The worker-manager revolt in Massachusetts: Will loyalty trump ‘ownership’?

BY Thomas Kochan  July 29, 2014 at 7:42 AM EST
Employees and customers hold a rally in support of Arthur T. Demoulas and Market Basket. Photo by Suzanne Kreiter/The Boston Globe via Getty Images.

Employees and customers hold a rally in support of Arthur T. Demoulas and Market Basket. Photo by Suzanne Kreiter/The Boston Globe via Getty Images.

Editor’s Note: If you live in New England, maybe you buy your milk and eggs at Market Basket, a mid-sized chain of about 70 stores employing approximately 25,000 employees. But if you’re from anywhere outside Massachusetts, New Hampshire and Maine, your only impression of the grocery chain may be that their employees are staging one of the largest collective actions in modern workplace history – one that’s uniting check-out clerks and truck drivers — none of whom are members of a union — with their counterparts in mid-level and upper management.

Like all great dramas, this one begins with a family feud. Locals remember shopping at Demoulas, before it was Market Basket, and it’s the Demoulas family – specifically two cousins who share a first name, who are at the center of this fight. In short, the company’s board, at the urging of Arthur S. Demoulas, ousted CEO Arthur T. Demoulas in June, replacing him with two co-CEOs. (The Boston Globe has been all over this story, and they’ve produced this helpful infographic to trace the origins of the family’s power struggle.)

Employees are striking because they’re loyal to Arthur T. Under his leadership, the company participated in an employee profit-sharing program and offered scholarships to employees in college. Experienced cashiers can make upwards of $40,000 per year, and full-time clerks start at $12 an hour. (The minimum wage in Massachusetts, home to the majority of the chain’s stores, is $8 an hour.)

Protests have included employees, but also customers sympathetic to their cause, and local politicians who have supported a boycott of the store without “Artie T” at the helm. Market Basket dismissed eight managers who encouraged employees to walk out on the job, and they’ve been sending mixed messages about whether rebelling employees will be welcomed back.

Last week, Arthur T. (the cousin beloved by employees) submitted an offer to buy the majority share of the company that his rival cousin, Arthur S., and his allies control. The board met on Friday to discuss the offer, and again on Monday. And this is where Making Sen$e picks up the story Tuesday, with a column from Thomas Kochan, co-director of the Institute of Work and Employment Research at the MIT Sloan School of Management.

Kochan proposes a plan to restore the company’s respect for its employees and maintain its profitability, while most immediately, getting shelves stocked and customers back in the aisles.

Simone Pathe, Making Sen$e Editor


The amazing Market Basket saga continues.

For the past week and a half, New England has been watching, supporting, and in some cases, joining a broad cross-section of Market Basket warehouse and clerical employees, supervisors and managers protesting the firing of their CEO Arthur T. Demoulas in an effort by his cousin Arthur S. Demoulas to generate more short-term returns for the family owners.

While the stores remain open, little if any fresh produce or meat products have been delivered and other inventories have gradually been depleted. The broad-base of customer and public support these actions have generated suggests the only way to restore the business, its value to the owners, and the jobs at stake is to regain the respect and support of the workforce.

There may be a way forward that resolves these difficulties and returns Market Basket to the marketplace sooner rather than later, but it will require a change in approach by both the company’s board of directors and the protesting employees.

A much-anticipated board of directors meeting took place on Friday, July 25, in downtown Boston to explore the options. The meeting yielded five results.

First, in a statement issued immediately after its meeting, the board of directors publicly admitted for the first time that the company was indeed, as the protestors had suspected, for sale. The investment banking arm of J.P. Morgan Chase is now and has been for some time orchestrating a sale process for the Market Basket Board of Directors that involves more than one bidder, and which remains open.

Second, the protesting employees, now joined by thousands of customers and community supporters, learned that a bid announced on July 22 — three days prior to the board meeting — by the deposed CEO Arthur T., the family member they support, is now among the bids under consideration.

Third, the board affirmed the continued employment of besieged co-CEO’s Felicia Thorton and James Gooch, who were hired only in June.

Fourth, the board chastised protesting employees by stating:

The negative behavior of certain current and former associates is at variance with the Company’s culture of putting the needs of the Market Basket customers first. It is now clear that it is in the interests of all members of the Market Basket community for normal business operations to resume immediately.

A fifth statement, issued hours after the board had formally adjourned, from the public relations firm O’Neill & Associates reversed that critical tone, showing more empathy for the dissenting employees:

The past month has been trying. We appreciate the strain this change of leadership has placed on our associates. We welcome back associates who are committed to Market Basket’s customers. There will be no penalty or discipline for any associate who joins in what will be a significant effort to return to the unparalleled level of performance and customer service that have been hallmarks of the Market Basket brand. There will be no change to Market Basket’s unmatched compensation and benefits.

