9

Going from DEI Mandates to Company Mission at Denny’s

“Denny’s is offering a new sandwich called the Discriminator. It’s a hamburger. You order it, then they don’t serve it to you.”² When late-night talk show host Jay Leno made this joke on The Tonight Show in May 1993, it was an easy way to get a laugh. Denny’s, one of the largest US food chains with thousands of locations, was mired in numerous racial scandals, and its reputation was sinking fast. At the time, 50 percent of Black Americans associated Denny’s with racial discrimination.³

Now, imagine you are a Black woman from Spartanburg, South Carolina—home of Denny’s headquarters—and you are asked to come work for Denny’s to help bring about change. Do you take the job? Do you shun the chain? Can you change a company that had so clearly failed in its culture and practices? It seems like a big ask to put this on one woman, but it was exactly the situation April Kelly-Drummond found herself in when the mayor of Spartanburg encouraged her to take a job at the company in 1994.

To set the context, the climate of race relations in the United States was in turmoil at the time, much like the situation in 2020. In 1991 the brutal beating of Rodney King by four Los Angeles Police Department officers was caught on camera and widely broadcast across the nation. A year later, when all four officers were acquitted, the decision sparked riots in L.A. and triggered a national discourse on racial discrimination.

At the time, Denny’s was a forty-year-old business started in Lakewood, California, and known for 24-7 service. It found itself at the center of multiple claims of discrimination against Black customers. The first reported act of discrimination came on December 31, 1991, when eighteen college students visited a Denny’s restaurant in San Jose, California.⁴ The Black students were asked to pay a “sitting fee” of $2 and to pay for their meals in advance before they would be seated and served, yet their nine White classmates were already in the restaurant and were not made to pay a sitting fee or asked to pay for their meals in advance.⁵ Two years later, on the morning of April 1, 1993, six Black Secret Service agents stopped for breakfast at a Denny’s in Annapolis, Maryland, and were denied service for almost an hour while their White colleagues at a nearby table were promptly served “within minutes and went on to their second and third cups of coffee.”⁶ These and other reported incidents led to a class action case by members in forty-nine states. The suit was the largest case at the time under the public accommodations section of the 1964 Civil Rights Act.⁷

At first, explains journalist Anne Faircloth in a piece for CNN Money, Denny’s top management characterized these incidents “as isolated misunderstandings, inevitable for a chain that serves one million meals a day.”⁸ The company contested the lawsuits. Denny’s made performative moves, signing a pledge with the National Association for the Advancement of Colored People to hire minorities and to increase purchases from minority-owned businesses.⁹ But at the same time, the company did not acknowledge the presence of any underlying racial issues in the organization. Court testimony during the lawsuit made it hard to square this assertion. Customers and employees indicated pervasive issues of racism in the company culture. Faircloth describes what one server observed while she worked for the chain: “Sandy Patterson, a White waitress who worked at several Denny’s in California, stated in her court declaration that use of the N word was ‘not uncommon,’ nor were the terms ‘them,’ ‘those people,’ or ‘that kind’ in referring to blacks. [Patterson said,] ‘I was told by management that we did not want to encourage black customers to stay in the restaurant.’”¹⁰

By 1995, Denny’s settled the class action lawsuits, paying more than $54 million to 295,000 customers. Denny’s also signed a consent decree, which required the company to create written antidiscrimination policies, inform the public of these policies, provide antidiscrimination training to all employees, and monitor and report any future discrimination incidents.¹¹

The year before the settlement, in 1994, when Kelly-Drummond was asked to join Denny’s, she was rightfully skeptical. She had no idea that the company would go on to make history as the first company to employ a CDO and become one of the best companies to work for minorities.

In the thirty years since Denny’s was the butt of late-night jokes, the company has learned many lessons in its struggle to recapture sales from minority customers, repair its reputation in local communities, and create an environment where people from local communities felt comfortable working and dining in their restaurants. Denny’s has 1,650 franchised restaurants in 146 international locations.¹² Today, Denny’s describes its aspiration to be “America’s Diner for Today’s America.”¹³

It hasn’t been a simple, straightforward journey for the company to make its transformation. But it got to a new place, largely through the efforts of Kelly-Drummond, who did take the job the mayor asked her to take and who would eventually become CDO of Denny’s.

