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| Employees listening to Arthur T. Demoulas (Steven Senne/AP) |
What if you were asked to apply those words to corporate America? Would you believe such a thing could happen within that environment?
Suppose you were made aware that nearly 25,000 employees in three states walked off their jobs overnight this July; closed down the operations of 71 supermarkets as tight as a bug in a rug; and, in doing so, tens of thousands of that chain’s customers supported them in their walkout. Would you believe that?
To top it off, what if you found out that the immediate causal factor that led to this massive walkout is that the CEO of the chain was fired? What? Employees jeopardizing their jobs en masse merely because a rich CEO gets canned?
That makes no sense, because it’s like turning the corporate power structure on its head – an inversion of who is in charge. Who would put themselves at such peril, especially in this fragile economy where finding a job can be like looking for hen’s teeth.
You might even call such an occurrence a fairy tale – not to be given a second thought. But kids believe in fairy tales, don’t they? Perhaps even some adults do, especially those who are determined enough to make their own fairy tale come true.
But that is what happened when Arthur T. Demoulas was fired from his post as the CEO of the Market Basket, a privately-held chain of 71 supermarkets operating in Massachusetts, New Hampshire and Maine.
Arthur T., or Artie, as some called him, is a wealthy guy. He controlled 50.5% of privately-held Market Basket shares, while Arthur S. Demoulas, leader of the opposing family faction controlled the remaining 49.5%.
For decades, there had been an unrelenting, internecine struggle between these two and their respective families that resembled that of the Hatfield vs. McCoy family feud.
Several months ago, one of the shareholders in the Arthur S. group shifted her minority voting interest of 3.5% from Arthur T. to rival Arthur S. Demoulas. Boom! Arthur T. promptly gets fired, and is immediately replaced by a co-CEO team recruited from outside the company.
One of the co-CEO’s is a woman with a food background at Albertsons, while the other is a male from RadioShack. The former has an extensive background in the food and pharmacy business, while the latter has expertise in corporate cost-cutting and turnarounds, but no experience in the food business.
The closely-knit Market Basket team of 25,000 New England employees read the handwriting on the wall in a New York minute:
The firing of Arthur T., followed by the hiring of outside co-CEO’s – one with no expertise in the food business – signaled to them that increased prices and personnel reductions, together with wage and benefit cut-backs would be followed by a suspected corporate restructuring in advance of the sale and merging of the firm into the arms of a competitor.
Their combined intuitive malaise deepened and proved to be correct. Because the company is privately owned, events behind the scenes were not publicly disclosed initially, but word eventually leaked out that other New England food chains were interested in making offers to buy the Market Basket.
Hannaford, part of the Belgian-based Delhaize Group with over 1,100 stores along the Eastern Seaboard, was thought to be the prime contender for a takeover.
Two other major competitors in that retail arena are Stop & Shop and Shaws. Shaws is a subsidiary of Boise, Idaho-based Albertsons, while Stop & Shop is owned by European-based retailer Dutch Ahold.
The locally-owned Market Basket chain of supermarkets has had an enviable history of lower pricing in its competitive sphere, consistently undercutting Stop & Shop, Hannaford, and Shaws, all of which had long ago sold out to offshore European food giants.
Furthermore, the Market Basket, not a slouch with estimated annual sales of $4.5 billion and better than average profit results in an industry known for meager margins, was providing its employees with excellent wages and benefits, including bonuses, profit-sharing, health care, and a nurturing work environment that had been built up over the years by Arthur T.
Workers were happy. Customers were happy. Arthur T. was happy – it was not merely a high-level, I’m-in-control, narcissistic CEO job for him. It was his passion and his dream to forge a link between himself, his employees and, most of all, the customers – the customers, the customers, the customers, always the customers.
That attitude of a servant-driven business rubbed off on everyone: It was a smooth-running operation of 25,000 people at all levels, from the CEO and headquarters executives in Tewksbury, Massachusetts, to the warehouse workers, the managers and associates at all 71 stores, as well as the suppliers and vendors.
Fortified by their determination to have Arthur T. reinstated as CEO and buttressed by overwhelming support and a boycott by the public, they went into action and said ‘no, you can’t do that,’ and they meant it.
Boy, did they mean it.
Taking what was the biggest risk of their careers, a group of vociferous high-level corporate management refused to take direction from the new co-CEO’s, and some of those executives were promptly discharged by the newly-hired chiefs.
Store managers and associates responded with a walkout, leaving 71 store locations without enough staff to keep operations going. The co-CEO’s tried to hire replacement store workers and logistics personnel to keep the pipeline filled, but failed. Few showed up.
Result: A rapidly cresting wave of protest rose into a six-week tsunami of worker opposition and customer support that would wash over the heads of the Arthur S. faction.
When Arthur T. set in motion plans to buy out the 49.5% holdings of the Arthur S. contingent, he found himself in a race with other, well-financed prospective buyers. As the prolonged walkout and negotiations dragged on, they threatened to plunge the chain into bankruptcy.
Most experts – there were many of them quoted in The Boston Globe – did not give much chance for Arthur T. and his team to prevail. Many, even academics, were predicting doom because of the long-standing family feud for control.
In the end, a deal was struck and Arthur T. is now in charge of the business. He obtained the other 49.5% of the company for $1.6 billion with financing in part from an undisclosed private equity firm that invested $550 million.
The remainder of the funding includes loans secured by prime real estate holdings, and Arthur T.’s own personal backing. Details of the exact structure of the financing arrangement have not been disclosed.
$1.6 billion is a lot of moola. However, before this buyout, the Arthur S. faction of the company had drawn $1,000,000,000 in dividends (that’s a billion bucks) over the last ten years, a cash flow which will no longer be available to them, now that they sold their stock and are richer than ever.
Those dividends were a major part of the reason for the family feud: The Arthur S. group wanted an increase in dividends which, in turn, might have required a hike in food prices and/or reductions in worker benefits. When he previously held a slim margin of only 1.0% of voting shares, Arthur T. is thought to have opposed a dividend increase.
Management and employees have now returned to their jobs: Restocking of all 71 stores began last week and should be completed at all locations by the middle or end of the first week in September – an amazing feat.
What makes this saga even more improbable is that not a single employee belongs to a labor union; still, they put their jobs at extreme risk. Imagine: An already wealthy CEO getting rescued by his management team and his associates – all of whom influenced his purchase of the company, thereby enabling his return to the helm – impossible, yet that’s what happened.
Sometimes fairy tales really do come true.
Thanks for checking in and reading. Take care of yourselves out there.
(Click on the image for an enhanced view.)
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