When Should the Family Business Throw Out the Family?
"Shirtsleeves to shirtsleeves in three generations." A typical paradigm for a family business; mom and pop start the business, their children successfully grow the business, and the greedy acrimonious grandchildren squabble amongst themselves and fritter away the business. The Demoulas family, of the Market Basket supermarket chain in Massachusetts, New Hampshire, and Maine, has added some new wrinkles.
Looking at Market Basket from the outside, you will see a business with discernibly lower prices, an operation with noticeably better service, and a staff anxious to please. The workers are much better paid than the competition and their total compensation includes profit sharing, retirement, and bonuses. Their benefits package is on a par with the high-tech industry and far ahead of the penny-pinching supermarket sweatshops. All of this and their return on assets is about 7.5%. A template for a more civilized world. Why can’t the Demoulas family enjoy such success?
There are two Demoulas factions, led by cousins Arthur S. and Arthur T., and nine family shareholders. There has been strife between the two sides of the family for fifty years or so. It boiled over into the courts in the 1990s. Boston.com published a summary graphic of the saga. One of the blocks states:
1990s: In a wild run through the legal system, the courts decide [Arthur T.'s] side had illegally taken control of the company. [Arthur S.'s] side is given a 51% share.
The family shareholders voted 5-4 in favor of Arthur T. until last summer when the fifth vote swung back to the Arthur S. side. The board was restructured and promptly voted a distribution of $250,000,000 in profits to the nine shareholders. The Boston Globe reacted with a scathing editorial titled, “Market Basket’s descent into greed.”
Arthur T. was fired as CEO on 23 June 2014. He was replaced by co-CEOs Jim Gooch and Felicia Thornton, both of whom have experience with failing companies. The unfortunately named Mr. Gooch, ex-CEO of Radio Shack, was dubbed one the five worst CEOs of 2012. Ms. Thornton was Chief Financial Officer and Executive Vice President of Albertsons from 2001 to 2006. On 14 April 2006, Albertsons' credit rating was cut to junk.
The employees and the customers are refusing to go along! Almost every single employee of Market Basket came to the support of Arthur T., doing so at real peril to their jobs and their careers. They didn’t exactly strike, it’s not exactly a boycott, but the employee work-action has crippled the company. And, wonder of wonders, the customers approve of the work-action. At the request of the employees, customers are boycotting the chain. As I write this, the 71 Market Basket stores are open but virtually deserted. You can sling a dead cat through the aisles and not risk hitting anybody.
Conventional wisdom tells us that boycotts are ineffective, possibly some short-term successes, but in general they just don’t work. But the Market Basket work-action and boycott is totally effective. Between the workers and the customers, the chain is doing almost no business. It may end up being a case of be careful what you wish for, but for now people power is ascendant.
The situation has attracted nationwide and indeed international attention. The BBC ran a piece titled “Market Basket: Workers risk it all for their boss” which reads in part:
These Market Basket workers - produce managers, warehouse stockers, truck drivers - say that they have not camped outside the company's headquarters here in Tewksbury, Massachusetts for the reasons others have gone on strike across the US for recently.
They are not asking for the "living" wages, guaranteed sick leave, or bonuses that McDonald's employees or Seattle's airport workers have demanded in the past two years - mostly because they already get all of those.
Simply put, they want one thing: Arthur T (or "Artie D" as he's called by a certain type of north-eastern Massachusetts accent) back as their boss, after he was sacked in a long-running family feud.
That demand has raised eyebrows because, in the words of the Save Market Basket theme song: "Have you ever heard of workers fighting for a CEO?"
Sally Kohn, a solid reporter and an unapologetic leftist, presented an opinion piece titled "How Market Basket workers are fighting greed" on CNN. She said:
Full-time clerks start at $12 an hour. Cashiers with experience can earn over $40,000 a year. And managers can easily make into the six figures.
Keep in mind that's in a nation where the average annual salary for grocery store cashiers is $21,370 and the national minimum wage is $7.25 per hour.
The company also has a generous retirement plan, matching 15% of annual salary to employee retirement funds. What's more, workers up and down the supply chain receive good bonuses throughout the year.
All this and Market Basket is affordable for customers, with prices regularly 10% to 20% lower than competitors [see this recent study]. The company is profitable in an industry known for low profit margins, and has given $500 million in dividends to the nine family shareholders over the past decade.
I disagree with Ms. Kohn's position on the Occupy Wall Street movement and remind her that the Market Basket customer-worker relationship was developed by management. Still, Ms. Kohn puts it elegantly:
[T]he Market Basket workers are …protesting for a certain kind of capitalism, a capitalism that works for owners as well as for workers and communities.
The Market Basket conflict will probably not be resolved based on business criteria, but rather based on existing personal antagonisms. Arthur S. has the advantage of resources and the legal high ground. Should he succeed, a comeback for Market Basket would be problematic. Arthur S. has lost the public relations war. A large percentage of senior and middle management will not work for Arthur S. and a considerable number of previous customers will not return. (By the way, don’t feel too sorry for billionaire Arthur S. He is one of the wealthiest individuals in Massachusetts.)
Should the Arthur S. faction sell their shares to his cousin there would still be problems. Arthur T. would maintain the customer base and the staffing, but reportedly doesn't have the resources to buy without significant financing. In addition to the quarter-billion dollar hit on cash reserves distributed to the shareholders by the current board, the company has been hemorrhaging money during the work-action. The company is currently debt-free, but there is a limit to how much debt-service they can assume while staying financially viable.
Let us hope that whatever the solution, Market Basket maintains the symbiotic relationship (apparently unappreciated by the current board) between the chain’s markets, the staffing, and the customers, developed and encouraged by previous management as nurtured under Arthur T.
Mike Johnson is a live-free-or-die resident of New Hampshire and a proud participant in the boycott. E-mail email@example.com