over the franchise contract that they'd signed. So I added, "I know there's a contract issue, but we can't fix this business by fighting each other. If we can't work together, there isn't going to be any business left to fight over anyway. I'm not going to even talk about the contract until we fix this business, so don't even bring it up."
We started turning the business around in less than a year, in large part because we extended our trust first. We rounded up rather than down, assuming franchisees were more than their most biting remarks or their most aggressive actions. And that helped them return the trust. In any relationship, business or personal, somebody must trust more or trust first to break inertia and build up positive momentum.
The strategy I used — and that you can use whenever you're finding it hard to overcome your cynicism or shift your attitude — is to focus on shared goals. When you spend more time thinking about how you and another person or group are alike, rather than how you're different, you can work around the natural tendency to consider other groups a threat.
I began shifting the attitudes of everybody who worked in corporate by "shocking the system," which means taking whatever the conventional wisdom or prevailing attitudes are and turning them on their ear. I announced to everyone in the building: "We've hated franchisees for so long it's killing us. From now on, we love franchisees. We absolutely adore them. We want to work with them, we want to learn from them, and we want them to feel the love. Why? Because we don't have a choice." I saw us as one big in-group, with a long list of shared goals, all of us depending on each other to succeed.
Besides, the franchisees are entrepreneurs. A lot of them started with nothing and worked to become multimillionaires owning well-run organizations that manage more than 100 restaurants. We would have been crazy not to listen to them, learn from them, and rely on them. But first, we had to stop seeing them as the enemy. Despite the voting bloc and the lawsuit, we had to trust them and their intentions.
I had enough leadership experience by that point to understand the power of trust. Stephen M. R. Covey calls it "the speed of trust" — which is also the title of his bestselling book — because when trust in an environment is high, everything moves faster.
I spoke to Covey about this. He told me that he had this revelation early on as CEO of the Covey Leadership Center, the company founded by his father Stephen R. Covey that evolved into FranklinCovey. The company was working with two suppliers to produce a product. One was a high-trust partner, and all the work with them happened smoothly and quickly. The other was a low-trust relationship that required extra meetings, processes, and inspections. It was slow and costly. Stephen began to see the world through this lens of trust-as-speed. Eventually, he validated it with research, and it became the core of his company's trust-building programs.
KFC's situation with franchisees was perfect anecdotal proof. Progress on important initiatives had been molasses-slow, and that had to change.
Related: How Pivoting Saved My Business When Things Didn't Go According to Plan
After two years at KFC, I saw real progress. The brand had added $100,000 of incremental sales to their annual unit volumes. I moved up to become CEO and president of KFC and Pizza Hut, and eventually became CEO of the newly formed Yum! Brands, which housed those brands and others. I was at Yum! Brands for 18 years.
Looking back, if you ask people what turned KFC around, they're likely to say it was the new products. That's true — we launched many new products, and they attracted great energy and attention. But those products were really a triumph of the human spirit. We only began generating or discovering the ideas for them once we started trusting each other enough to work together.
Take chicken tenders, which we originally called Crispy Strips. Research and Development couldn't figure out how to distribute them nationally, at a time when it seemed that every competitor had some kind of chicken tenders product. I'd been at KFC for about seven months when I learned that there was a franchisee in Arkansas selling Crispy Strips, and sales at his stores were up 9%.
Restaurant chains rely on familiarity and consistency. For a franchisee to develop their own product line is typically a huge negative. In the old days, before we were focused on developing trust and collaboration, I guarantee the franchisee wouldn't have even told us what he was doing — and if we had found out on our own, we would have gone there and squashed him like a bug for changing products without permission.
Instead, I sent our marketing and R&D teams to see how he was doing it. He took them to his supplier, who showed them how we could deliver the same product nationally. That insight evolved into the most successful new product KFC had introduced since the Colonel's original recipe. And when it worked, it sent a message to franchisees that we trusted their intentions, and they could trust ours — that we just wanted to champion good, successful ideas. It was a brand-new day.
Shortly after that, we solved the contract issue. We gave franchisees the one-and-a-half-mile exclusivity they wanted around each of their restaurants. In turn, we got the right to hire and fire our advertising agency, which gave us more marketing control. A dispute that had lasted nearly a decade was solved fairly and quickly — because we had learned to trust each other.
