Market Basket`s Grand Bargain

L a b o r – M a n ag e m e n t
Market Basket’s Grand Bargain
Thomas A. Kochan
Editor’s note: New England regional grocer and consumer favorite Market Basket
made national news because of its cast of characters and the man-bites-dog unusualness of the story. Here’s the gist: Arthur S. Demoulas and the board ousted CEO
Arthur T. Demoulas, his cousin, in June in what the Wall Street Journal reported
was the continuation of a long power struggle within the family.
Regional grocer Market Basket
makes national news
• When the board of directors of New England grocer Market Basket ousted the
CEO, Arthur T. Demoulas, non-union clerks,
warehouse workers, and management went
on strike.
• MIT’s and LERA’s Thomas A. Kochan said,
“This type of broad-based, collective action
is unprecedented in modern U.S. labor history.”
• After six weeks, the situation was resolved
when the board of directors agreed to sell
the Market Basket grocery store chain to
Arthur T. Demoulas.
• After the sale, Kochan wrote that the message to business executives was that
“American workers, indeed the American
public, are fed up with owners and shareholders who try to maximize their short-term
gains at the expense of employees and customers.”
The 25,000 employees at privately held and non-union Market Basket’s seventyone stores in Massachusetts, New Hampshire, and Maine were well treated and
well paid. The PBS show “Making Sen$e” reported entry wages of $12 per hour
(in Massachusetts, where the minimum wage is $8 per hour), with experienced cashiers making $40,000 per year. Market Basket offered scholarships to employees
going to college—all pretty much unheard of in the almost universally low-salaried
retail world.
When Arthur T. was ousted, nearly all the employees—cashiers, warehouse
workers, truckers—walked out the door, too. Managers and customers joined
them. Non-union employees going on strike arm in arm with customers and managers in sympathy with a spurned CEO? What’s going on?
MIT Sloan School of Management professor, LERA past president, and cofounder of LERA’s Employment Policy Research Network Thomas Kochan stepped
into the fray: first on Boston Public Radio’s WBUR Cognoscenti web publication on
July 23 and a column for PBS reprinted here with permission. It’s vintage Kochan—
a solid business case and a grand bargain in which employees, the company, and
consumers treat each other with mutual respect and all win. Unlike many recent
stories of losses for workers, the Market Basket story had a happy ending for
employees and customers when the board agreed on July 27 to sell the chain to
Arthur T. Demoulas.
Kochan in his Fortune magazine column wrote, “Thank you, Market Basket for
providing the best labor lesson of this century to date. Let’s hope others provide
more of the same.”
To read Kochan’s Fortune magazine and WBUR columns on Market Basket, log
in to LERAweb.org and access the Members Only section at http://bit.ly/1uRQmQ1.
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PERSPECTIVES ON WORK / 2014
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-CEOs
Felicia Thornton 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.
F
Market Basket to the marketplace sooner
or the past week and a half,
rather than later, but it will require a
New England has been watchchange in approach by both the compaing, supporting, and in some
ny’s board of directors and the protesting
cases, joining a broad crossemployees.
section of Market Basket warehouse and
A much-anticipated board of directors
clerical employees, supervisors, and manmeeting took place on Friday, July 25,
agers protesting the firing of their CEO,
in downtown Boston to exArthur T. Demoulas, in an
plore the options. The meeting
effort by his cousin Arthur S.
Employees
want
yielded five results.
Demoulas to generate more
First, in a statement issued
short-term returns for the
Arthur T. back in
immediately after its meeting,
family owners.
charge because
the board of directors pubWhile the stores remain
he
has
led
the
licly admitted for the first time
open, little if any fresh prothat the company was indeed,
duce or meat products have
company in
as the protestors had suspectbeen delivered and other inways that built
ed, for sale. The investment
ventories have gradually been
loyalty with both banking arm of J.P. Morgan
depleted. The broad base of
Chase is now and has been for
customer and public support
employees and
some time orchestrating a sale
these actions have generated
customers.
process for the Market Basket
suggests the only way to reboard of directors that involves
store the business, its value
more than one bidder, and which reto the owners, and the jobs at stake is
mains open.
to regain the respect and support of the
Second, the protesting employees,
workforce.
now joined by thousands of customThere may be a way forward that
ers and community supporters, learned
resolves these difficulties and returns
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
PERSPECTIVES ON WORK / 2014
11
Market Basket’s Grand Bargain
and commitment is essential to their fiemployees. With calls for unity ringing
nancial interests.
