The Curious Case of Market Basket

[thriftyandboringinohio]

Re: The Curious Case of Market Basket

And once the takeover payout clauses are in place in the employment contracts isn't that when management starts to maneuver to make exactly that happen...no matter what is in the shareholder's best interests?

[Seen it too many times, and am of the personal opinion that any Board compensation committee that allows such a thing should be summarily turfed. Immediately]

I never looked at it that way, GRG55. I suppose it could happen easily enough
It did not happen at the firm I worked for.

[Thailandnotes]

Re: The Curious Case of Market Basket

Who is a company? If we speak of the men and women of Boeing, say, or Wal-Mart or Market Basket, a supermarket chain in New England, where this question is being posed most emphatically of late, are we referring to the company’s employees? Its founders? Its founders’ grandchildren, even if they play no role in the company’s endeavors? Its shareholders, even if they hold the company’s stock just for a few months or, in the case of high-frequency trading, a fraction of a second?

http://www.washingtonpost.com/opinio...y.html?hpid=z3

If this is a question of control, the answer is clearly the shareholders or, at privately held companies, the owners. Over the past 40 years, however, as the idea has taken hold that companies are supposed to be run solely for the benefit of shareholders, even if it comes at the expense of the company’s workers and their communities, this control has hollowed out the U.S. economy.

That’s why the eruption at Market Basket over the past few weeks poses such important questions. At the same time, the Market Basket uprising is sui generis: The company’s workers (none of them unionized), managers and consumers have all but shut the chain down in an attempt to persuade the owners to rescind their firing of Market Basket’s president.

Workers and shoppers demonstrating — 6,000 of them at one rally — to bring back a chief executive? What country are we talking about? And what manner of chief executive?

The executive in question, Arthur T. Demoulas, won the allegiance of both his employees and shoppers by delivering the kind of goods — good food, good pay, low prices — that most CEOs feel compelled to subordinate to the gods of quarterly reports and shareholder value. At Market Basket, by contrast, clerks start at $12 an hour, experienced cash*iers can make more than $40,000 a year and even part-timers are enrolled in profit-sharing plans, and, yet, the goods on the shelves go for less than they would at other markets. The key to this apparent riddle of good wages and low prices is low turnover: While revolving-door employment is standard in the retail sector, Market Basket’s workers tend to stay put, developing skills, expertise and relationships that eliminate the myriad inefficiencies endemic to employers who command no loyalty or enthusiasm from their workers.

Demoulas and his extended family own Market Basket, but that family has long been divided into two warring camps — one headed by Arthur T., the other headed by his cousin, Arthur S. Demoulas. The Arthur S. faction had long complained that Arthur T. was reducing the family’s take with his generosity to workers — directing $46 million of company funds to shore up the profit-sharing plan, for instance, in the wake of the 2008 financial crash. The Boston Globe has reported that the family made $500 million during the past decade, but that apparently wasn’t enough for the Arthur S. group. Recently, one relative shifted her allegiance from T. to S., giving the S. forces 50.5 percent of the company’s shares — enough to direct the board to dump T. and hire new co-CEOs.

Eight senior managers organized an employee protest; they were promptly fired, too. At that point, most of the chain’s 25,000 employees at its 71 stores joined the protest, their ranks swelled by thousands of the company’s shoppers. Confronted with increasingly bare shelves and steadily fewer patrons, the directors have announced they’re entertaining bids for the chain — one of which has come in from Arthur T. How this story will be resolved is anybody’s guess, though the Arthur S. forces can’t long continue to run a chain that sells fewer and fewer products to a diminishing number of shoppers.

So who is Market Basket? The chain appears to have been that rarest of companies in contemporary American capitalism: a community of sorts, in which management has respected and rewarded its workers and consumers no less than its owners. If the Arthur S. wing sells its stake to the Arthur T. side of the family, this community might be preserved. But is there any way to turn the vast majority of U.S. companies into this kind of community, too? The one major nation in which employer-employee community is standardized is Germany, where seats on corporate boards are split between worker and management representatives and where managers are required to work out issues with their employees.

Like Market Basket under Arthur T., Germany is thriving under stakeholder capitalism. The one good answer to the question of who is Market Basket — or any company — is all of us.

[thriftyandboringinohio]

Re: The Curious Case of Market Basket

Who is a company? ...If this is a question of control, the answer is clearly the shareholders or, at privately held companies, the owners...

Thanks for that article, TN.
I think the bit I pulled out as a quote has to be the answer. A company is a business activity that the owners control completely.
That's what I thought about the two I owned. They were ours to do with as we pleased.

That's why we need an anti-trust enforced market full of comparable competing firms, and a robust and generous public safety net.