“How Dare You?”

After the lawsuits and settlements in the 1990s, Denny’s found itself squarely in the compliance stage of its DEI journey. In this case, compliance was legally mandated through the consent decree the court had put in place. The public nature of Denny’s case led many other companies to voluntarily set themselves into a compliance mindset. They saw the negative impact on publicity and public perception that the lawsuits against Denny’s and other companies in the 1990s and the first years of the twenty-first century created. The compliance stage of a DEI journey aims to mitigate that risk. It exists primarily to keep the company out of legal trouble.

Denny’s could have just settled there; many other companies did. But instead, it turned the legal mandates into a foundational steppingstone to more advanced stages on its journey, in large part because of Kelly-Drummond’s efforts.

She arrived at the company at its nadir, she said: “We found ourselves asleep at the wheel without a roadmap when it comes to effective diversity management. In short, Denny’s was at a historic low point.”

When Kelly-Drummond first joined the company, there was no DEI department. She joined the Public Affairs Department, first as a part-time assistant to determine whether this was where she wanted to be. Part of her job was to be a spokesperson for the company at conferences and events and help recruit new team members. It was an uphill climb.

“It was not easy for me as an African American female having to go out and talk about a brand that had such an awful stigma at the time,” she recalled. In one sense, she was excited because the court decree meant she had opportunities to effect change right away. She could prioritize diversity in employee hiring and franchisee opportunities. But the public wasn’t having it. At one hiring conference, this response was made abundantly clear. She remembered, “People would not even stop by my table. Even if I was offering a lot of money, I remember people saying, ‘I am not patronizing Denny’s,’ and ‘How dare you work at a company that discriminates?’”

The hostility could have caused her to give up; less determined people might have seen it as hopeless. But Kelly-Drummond didn’t quit. For one thing, she remained with the company in those early years because she saw the genuine changes happening inside the organization. She believed that her voice was being heard and respected there, even if the public wasn’t on board yet.

“I was in the room,” she said, “and my voice was important and that was the change. I was able to say that I worked at Denny’s with pride, not because of what I was getting paid and not because of a particular title, but because I felt like I could be the voice of the people. I was able to go to bed at night saying, ‘I know this company has changed. I’m seeing the change and the difference.’ I saw that Denny’s was making strides, and that was important to me—to be able to be a part of it.”

Representation in the Room

For Kelly-Drummond, the demographic shift to a more diverse pool of workers and leaders was not an end in itself. Large-scale progress would be driven by the diverse thinking and perspectives that can only be created if you have a variety of people in the room.

“When I first started the company, we had all White male leadership, and there was groupthink in the room,” she said. “You had no entrepreneurs, no franchise owners, no people of color, or other diverse groups in the room where leadership made decisions. When we started having diversity in the room, you had different ideas, beliefs, and perspectives, and it changed the company. It changed the way that we thought about how we reach out to our consumers, which in turn changed the products we pushed out, all because of the diversity in the room.”

Denny’s also had to come to terms with the fact that their problems of race and discrimination were not isolated one-off instances, as the company had originally tried to claim. Rather, they reflected a culture of discrimination and other unacceptable behaviors that had to be rooted out. For example, stereotypes that non-White patrons tip less than White patrons have been shown to lead to differential treatment by servers.¹⁴ In the same CNN Money article, Faircloth recounts another Denny’s employee’s testimony. Robert Norton, a former Denny’s manager in San Jose, testified that when he began managing there, he “observed staffers ‘routinely’ closing the restaurant when ‘they were concerned about the number of Black customers’ entering . . . ‘Blackout’ was used by Denny’s management to refer to a situation where too many Black customers were in the restaurant.” Norton also testified that “when he discontinued the policy, his district manager threatened to fire him.”¹⁵

Making the problem worse, one bad apple can ruin the bunch, as the old saying goes. Research has shown that when racist comments are made in restaurants, servers are more likely to be racist in their actions toward customers even if they themselves do not participate in the racist banter or if they do not agree with it personally.¹⁶ Thus, in the case of Denny’s, the culture of racism and discrimination was pervasive and often contagious. Part of the reckoning that Denny’s had to have during this time was to acknowledge that unconscious (and sometimes conscious) bias was a real problem the organization was facing in its restaurants.