Trust-building pays off big-time, especially within teams or organizations. It creates environments of psychological safety, which, according to Amy Edmondson, a professor at Harvard Business School and author of The Fearless Organization, blend trust and respect. Her research has proven that in companies that work to eliminate fear, people are far more likely to speak up, share ideas, tell the truth, innovate, and learn from each other. They give their best individual effort for the benefit of the whole.
Related: Strong Leaders Use These 4 Strategies to Build Trust in Their Workplace
The triumph of Theory Y — and the power of trusting people — can transform franchising. It can help franchisees drive better results from their teams, and can help franchisors build stronger and more productive relationships with their franchisees.
But it can go much further than that. This lesson applies everywhere, both inside and outside of business.
For example, look at sports: Brad Richards was an accomplished NHL player who won the Stanley Cup with both the Tampa Bay Lightning and Chicago Blackhawks, and he talked about how crucial trust was to his teams' ability to succeed in the high-pressure, bright-lights playoff games.
Sometimes the first-tier hockey line, which contains the team's top players, isn't clicking on the ice. In those moments, a coach will substitute in players from the second line or even the third. For those players, this can be a big deal. They don't always get playing time in big games. On less safe teams, those moments can lead to resentment or jealousy. The first-line players don't want to share the spotlight or be outdone by others on their team. Meanwhile, the second-line players could let their desire to shine drive them on the ice, which doesn't lead to good team play. But on successful teams, everybody trusts that every player is there to do what's best for the team. They all believe in putting together the best line in the moment to win. They trust in each other's positive intentions, so they can offer authentic support and encouragement. And together, they win.
I've even used this theory to build my podcast. Most of my guests are CEOs of large public companies, and some almost never agree to interviews. I hosted the first-ever podcast interview with Dave Calhoun, the president and CEO of Boeing at the time. He had been hired as CEO to lead the company through the crisis it faced after two of its 737 Maxes crashed, killing 346 people. The company was under investigation, its culture was in trouble, and he had a lot of work to do to turn the company around. But he came on the show because he trusts me. Guests know I'm not going to trick them into saying the wrong thing or use some kind of bait-and-switch interview tactic. That said, I'll be fair and ask them about tough situations, because those are some of the most important learning moments they can share with listeners. But trust and safety allow people to be vulnerable, and that's what makes our conversations so powerful.
As important as it is for us to trust in positive intentions, if we want people to trust in ours, we need to behave accordingly. We need to build a well of trust to draw on — and as Stephen Covey explains, an important factor in that is our integrity. For example, many years ago, my family had a vision for creating a new institution called the Novak Leadership Institute at the University of Missouri. We committed to funding it with a massive donation, and the school committed to housing it in a permanent, dedicated building. We felt this new building would give the institute even more legitimacy, showcase the university's dedication to leadership education, and attract students by leveraging it as a competitive advantage.
Years after this commitment, that building still doesn't exist. COVID, rising construction costs, and supply chain issues have conspired to halt progress. I could get angry about the lack of follow-through on a commitment. I could stamp my feet and make threats. Or I could be guided by the work that is happening, the incredible leadership of the institute's executive director Margaret Duffy, the other forms of support from the university, and my trust that, eventually, it will happen. The university's leaders have built a well of trust to draw on, so I feel confident that as we work toward that goal, we'll keep collaborating and learning new ways to make the institute everything we want it to be.
When somebody makes a mistake or fails to follow through on a commitment, our trust is tested. But we have the phrase "honest mistake" for a reason. Assuming negative intent cuts us off from possibility and positive experiences.
We're all human. We're all going to lose our tempers, or handle a delicate situation poorly, or not show as much compassion as we should, or make a poor judgment call. When we're on the receiving end, if we can take a breath, find a little empathy, and trust that the other person had good intentions that didn't pan out, then we can avoid a total breakdown in the flow of ideas and learning and collaboration.
I read a striking definition of trust recently: "Trust is a relationship of reliance." Aren't we all reliant on each other if we want to learn, grow, and expand our possibilities? We can choose to support that relationship or tear it down. If we choose the second option, we're only limiting ourselves. If we choose the first, the possibilities are infinite.
Related: Want to Know Which Franchise is Right For You? Follow These 4 Essential Steps
Reprinted by permission of Harvard Business Review Press. Adapted from How Leaders Learn: Master the Habits of the World's Most Successful People by David Novak with Lari Bishop. Copyright 2024 David C. Novak. All rights reserved.
