Shake Shack Returns Its PPP Loan: Given Them Credit- And Visit A Shake Shack

Last week, I published an article in Forbes lamenting the sloppy ethics of large companies applying for and receiving our government’s Payroll Protection Program (PPP) funds intended for small businesses. Even though it was ‘legal’ for certain types of large corporations to apply, it wasn’t a smart business decision in this fraught environment.

I’m pleased to say some corporate leaders have reconsidered their decision. Just today, Shake Shack announced it would return its $10 million in loan funds to the SBA.

While there are many possible explanations for the move— such as avoiding the hiring and retention requirements of the PPP program— it is nonetheless a positive example of corporate leadership reconsidering their actions and doing the right thing.

I encourage you to read the open letter on LinkedIn from Shake Shack CEO Randy Garutti and the company’s founder and chairman Danny Meyer. Here is a key point they offer:

“Shake Shack, like all restaurant businesses in America, is doing the best we can to navigate these challenging times. We don’t know what the future holds. Our people would benefit from a $10 million PPP loan but we’re fortunate to now have access to capital that others do not. Until every restaurant that needs it has had the same opportunity to receive assistance, we’re returning ours.”  

To second Garutti and Meyer’s point, hospitality companies large and small are faced with the worst market conditions in our lifetimes. Rapid, catastrophic revenue declines are tough for any size company to manage, but as Shake Shack’s Chairman and CEO articulated, larger companies have financing mechanisms unavailable to small businesses. For now, the right thing to do is to return the funds, and they’ve done so.

With their letter, they not only stated their case with some humility— essential during a crisis— they also offered constructive recommendations for how to improve the PPP program. While thoughtful people might disagree with some of their points, it’s a productive contribution to the public dialogue.

Long Run, Ethics Pay

In my recent article critical of Ruth’s Chris Steak Houses for their $20 million in loans from the PPP, I asked you to Google the company. They headlined the media storm. Try the same today with Shake Shack, and check out the market’s reaction relative to their peers. Long run— and sometimes not-so-long run— ethics pay.

Critics will undoubtedly find Machiavellian reasons for their move, but I’d like to vote in hearty favor of Shake Shack’s leadership. Our world suffers from far more grey than the black and white clarity idealists crave. Management must lead for shareowner return, but the smart ones do so with the much broader stakeholder picture in mind.

Payroll From Your Own Pocket

I wonder if, being a great entrepreneur and founder, Danny Meyer felt greater empathy for his entrepreneur colleagues than most corporate leaders.

Early in my career, when I was considering whether to start a business— since then, I’ve co-founded three successful companies (and a couple of failures)— a mentor clarified for me the entrepreneurial condition. “Rob, you never know what it’s like to be an entrepreneur till you’ve made payroll from your own pocket.” Having weathered the Global Financial Crisis and now this current round, I get it now.

A special COVID-crisis thanks to Garutti and Meyer for their leadership. Meanwhile, I look forward to my next visit to Shake Shack! Hope to see you there.