Kelly-Drummond said bold policies were needed to move beyond this culture. “We had to be very sensitive to where you sat African Americans or any [other] people of color. We had to make sure that the timing of their food coming out did not make people feel like they were being discriminated against. So guiding principles and zero-tolerance policies had to be put into training, and we had to hold our team members accountable.”

The consent decree mandated that all employees attend diversity training within 90 days of joining Denny’s and a second session within 270 days, but Denny’s tightened those requirements to 75 days and 225 days.¹⁷ The training taught about unconscious biases and the importance of empathizing with customers.

The training became so effective that in 1999 Denny’s was released from the oversight of the civil rights monitor a year earlier than the consent decree had mandated. Even after the release of the oversight, Denny’s itself enforced the mandate. The company continued to investigate every incident of discrimination, even placing a toll-free number in every restaurant to encourage others to help identify problems. Denny’s still has a no-tolerance policy for discrimination; there are strict disciplinary standards for any employees demonstrating these behaviors, and any customer who discriminates against others or who uses discriminatory language is asked to immediately leave the restaurant.¹⁸

Denny’s demonstrated that the compliance stage of the DEI journey can lead to impactful DEI practices. What’s more, moving beyond compliance to the tactical stage of the journey, where DEI efforts go beyond the bare minimum and merely legal, is where real change starts to take place.

How Leadership Shapes Change

Denny’s transformation may not have been as dramatic had its leadership not changed and then brought about structural shifts to foster continued progress. In 1995 James B. Adamson became CEO. As one of his first actions, he separated diversity efforts from the previous Public Affairs Department, giving the diversity objective its own leadership structure and initiatives.

Adamson created the nation’s first CDO position, that is, a senior executive officer who reported to a CEO, and hired Rachelle Hood-Phillips, his former colleague from Burger King, to fill the position. The creation of this role was a major step forward in diversity management. Back then, most diversity officers were not considered a part of the most senior executive team of a company. Kelly-Drummond recalled the rigorous process the leadership team went through to create the new department and to figure out the next steps for the journey: “I remember we consulted and benchmarked with professors, other corporations, and civil rights leaders to guide us during this time. I can recall being in the room when we were talking about things like, what we should call this department? It was public affairs at first. And then we thought, ‘Let’s make it diversity affairs.’ Then we had to determine the title of the leader of the department, and we named it chief diversity officer, which was the first in the country.”

As historic an act as it was, Denny’s did not fall into the trap of pushing its diversity efforts onto the CDO and considering it a done deal. Many companies think that hiring a CDO will automatically solve their DEI challenges. This simplified assumption could not be further from the truth. Successful DEI requires both top-down and bottom-up efforts. Though the DEI strategy may be the focus of the CDO, this executive can be successful only if leaders at every level and across departments see themselves as part of the DEI journey. Continued support of the CDO in terms of resources, implementation partners, and support across the organization is a critical part of the process.

Hood-Phillips and Adamson worked together to go beyond what was required by the consent decree. For example, 25 percent of senior management’s incentive bonus was tied to the advancement of women and minorities.¹⁹ Furthermore, Adamson was publicly vocal about his commitment to the DEI efforts and set a clear tone by telling employees at his first meeting that he was “going to do everything possible to provide better jobs for women and minorities. And I will fire you if you discriminate. Anyone who doesn’t like the direction this train is moving had better jump off now.”

Within a few months of Adamson’s appointment as CEO, eight of the company’s top twelve officers left. Among their replacements were a Hispanic man and a Black woman.²⁰

In this moment, Denny’s represented an organization evolving from the compliance stage to the tactical stage of its DEI journey. They moved past compliance concerns and started to think about DEI in a strategic way as connected to the values and goals of the organization.

Kelly-Drummond shared how the top-down and bottom-up approach has continued to be pivotal for Denny’s (see figure 9-1). Adamson explained that leadership at the top and people all throughout the organization have to be committed. “It isn’t just at the board level or the CEO suite,” he said. “It also has to be the people who are making the day-to-day decisions. You have the directors down to even the people in the restaurants, so it’s at the top all the way down that have the same mindset and ideas of treating people with respect, and to make sure that you have opportunities for all.”

