The Labor Day lessons of Market Basket
Editor’s Note: Longtime friend of Making Sen$e Christopher Mackin, president of Ownership Associates, returns this Labor Day to reflect on the recent reinstatement of beloved Market Basket CEO Arthur T. Demoulas after six weeks of employee protests and customer boycotts against Demoulas’ ouster by his rival cousin, Arthur S. Demoulas.
For more background on the company’s family feud, watch Paul Solman’s report on Market Basket from earlier this summer, featuring Mackin, and learn more about what drove employee loyalty to Arthur T. — even when their jobs were on the line.
In a deal reached late last Wednesday, Arthur T. and his siblings will buy their relatives’ shares of the grocery chain for $1.5 billion. From a pickup truck in Tewksbury, Massachusetts, side-by-side with a large, stuffed giraffe (which striking Market Basket employees had adopted as their mascot), Artie T. told employees Thursday that he loved them. “You have demonstrated to the world,” Artie. T. continued, “that it is a person’s moral obligation and social responsibility to protect the culture which provides an honorable and dignified place in which to work.”
In one sense, Artie T.’s return brings to an end an unprecedented non-union strike, and in another, it marks the beginning of another phase of questions and possibilities for Market Basket.
On this Labor Day, Mackin examines four story lines that have emerged from the Market Basket saga in the wake of last Wednesday’s deal.
— Simone Pathe, Making Sen$e Editor
The summer of 2014 has provided more than its share of dramatic news. Amidst unrest in Gaza, Syria, the Ukraine and Ferguson, Missouri, a highly unusual “Manager-Worker Revolt” at a New England retail supermarket chain broke through the news to become a national story.
Privately owned Market Basket is the 34th largest retail supermarket chain in the United States. It operates primarily according to a low-price high-compensation business model with 71 stores and 25,000 employees located in a mixture of low-to-middle-income communities spread throughout northern New England. This summer it exploded like a Roman candle in the evening sky.
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What began in mid July with a lonely, ill attended walk out of a dozen white collar senior managers from corporate headquarters grew to a coalition of tens of thousands of employees and customers. Protests engineered through a combination of public rallies, social media, shopping boycotts and mainstream media coverage targeted the unwarranted firing of a highly respected CEO, Arthur T. Demoulas, by shareholders loyal to his cousin, Arthur S. Demoulas. Six weeks later, order has been restored. Arthur T. is back in charge and employees – their preferred moniker is “associates” — are back at work.
Four story lines have emerged to make sense of what has transpired. Two look backward. Two are prospective.
First is a story of unprecedented solidarity among workers and managers who risked their livelihoods and openly defied orders from a newly installed management group they refused to recognize in order to save the culture of their company. This defiance made two specific demands: End your efforts to sell this company to outsiders and bring back the boss we trust. Both demands were met with startling efficiency, particularly given that they had no basis in law.
Second is the story of customers who stayed away from Market Basket stores in droves and walked picket lines in support of the workers and managers. In an industry entirely dependent upon consumer choice, consumers multiplied the pressure coming from employees. They taped receipts from their shopping at competitor grocery chains on the large glass windows of Market Basket stores. Legal shareholders aligned with Arthur S. found themselves surrounded. Non-compliant customers had joined non-compliant employees. They surrendered but for a full and generous pre-crisis market price.
Third, in the wake of the restoration, a prospective story line filled with doleful predictions has begun to take shape. It describes a formidable mix of interest payments, anticipated investment returns and looming liquidity events that will be demanded by a collection of new lenders and investors recruited by Arthur T. to buy out his opposing cousin. The weight of these new financial arrangements — what economists refer to as the “winner’s curse” — will, they imply, turn this happy rescue party into mush.
Fourth, an emerging line of criticism takes aim at the so-called organizational culture, specifically at the enthusiasm that has filled the airwaves on behalf of Arthur T. Demoulas. Eschewing “great man” assumptions as a familiar form of management subterfuge, this perspective rejects the unified message of the Market Basket culture and urges all, but the workers in particular, to turn down the celebratory music, sober up and load the sandbags for the necessary struggle ahead.
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The arguments of the skeptics deserve respect. For Market Basket to survive and prosper, the newly restored and much vaunted company culture must be creatively applied to the task of attracting an upsurge of customers, including loyalists, the curious and mere bystanders. Unless an increased volume is achieved in early weeks and months, price margins and discounts may have to be tweaked, at least temporarily. Profit sharing may need to be reduced. Lenders and investors may have to be cajoled into accepting longer-term returns.
Crucial though they may be, however, financial variables do not capture the essence of the Market Basket story. Employees made no economic demands. Their protest signs read: These are our stores. They forcefully rejected the claims of the legal shareholders in favor of their status as genuine stakeholders who truly “owned” the company and would work for no one but their chosen leader.
In the wake of the Market Basket “victory,” in the season of Labor Day, we should consider the larger implications of what this case can teach us. These implications include fundamental questions about the appropriate role of capital and labor under what we understand to be contemporary capitalism. Capital, and the shareholders that constitute it, including both the wealthy as well as prototypical 401(k) participants, deserves their risk-adjusted returns.
Economies and retirements depend upon those returns. Perhaps, however, that is all it deserves. Labor, understood to include all members of the firm — management and workforce alike — is something more than hired help. They deserve the affirmative voice and corporate governance power we watched unfold in the raw during the summer of 2014 in the Market Basket case.
Capital can exit from circumstances not to its liking. There are plenty of places for capital — for investors — to go. Labor, again including management, often cannot go elsewhere. In the Market Basket case, the stakeholder we call labor, aided considerably by the stakeholder called customers, stood up. It denied the shareholder imperative – the heretofore unquestioned privilege to sell to the highest bidder of its choice — as having become corrupted and capricious, as undermining the integrity of a carefully built 98-year-old corporate brand. Labor, again including management, prevailed.
An appropriate coda to the Market Basket story that should perhaps be considered in the years ahead would share actual legal ownership between Arthur T. and the employees who literally brought him back to serve as CEO. To say that Arthur T. has earned the respect of Market Basket “associates” and the public at large would be the understatement of Labor Day 2014. Business schools and Hollywood will be eager to hear more about him in the months ahead. But Arthur T. will not live forever. His “associates” appear to have a promising future.