Dave's Hot Chicken CEO shares the No. 1 red flag he sees in employees—it can be a fireable offense
The 69-year-old CEO says the biggest red flag he looks out for when running his business is "toxic" people — those who lack the empathy to support their teams and the generosity to share their success with others.
It's an offense that can even lead to termination, he says.
"I take no pride in firing people, but I take pride in having an incredible culture," Phelps tells CNBC Make It. "You have to do the things that are necessary to maintain that incredible culture."
Toxic people will show up in every organization, Phelps says: "It's human nature." While tolerance for difficult behavior may vary, Phelps says he's learned from experience that the best approach is to adopt a zero-tolerance policy.
That's because "the toxic tone is contagious," Phelps says. It's up to a manager, or CEO, to spot toxic behavior and take the necessary steps to eliminate it quickly while promoting and investing in employees who foster a positive culture, he adds.
Since taking the helm of Dave's Hot Chicken in 2019, Phelps has grown the Pasadena, California-based company from a single store to over 300 locations globally. The company has also sold the rights to about 1,000 more locations, Phelps told CNBC's "Squawk Box" last week.
Phelps also says he's not afraid to ask franchisees to leave the organization if he feels it's necessary — often through an honest conversation that gives a store operator the chance to sell their business rather than being forced out, he says.
"That's a tough conversation, but it's the right conversation for the whole system," Phelps says.
Phelps says toxic employees lack generosity and positivity in the workplace, but there may be other warning flags as well.
Tom Gimbel, CEO of staffing and recruiting firm LaSalle Network, looks out for entitled employees that expect a promotion or a raise without going the extra mile. Meanwhile, Talia Fox, CEO of executive consulting firm KUSI Global, says her biggest red flag is employees who refuse to take responsibility for their mistakes and instead blame others, the CEOs said in 2024.
"Owning your mistakes and having a high level of integrity is so critical," Fox said. "Just show up and have some honesty around it."
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