The culture Adamson and Kelly-Drummond set remains strong to this day. John C. Miller, who has been CEO since 2011, remains an active part of Denny’s DEI strategy implementation, working with the current CDO, Kelly-Drummond, who’s still with the company nearly three decades after uneasily taking a job in public affairs at Denny’s low point. Kelly-Drummond told me, “Miller reminds us nearly every day about our commitment to our communities around the country and challenges us to ask what more we can do to grow business and be good corporate citizens and partners to those local, regional, and national organizations.”

Rising to Best in Class

Over the past thirty years, Denny’s has successfully implemented numerous DEI strategies that have led to its current standing as one of the best places to work.²¹ Looking back, we can see three focus areas that have been pivotal to the company’s improvement:

• Talent: tackling bias in hiring, broadening its recruitment efforts, and building the promotion pipeline
• Supply chain: seeking out minority-owned providers of goods and services
• Continuous improvement: learning from outside partners’ expertise²²

Today, Denny’s DEI progress has been widely acknowledged as a model of growth, maturity, and success by civil rights leaders, community groups, and many publications, including Fortune, Hispanic Business, Black Enterprise, Asian Enterprise, Family Digest, and Latino Magazine. The company has won numerous awards, and as mentioned earlier, it has been named one of the best places to work for minorities.²³ Its demographic diversity is a source of pride: 75 percent of team members are minorities, 58 percent of restaurants are minority owned, and 56 percent of board members are minorities—44 percent are women.²⁴

Denny’s has spent nearly $2 billion with underrepresented suppliers since it developed the Supplier Diversity Program in 1993. In 2020 diverse and disadvantaged businesses represented 13.2 percent of Denny’s purchases, and Hispanic businesses represented Denny’s largest spending segment by $3.4 million, with African American business spending ranked second largest.²⁵

Since 2006 Denny’s has published annual diversity reports as well as quarterly internal DEI newsletters that have contributed to rebuilding employee morale. Denny’s has pursued a level of transparency in its DEI approach by ensuring public accountability in its efforts.

Under the leadership of Miller, the organization’s diversity efforts were expanded to include equity and inclusion. Denny’s became one of the first companies to sign the CEO Action for Diversity & Inclusion coalition in 2017, the largest CEO-driven business commitment to advance DEI in the workplace (see chapter 2). Miller also created a roadmap for the organization, naming five guiding principles to promote diversity and align DEI goals with all functional areas of the company. Notice how these principles seem to reflect a core strategy for the company, and that core strategy happens to be deeply infused with the language and practices of good DEI. More companies could benefit from aligning company principles with DEI in a similar way:²⁶

• Guests First: They’re more than just customers or consumers. They are our guests, and we invite them into our homes with open arms. They are the very reason we are in business and the center of everything we do.
• Embrace Openness: Open means so much more than just being open for business 24-7. It means being open to all people, appetites, and budgets. It says we are open-minded and open to new ideas. Honest, warm, and inviting. Open is the way we think and act every hour of every day.
• Proud of Our Heritage: We are the classic American diner and proud of everything that means. Since 1953 we have served quality food and healthy portions at a fair price. No matter where we are, our light is always on, inviting guests around the world to a place where everyone is welcome.
• Hungry to Win: At Denny’s, we are constantly looking ahead. We are always moving forward, striving for more, hungry for greatness. We are open to fresh, innovative thinking. We believe we will succeed through teamwork, accountability, and pushing the boundaries of ourselves and our brand.
• The Power of We: Our Denny’s family is our most important asset. We trust, support, and respect each other and work together for the greater good. We recognize the contributions of all and empower each and every one of us to achieve great things. Together, we will celebrate our successes and have fun doing it.

These efforts have been laudable, but in light of my experience, they’re not what truly sets Denny’s apart. In analyzing its journey, I uncovered four key indicators that have propelled Denny’s to the integrated stage of its DEI journey.

Telling Its Story, Truthfully

One of my clients joked that what DEI really needs is a panel of leaders talking about “how we failed at DEI” to really spark change. As Brené Brown shares in her research, shame is one of the most universal feelings we all have as humans; what allows us to overcome that shame is vulnerability.²⁷ It is difficult for individuals to be vulnerable about their imperfections and even harder for organizations to openly share how they got DEI wrong in the past.