throughout the employee group, it reHere are steps that would meet these
mains to be seen how or whether the late
core interests.
amendment to the board’s message will
achieve its desired result of returning to
1.Employees announce they will go to
the status quo. That seems unlikely.
work immediately rebuilding stocks
Instead, in the wake of these board
and urge customers to return as soon
actions and continuing protests, Market
as the stores are adequately stocked
Basket owners and employees remain in
and staffed.
a downward spiral that, if not reversed
2. Arthur T. Demoulas and the managers
quickly, can only end in substantial rewho were fired for protesting should
duction in the value, if not total liquidabe rehired by the board of directors,
tion, of the owners’ assets and loss of
perhaps on a contract or consulting
many, if not all, of the employees’ jobs.
basis, to focus on coaching the busiChanging course requires a near term
ness back to normality as a sale prosolution—a cease fire of sorts—that
cess proceeds.
brings customers back, and includes a
3.The sale process should proceed in
credible and clear process for addressing
two stages and be led exclusively
the core interests of the owners and emby the independent members of the
ployees and sustaining the business for
Market Basket board of directors.
the long run.
In a first stage, lasting no more than
A suggested path for doing so is outthree months, the board should agree
lined below, but first, let’s identify the
to negotiate exclusively with Arthur
short and longer term interests of the
T. Demoulas. If, after that period of
parties that any plan must address.
time, a sale is not agreed to, the board
Employees want Arthur T. back in
can, at its own risk, return to the gencharge because he has led
eral market of bidders.
the company in ways that
built loyalty with both emSome of the largest
4.In order to expedite
ployees and customers.
the process and provide
and most successful
Employees also want
the Arthur S. faction with
ESOP chains in the
the executives who were
a price that compensates
fired to be reinstated.
shareholders in the general
United States are
As is now evident
economic neighborhood
grocery stores.
through their admission of
they anticipated before the
a desire to sell, the Arthur
crisis, the Arthur T. offer
S. faction of the family is apparently
should be established at a price that
seeking higher and more immediate fiindependent auditors judge to be the
nancial returns. They thought they could
value of the company before this colobtain these by gaining control of the
lective action began on, say July 1,
board and hiring new co-CEOs, but this
2014.
approach clearly is not working. The
5. New ownership options that the Arthur
value of their equity has fallen dramatiT. group might consider should include
cally and will continue to fall further if
the following:
they stick with this strategy.
• Sole ownership by Arthur T.
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
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PERSPECTIVES ON WORK / 2014
• 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
tures describing labor and management
employment. Whether Arthur T. and
in the American workplace. Market Basthe other executives return to their
ket employees have asformer positions once the
serted an implicit right
restructured company is
[The Market Basket]
of “ownership” of what
established would be dethey believe to be their
termined by both their
story … breaks down
company. Whether that
preferences and the decimany of the stale
psychological ownersion of the new management. The same is true of
caricatures describing ship can be at least partially realized through
the current co-chief execulabor and management
legal ownership is up
tives.
in the American
to insiders to determine.
4.Customers gain from both
Whatever the result,
workplace.
the short-run steps to reit is important not to
stock the stores and from
deny what is new here:
continuation of the store’s competitive
a
brave
assertion
by thousands of people,
strategy, which emphasizes low prices
with
much
at
risk,
to protect their liveliand high quality customer service.
hoods and to demand leadership they
The Market Basket drama is begincan trust. At the end of the day, that mesning to attract a national audience. It
sage should be responded to affirmatively
is a refreshing and welcome story that
by the current owners of Market Basket.
breaks down many of the stale carica-
Thomas A. Kochan
Thomas Kochan holds the George Maverick Bunker Chair of
Management; he is a professor of work and employment research
and engineering systems and the co-director of the MIT Sloan
Institute for Work and Employment Research at the MIT Sloan
School of Management. His work calls attention to the challenges facing working families in meeting their responsibilities
at work, at home, and in their communities. Through empirical
research, he demonstrates that fundamental changes in the
quality of employee and labor–management relations are necessary in order to address America’s critical problems in industries
ranging from health care to airlines to manufacturing. His coauthored books include Learning from Saturn (Cornell/ILR Press,
2001). His books also include Restoring the American Dream: A
Working Families’ Agenda for America (MIT Press, 2005). He led
the formation of LERA’s Employment Policy Research Network, an
online think tank. He is a former president of the predecessors of
LERA and of the International LERA.
book
notice
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PERSPECTIVES ON WORK / 2014
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