It's yin and yang in balance. The strong property ownership rights that give capitalists and business owners self control and wide latitude depend on liberal social policies that keep the mobs from picking up torches and pitchforks in desperation. The economic activity that pays for the generous social policies need the entrepreneurs and capitalists to keep productivity high to pay for the benefits, and the owners need to be allowed to run their businesses as they see fit, within some boundaries.

When an economy gets into a well balanced sweet spot like this, all parties accept the associated restrictions as a livable compromise in a real word. When a good company goes bad, the employees need to just accept that they have to move along and try to find another good place to work, and be grateful they had a good thing going for a while. And when regulators shut down an M&A move as anti-competitive, or force the owners to purchase and install some pollution control equipment, the owners and investors have to just accept that or find somewhere else to put their money to work. When bad owners are working themselves out of business by treating the other stakeholders poorly (employees, suppliers, customers, lenders, investors...) those stakeholders can then walk away easily to a better situation somewhere else.

[pescamaaan]

Re: The Curious Case of Market Basket

Perhaps Market Basket should be considered too big to fail given its loyal following, low prices, wide product variety and importance to New England families.

Our policy makers can regularly conduct super market "stress tests" to determine whether a supermarket is vulnerable to exogenous shocks such as dueling cousins, rotten produce or supply chain interruptions

[Chomsky]

Re: The Curious Case of Market Basket

NYT onto this story now.

Grocery Chain Reels as Employees and Customers Rally for an Ousted President

By KATHARINE Q. SEELYE and MICHAEL J. de la MERCED

AUG. 5, 2014

Photo

Workers and customers of the Market Basket grocery chain rallied on Tuesday in Tewksbury, Mass., for restoring Arthur T. Demoulas as the company’s president. Credit Katherine Taylor for The New York Times

TEWKSBURY, Mass. — With a crippling job action enveloping the New England supermarket chain Market Basket for a third week, the company’s board is conducting round-the-clock negotiations with its former president — and others — in search of a deal that will quell the turmoil.

But the bid by the former chief, Arthur T. Demoulas, to buy the company is mired in uncertainty, according to people close to the negotiations. And the board is weighing nearly a dozen offers, including one that is higher than Mr. Demoulas’s, these people said. The sale could be worth more than $3.5 billion.

While the board bargains with bidders behind closed doors, employees continue to stage public rallies to demand that “Artie T.,” as he is known, be brought back to run the company. He was deposed as president in June in the latest chapter of a decades-long feud with his cousin, Arthur S. Demoulas, who now controls Market Basket, one of New England’s most successful retail chains.

Arthur T. Demoulas’s ouster prompted thousands of employees to take to the streets and demand his reinstatement. Customers have been swept up in the action, too, and are boycotting the chain, which owns 71 stores in Maine, Massachusetts and New Hampshire.

Photo

Shelves were nearly empty in the chain’s North Andover, Mass., store. Credit Katherine Taylor for The New York Times

Market Basket is said to be losing millions of dollars a week in sales. The shelves are devoid of fresh produce, meat and dairy products. Supplies of nonperishables are dwindling, too, as if a huge snowstorm had struck.

At the store in North Andover, Mass., where 21 registers are usually open and customers clog the aisles, only one register was open on Monday, and the cashier there had no customers. Mike Dunleavy, the store director in Somerville, Mass., said volume at his store had dropped 90 percent. Vendors, growers, drivers and others in Market Basket’s supply chain have all felt the pinch.

Several top managers have been fired, and the company has threatened to replace some of its other 25,000 full- and part-time workers. For the most part, though, employees are still going to work and being paid, but there is little for them to do without food to sell or customers to serve.

On Tuesday, thousands of workers and customers held their fourth rally, this one at a suburban shopping plaza here in Tewksbury under a scorching sun. Organizers, who had called for 15,000 people, estimated the crowd at 10,000. The police declined to give an estimate.

The protesters were digging in their heels, saying they would continue to demand Arthur T. Demoulas’s reinstatement for as long as it took to bring him back.

“I should have been at work today, but this is where I belong,” said Eric Haviland, 41, an assistant store director in Lee, N.H., who attended the rally. “If they want to replace me, by all means, come get me. We’re not afraid.”

The ousted president, who has kept out of public view since he was deposed, announced late last month that he had made a bid to buy the 50.5 percent of Market Basket that he and his allies in the Demoulas family do not already own.

But the confrontation over his reinstatement has complicated his bid for the company, according to people close to the process, who were not authorized to discuss the matter publicly. Despite owning nearly half the company, they said, Arthur T. Demoulas is the only bidder who needs financing to buy it. (Other suitors include national supermarket chains and big investment firms.) But potential lenders are wary of providing financing to him until the stores are up and running.