Individuals may have to account for one flaw or mistake, but organizations must be honest about their systemic flaws and continuous mistakes. For Denny’s, these cumulative mistakes led to one of the largest class action discrimination lawsuits of its kind. Many companies would be afraid to own these kinds of mistakes. They would not realize that telling the story and owning it is a necessary part of the journey to sustainable change that can ripple throughout the company, the industry, and beyond. Even as I wrote this book, many companies I approached said they were not far enough along their DEI journey, or they still had some work to do before they would feel comfortable sharing their story. Denny’s took the opposite approach, telling its story on many platforms over decades, and its honesty is what sets the company apart.

“We don’t believe in hiding from this shameful part of our history,” wrote Miller, Kelly-Drummond, and their colleague Fasika Melaku-Peterson, vice president of learning and development. “It is most productive to discuss it openly and honestly. By sharing the steps we’ve taken to rectify past mistakes and become what we hope is a model organization for DEI, we can hopefully help others do the same.”²⁸

If leaders do not see themselves in the journey of other companies, they cannot really imagine what can be possible. Denny’s has been committed to not only owning the mistakes of its past but also sharing its journey for the benefit of other organizations. While most companies are afraid of taking responsibility for their own mistakes, Kelly-Drummond advises the best thing a company can do, especially when it has made a mistake, is to be open and seek the help of its industry peers. “My suggestion to anybody who gets a call tomorrow from someone who says, ‘Hey, we have a DEI situation,’ is to be transparent, have an open dialogue, network with other companies and other organizational leaders. Listen, understand, communicate, and don’t be afraid to reach out to others and say, ‘Hey, I need assistance with this.’”

Sacrificing More Than Money

As discussed earlier in the book, since 2020 giving money to social justice causes has become the major play for companies that want to publicly demonstrate commitment to DEI. One year after the murder of George Floyd, racial-equity monetary commitments from companies reached $200 billion.²⁹ Critics argue that for many companies, these donations did not represent a real sacrifice as they were often given to nonprofit organizations that allowed their donations to become tax deductions. What’s more, simply donating will offload to others any work needed to improve the situation.

Beyond charitable giving, many companies have struggled to take meaningful action to improve racial disparities in their organizations and their communities. By October 2021, sixteen months after these pledges, 40 percent of employees of color reported their companies had not improved DEI practices.³⁰

Denny’s is a role model for putting in the work beyond financial support for DEI by contributing vital human capital resources to the real work of change. In 2020 it joined the CEO Action for Racial Equity Fellow ship, and CEO John Miller has committed internal resources such as the company’s legal team to serve on committees that sometimes meet weekly to work on strategies for advancing racial equity and social justice. Both Kelly-Drummond and Miller themselves also dedicate their time to serving on various committees in the fellowship. This is a remarkable and largely unheard-of move for senior-level executives to be so hands-on with external DEI efforts. Kelly-Drummond described the level of deep executive involvement:

We care about really getting down to the root causes of social injustice and not being afraid to talk about it. It’s important for CEOs to not just sign up for these causes but to invest people from their companies to come together to put together ideas and draw up a blueprint plan to implement policies and join forces with human rights leaders to where we can implement change and make a huge impact.

That is the next step that all companies should look at: going beyond your four walls and just giving dollars to support but actually investing in the efforts. At Denny’s, our CEO has committed two years for us to be involved with the fellowship for racial equity, and my chief legal counsel is on the policy committee that meets two or three times out of the week. I serve on the Education Committee, so every day, Monday through Friday, I am on a call with the Education Committee. We also have a vice president of operations on a committee. In general, we make sure we have those expert teams in the room to help further the overall cause. Other corporations bring in other resources such as IT, but the beauty is, we all get together and talk about ideas to help change the systemic racism in the country. Bringing all those perspectives in the room is a brilliant idea, and I am really proud to be a part of it. It’s true dedication.

Becoming Embedded in the Community

An organization trying to get to the integrated stage of its journey considers its entire sphere of influence and looks around at its impact on nearby communities. The food service industry has a unique social contract with the towns and cities where the restaurants are located. Unlike many companies, food service organizations must hire from local communities to be successful. Denny’s recognizes the need not only to hire people in the community but also to provide opportunities for them to develop into business leaders.