The empathic tone of this final communication was immediately challenged by the protesting group on its informal social media news source, a Facebook page called Save Market Basket. After invoking the legendary protest song of Johnny Paycheck, stating that the board should “Take your amnesty and …”, protestors pointed out the contradiction between this message and prior threats of permanently replacing protesting employees. With calls for unity ringing throughout the employee group, it remains to be seen how or whether the late amendment to the board’s message will achieve its desired result of returning to the status quo. That seems unlikely.

Instead, in the wake of these board actions and continuing protests, Market Basket owners and employees remain in a downward spiral that, if not reversed quickly, can only end in substantial reduction in the value, if not total liquidation, of the owners’ assets and loss of many, if not all, of the employees’ jobs.

Changing course requires a near term solution — a cease fire of sorts — that brings customers back, and includes a credible and clear process for addressing the core interests of the owners and employees and sustaining the business for the long run.

A suggested path for doing so is outlined below, but first, let’s identify the short and longer term interests of the parties that any plan must address.

Employees want Arthur T. back in charge because he has led the company in ways that built loyalty with both employees and customers.

Employees also want the executives who were fired to be reinstated.

As is now evident through their admission of a desire to sell, the Arthur S. faction of the family is apparently seeking higher and more immediate financial returns. They thought they could obtain these by gaining control of the board and hiring new co-CEOs, but this approach clearly is not working. The value of their equity has fallen dramatically and will continue to fall further if they stick with this strategy.

Since the only way to restore the value of their shares is to bring customers back to the stores, and the only way to do this is to get employees to urge customers to come back, reestablishing employee trust and commitment is essential to their financial interests.

Here are steps that would meet these core interests.

  1. Employees announce they will go to work immediately rebuilding stocks and urge customers to return as soon as the stores are adequately stocked and staffed.
  2. Arthur T. Demoulas and the managers who were fired for protesting should be rehired by the board of directors, perhaps on a contract or consulting basis, to focus on coaching the business back to normality as a sale process proceeds.
  3. The sale process should proceed in two stages and be led exclusively by the independent members of the Market Basket Board of Directors. In a first stage, lasting no more than three months, the board should agree to negotiate exclusively with Arthur T. Demoulas. If, after that period of time, a sale is not agreed to, the board can, at its own risk, return to the general market of bidders.
  4. In order to expedite the process and provide the Arthur S. faction with a price that compensates shareholders in the general economic neighborhood they anticipated before the crisis, the Arthur T. offer should be established at a price that independent auditors judge to be the value of the company before this collective action began on, say July 1, 2014.
  5. New ownership options that the Arthur T. group might consider should include:
    • Sole ownership by Arthur T.
    • Ownership by Arthur T. supplemented by a partial employee stock ownership plan (ESOP) that shares ownership between the employees and Arthur T., while also providing him with an exit strategy to sell a full ESOP down the road. (Some of the largest and most successful ESOP chains in the United States are grocery stores.)
    • Ownership by Arthur T., in partnership with a conventional private equity investor group committed to a business strategy and governance process built around high levels of employee commitment, productivity and customer service.
  6. A business partnership council, which would include a cross section of employees, managers, board members, the fired executives and Arthur T., should be established to oversee operations and rebuild employee and customer loyalty throughout the transition.

How does this plan meet the short and long term criteria for success?

  1. It ends the downward spiral and brings customers back as quickly as possible because employees publicly urge them to resume their former buying habits. Indeed, the positive publicity from employees returning to rebuild the business would likely generate many new customers, and so the anticipated surge of business would need to be built into the “reopening” strategy.
  2. Agreeing to a buyout of current owners at a price set equal to the value of the firm prior to the protests provides those shareholders looking for greater short-term returns a price well above the current value of the company and the even lower value (possibly zero) that will result if the downward spiral is not stopped and not quickly reversed.
  3. Employees gain a voice both in the transition, via the business council, and Arthur T., and the executives who were fired have a short-term role in rebuilding the business and employment. Whether Arthur T. and the other executives return to their former positions once the restructured company is established would be determined by both their preferences and the decision of the new management. The same is true of the current co-chief executives.
  4. Customers gain from both the short-run steps to restock the stores and from continuation of the store’s competitive strategy, which emphasizes low prices and high quality customer service.

The Market Basket drama is beginning to attract a national audience. It is a refreshing and welcome story that breaks down many of the stale caricatures describing labor and management in the American workplace. Market Basket employees have asserted an implicit right of “ownership” of what they believe to be their company. Whether that psychological ownership can be at least partially realized through legal ownership is up to insiders to determine.

Whatever the result, it is important not to deny what is new here: a brave assertion by thousands of people, with much at risk, to protect their livelihoods and to demand leadership they can trust. At the end of the day, that message should be responded to affirmatively by the current owners of Market Basket.

Paul Solman reported on the Market Basket saga in early August.