He could conceivably call for workers to drop their protest and customers to return to the stores, but he would not be guaranteed of winning the company and could lose his leverage in the process.

Market Basket, which had sales last year of $4.6 billion, has long been attractive to other suitors, and some made bids for it even before the president’s ouster. Surprisingly, people close to the process said, none of the bids has been lowered so far, although many expect that with the stores now hemorrhaging, the value of the company will diminish.

Still, some members of the board believe that selling to Arthur T. Demoulas would be the best option, according to people briefed on the matter. Given his support among store employees, the reasoning goes, he would be in a good position to end the standoff. And, they said, members of his cousin’s faction have expressed interest in selling — even to Arthur T. Demoulas.

But it is not entirely clear whether Arthur T. Demoulas’s coalition within the Demoulas family is fully on board with his bid, one of these people said. Some on his side have shown signs of willingness to sell their holdings instead of buying out their relatives’ stakes.

Other bidders have no such problems. The board is in advanced talks with at least one other bidder whose financing is not in question, these people said. And this party’s current offer is worth more than Arthur T. Demoulas’s, they said.

Some prospective bidders have said that they could squeeze more profits out of the company, since management under Arthur T. Demoulas has shown little inclination to maximize profitability. (He unilaterally rolled out a 4 percent discount on goods within the store late last year, arguing that customers could use the money more than his fellow shareholders.) The board, which has hired an investment bank to oversee the sales process, is to make a recommendation to shareholders, who will then decide on a course of action.

No one has said when the standoff might end or when it must end to avoid the company’s complete collapse.

But analysts said that the longer the stalemate continued, the more precipitously the company’s value would drop and the more difficult it would be to rebuild.

Although turnout at Tuesday’s rally may have been disappointing to protesters in terms of numbers, they were joined by local politicians, and all expressed their resolve.

Gov. Maggie Hassan of New Hampshire has issued supportive statements on behalf of the workers. But Gov. Deval Patrick of Massachusetts has declined to comment, saying that the matter is a private dispute.

http://www.nytimes.com/2014/08/06/us...dent.html?_r=0

[Polish_Silver]

More explaination, please!

And once the takeover payout clauses are in place in the employment contracts isn't that when management starts to maneuver to make exactly that happen...no matter what is in the shareholder's best interests?

[Seen it too many times, and am of the personal opinion that any Board compensation committee that allows such a thing should be summarily turfed. Immediately]

GRG, could you please explain that a bit more?

I have heard so much for and against poison pills, that I don't know what to think.

When I worked at a publicly traded silicon valley company, which had fairly good employee relations and very distinct business strategy, the idea was that the high stock price was the poison pill.
I think the real poison pill was the lack of liquidatable assets. The company had very few physical assets that would be worth much when sold. So, the ratio of asset value to stock price made the company a poor take over target.

[Polish_Silver]

Shades of A & P

A&P was a revolutionary grocery chain. They were almost the first to let customers take goods from the aisle directly, rather than asking the grocer to bring them to the counter. This was such a cost and time savings that it spread through the industry.

But A&P kept innovating. It was run by two brothers who maintained a very long term outlook.

Their methods were rather autocratic, but they showed a high degree of loyalty to good faith employees.

At least one book has been written about the rise and fall of A&P. Not to mention the Updike short story of the same name.

When the brothers died, the chain was liquidated by relatives, who wanted to cash out.

The franchise also suffered considerably at the hands of Target and Wallmart, which were able to cut costs even more than A&P, and who showed considerably less loyalty to employees. The A&P markets of today are just a shadow of that once venerable chain.

[Polish_Silver]

Re: The Curious Case of Market Basket

And once the takeover payout clauses are in place in the employment contracts isn't that when management starts to maneuver to make exactly that happen...no matter what is in the shareholder's best interests?

[Seen it too many times, and am of the personal opinion that any Board compensation committee that allows such a thing should be summarily turfed. Immediately]

Are you saying that the payout clause causes the employees to want the takeover? How Machiavellian!

[Slimprofits]

Re: The Curious Case of Market Basket

There was an article on Bloomberg too.

On Saturday, the supermarket (not a Market Basket) closest to my house was crowded as if we were on the verge of a snowstorm. I overheard a couple of people complaining about the "Market Basket people". Meanwhile, everyone around here is a son/granddaughter/great-grandson of Italian immigrants. So much for the White Nationalist crowd's theories on homogeneity.

[Slimprofits]

Re: The Curious Case of Market Basket

A Family of Workers Rises Up to Save Their CEO

By Tom Moroney Aug 8, 2014 3:49 PM ET