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Coming in 2015: Aftershocks of the Market Basket Revolution

Words by 3p Contributor
Investment & Markets
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This year’s battle over the fate of a supermarket chain is emblematic of the dilemma that will continue to face American businesses in 2015: extracting maximum value for shareholders or reinvesting in workers’ long-term value.

By Toni Johnson

A stunning joint worker-executive action brought thousands to the street to rally for more than 10 straight weeks in 2014 — not for better pay or benefits, but to reinstate ousted CEO Arthur T. Demoulas to the New England supermarket chain Market Basket.

The move was another incident of a bitter, decades-long feud with his cousin Arthur S. Demoulas over control of their grandfather's company. The saga could easily be named a "Tale of Two Arthurs." More importantly, it could herald a new chapter in a wider battle over low-income worker treatment in corporate America that will continue to resonate in 2015.

What’s all the fuss about? Market Basket offers prices lower than Walmart and pays their workers a starting wage well above the state’s minimum, as well as offering profit-sharing, bonuses and a 401(k) plan, with no union strong-arming them to do it. As Sally Kohn at CNN notes, Market Basket’s experienced cashiers make $40,000 a year -- nearly double the industry average -- and stores charge 10 to 20 percent lower than their competitors. Their management structure is small, high-touch and contains long-time employees promoted from within. The $4.6 billion company took in $240 million in profits in 2013, while investing in new stores (numbers currently stand at 71) and paying shareholders healthy dividends in the last decade. Ask the big boys out there fighting against a minimum wage increase, and they’ll try to sell that running a company this way will put you in the poorhouse.

Arthur T.'s close relationship with his employees -- and stewardship of a successful and growing business -- is what led employees and some executives to revolt in the summer of 2014, leaving unmanned stores and empty shelves.

"Market Basket represents an increasingly rare business culture, one where workers are unusually well paid and willing to put their jobs on the line to force the reinstatement of a beloved boss who made them feel valued," writes Callum Borshers in the Boston Globe. "All this at a time when most workers fret about job security and don’t know who owns their companies."

Although new co-CEOs Felicia Thornton and Jim Gooch argued "the direction of the company has not changed,” part of the fight between the two Arthurs was over the amount paid out to shareholders in dividends. The previous year, Arthur T. sought an injunction to stop the payout of $300 million in dividends approved by the board.

"The payout is a victory for the wing of the Demoulas family that contends that CEO Arthur T. Demoulas has been much too generous in profit-sharing with employees, while cheating the owners," contended a 2013 Boston Globe editorial. "Shareholders have already received $500 million in dividends over the last decade, but the branch of the family headed by Arthur S. Demoulas has reportedly sought as much as $1.5 billion."

This debate over paying out high dividends versus reinvesting in the company, particularly workers, extends well beyond Market Basket. The idea of maximizing shareholder value is a goal that reshaped corporate America, writes the Washington Post's Jia Lynn Yang. "It used to be a given that the interests of corporations and communities … were closely aligned," Yang wrote in 2013. "But no more. Across the United States, as companies continue posting record profits, workers face high unemployment and stagnant wages."

Some are hopeful that this way of doing business is on its way out. The Drucker Institute's Richard Warztman says sure, some people will be greedy, but most people go into business to add value to society. "They hate the pressure, from Wall Street and elsewhere, to focus on short-term financial metrics," Warztman argued in Time magazine. He added that he and others need to step up “attempts to devise unconventional, but highly credible, measures that give a more holistic picture of what a healthy company looks like — how such an enterprise is not only profitable, but also fosters customer satisfaction, treats its employees well, continually innovates and plans effectively for the future."

It seems clear Market Basket is just the type of company he is describing.

Employees at Market Basket feared the ultimate resolution would be the sale of the company to someone other than Arthur T., who has put in his own bid to buy out the other shareholders. Esquire Magazine’s Chris Faraone argued it’s the fate of the middle class that’s on the line. “If Arthur T. fails in his attempt to buy the company back, and the cousin who booted him sells out to a conglomerate as expected, there's a chance this grand experiment will disappear forever,” Faraone wrote. “It would become a bellwether for a corporate America that has created a caste for itself, where workers can only expect to be treated fairly until the rug they have made is eventually pulled out from beneath them.”

The standoff has come to an apparent end, with the New York Times reporting the success of Arthur T.’s bid to purchase the 50.5 percent share of the company not already owned by him and his allies.  He will return immediately to the daily business of running the company. In the New York Times, MIT's Thomas A. Kochan said the episode showed that “the employees are the most valuable asset in this business. …Market Basket has done more to educate us on how to manage a business than any business case study that’s been written to date,” he said.

In a moving speech to his cheering employees, Arthur T. said “I am in awe of what you have all accomplished, and the sterling example you have all set for so many people across the region and across the country.

As we enter 2015, all U.S. CEOs should to take note. Market Basket is a shining example of why valuing low-level workers is part of the business value chain. Many service workers have recently taken to the streets to fight for higher pay and better treatment. Here, workers are fighting for a profitable company they value as an employer. Seems like a no brainer which is the better business scenario. Hopefully it will spark a wider discussion on short-termism’s effect on labor.

Toni Johnson is Vice President of Knowledge and Influence for the F.B. Heron Foundation. The mission of the F.B. Heron Foundation is to help people & communities help themselves prosper, especially those that are economically disadvantaged. We are looking for ways to help rebalance the economy so that it ensures opportunity for all.

3p Contributor

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