“The difference for us from any other Fortune 500 company is that we provide service directly to the community and we want to make sure our company is a reflection of that community,” said Kelly-Drummond. As mentioned earlier, Kelly-Drummond is from Spartanburg, South Carolina, where Denny’s is headquartered, and she still lives there. “We hire people who are in your neighborhood,” she explained. “Maybe it’s a student who decides they don’t want to go to college but wants to learn about a business and a trade to become a business owner. We have a Managers in Training program that employees can go through to learn about the entire business, including learning about how to be an owner. We create space for people in the community who want a leg up to have an opportunity to go to corporate America or develop within the business, such as owning a franchise.”

Denny’s recognizes this connection to community as both a part of its journey and something that is good for the business. It invests in the community and gets real talent development out of that investment while also creating meaningful DEI results.

Innovation through Inclusion

It’s this simple: inclusive cultures are six times more likely to be innovative.³¹ Research shows that diversity of thinking can improve innovation on teams by 20 percent and decrease risk by 30 percent.

But innovation does not happen just because you have a group of demographically diverse individuals on the same team. Sharing new ideas can be a frightening experience. What if other people shut down your idea, or even worse, what if it’s an idea that fails? Yet creative thinking is needed for companies to evolve and grow in a competitive landscape. Companies looking to innovate often miss out on novel insights from their own employees by failing to create a psychologically safe environment for employees to share their ideas.³² Denny’s has overcome this challenge by continuously creating opportunities for its employees and franchisees to contribute to the evolution of the organization. Kelly-Drummond explained:

Like our famous Grand Slam Breakfast, some of our best innovations come from our franchisees. That has always been true, and I’d say even more so recently during the pandemic, as we’ve had to pivot quickly to meet shifting consumer demands and local and state regulations. Curbside pickup was one of our most successful pandemic innovations, and that idea came from a franchisee. Our franchisee Rahul Marwah was the first to provide groceries and home meal kits to his communities.

We want to support collaboration and results across our franchisee family. Dawn Lafreeda started at Denny’s as a server when she was a teenager. Now she is one of our largest individual franchisees. She has built an empire with incredible business results while persistently advocating for women’s and LGBTQ+ rights, helping Denny’s on our pathway to diversity and inclusion. Our brand and our workplace culture have benefited tremendously from her insight on social issues as well as her business savvy.

Holding Up a Mirror

In looking at how far Denny’s has come since it was riddled with discrimination claims and had to focus on compliance, a company in its position could easily decide it has done enough to prove itself in the DEI landscape. Denny’s hasn’t done that, though, and that’s perhaps the most important aspect of its maturity into the integrated stage of its journey. The company realizes that the journey does not end.

“The goal is always improvement and forward progress, not to find a comfortable stopping point,” Kelly-Drummond said. “Leaders in this space need to be comfortable consistently critiquing themselves and looking for holes in their strategy or its implementation.”

In addition to realizing DEI has no finite ending point, organization leaders must be humble enough to check in on their efforts and realize when some part of their strategy needs to be adjusted or changed altogether. “We must take proactive steps to create inclusive cultures and be held accountable to build a diverse talent pipeline,” Kelly-Drummond said. “We must hold a mirror up, evaluate what we are doing well, what we need to take away, and what we need to do more of. Then we must act boldly—take action as a result of this knowledge. This is the only way to drive change and accelerate progress. Over the years, advancing DEI has existed, but meaningful change is happening, led by advocates championing DEI across geographic and cultural boundaries.”

When I asked Kelly-Drummond the question I ask all leaders—“What is your vision of a workplace utopia?”—she said she focuses on holding that mirror up and making Denny’s not just diverse but also diverse like the communities it operates in: “Ultimately, our desire is to have a workforce that represents the makeup of the communities we serve at all levels of management and in our board. We know this nation is becoming increasingly diverse. By many accounts, more than half of America’s population will be mainly diverse within the next twenty-five years. We know in many of the cities we serve, they are majority-minority communities. Here at Denny’s, we want to keep pace with the changes in this country. We believe it represents our core mission, vision, and values, and it’s great for business.”