Market Basket: CEO Phenix Rises Again

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Phenix

“It is a person’s moral obligation and social responsibility to protect a culture which provides an honorable and dignified place at which to work.” – Arthur T. Demoulas August 28, 2014

Market Basket: Beginnings

In 1917, Athanasios (“Arthur”) and Efronsini Demoulas launched a small grocery store in Lowell, Massachusetts that specialized in lamb, a delicacy in their homeland of Greece. While the store barely survived the Great Depression, it ultimately would transform into a regional grocery retailer with 71 stores, $4.3B in revenues and over 25,000 employees. Little did Arthur or Efronsini realize, but the business would tear their family apart in a family feud that would span decades.

Market Basket: The Next Generation

In 1954, Arthur and Efronsini’s sons Telemachus (“Mike”) and George Demoulas purchased the store for $15,000 ($130,000 in 2014 dollars) from their parents and within 15 years, the duo had expanded to 15 supermarkets. In 1971, George died suddenly from a heart attack while on vacation in Greece. While the brothers had promised to take care of one another’s family in the event of either of their deaths, Mike systematically bought out George’s family, eventually accumulating as much as 92% of the business. In 1990, George’s heirs filed a lawsuit that claimed Mike had defrauded the family of their rightful shares. A judge agreed and in 1994 awarded George Demoulas’ family with a controlling interest in the company.

Market Basket Cousin’s Feud

For years, tempers flared as the two sides fought for control of the company. Among other contentious issues, Arthur S. Demoulas’ camp (Arthur S. is George’s son) desired to divert much of earnings to shareholders through special dividends, whereas Arthur T. Demoulas’ clan (Arthur T. is Mike’s son) desired to reinvest and take care of workers. In 2008, the balance of power shifted as George’s daughter-in-law votes in favor of Arthur T. Demoulas and he is made president.

Arthur T. Demoulas (“Artie T.”) grows the business from $3B in revenues and 14,000 employees to over $4B and 25,000 employees. He develops a reputation of being a bit like George Bailey in “It’s a Wonderful Life” treating Market Basket’s workers as his extended family. He attends employee weddings and funerals, calls employees who are sick in the hospital and has an amazing memory for names, birthdays, and anniversaries. Stories abound of Artie T. paying for employee’s health expenses and continuing to pay workers who are too sick to work. Under his watch, the company reduces dividends in favor of increased employee benefits and better prices for customers.

On June 23, 2014 Arthur S. Demoulas leads the board in firing his cousin, Artie T., in favor of executives from Radio Shack and Albertson’s. Market Basket team members sense the new guard intend to shift the company to a more traditional corporate structure and they decide their very livelihood is at stake. On July 12, employees at one Market Basket store stuff customer bags with a pamphlet that reads, “We are Market Basket and we need your help.” Three days later executives at Market Basket headquarters demand that Artie T. be reinstated. On July 18, More than 2,000 employees rally at headquarters in protest. Rallies grow in numbers with customers swelling their ranks. Vendors break ties with the company in solidarity. Market Basket management respond by firing executives who are leading the protest, some of whom have been with the company for more than 40 years. Early August, Massachusetts and New Hampshire governors enter the fray, offering to broker a deal between the two sides. On August 27, 2014 a deal is finally reached with Artie T. leading a $1.5B buy-out of his cousin’s family; he returns as Chief Executive two months after being ousted.

Dunbar’s Number

It’s easy to contemplate a smallish business where employees are treated as family, but most companies lose that family feel as hierarchy replaces a sense of community. British anthropologist Robin Dunbar discovered that human beings have a maximum capacity of 150 social relationships. In communities with fewer than 150 people, everyone knows one another. Someone from Sales can easily pop over to ask a question of someone in Engineering because of their personal connection. As communities pass 150 in size, these personal connections begin to break down. Employees notice they no longer know everyone. Social connections slow and informal interactions between functions reduce. Gore Associates, the maker of “Gore Tex,” believe so strongly in “Dunbar’s Number” that they establish an entirely new plant once an existing one reaches 150 people strong.

Lessons from Artie T.

While Market Basket’s 25,000 employees are well above 150, they were spread out over a number of facilities. What’s probably more important is they felt that management and in particular, Artie T., truly had their best interest at heart. One of the most amazing aspects of this story is the fact that Market Basket employees are not unionized. They organized themselves with one simple demand, “Bring back Artie T.”

As you contemplate your own business, would your employees place their livelihood on the line to bring you back? Would you protest for your CEO’s return? Do you see interactions with your team as distractions or of strategic importance? By focusing exclusively on shareholder value maximization, many corporations alienate the very stakeholders who have the power to strengthen their business for the long term. I am convinced that in an increasingly competitive world, companies that create value holistically for all their stakeholders will enjoy a powerful competitive advantage that can even save a beloved CEO who only has a minority stake in the company.

Photo Credit: Tsaag Valren

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5 Responses

  1. Cares Howie
    | Reply

    I believe without a doubt, that Artie T.’s philosophy of business is correct. As I have seen the other side of how some grocery chains work. Artie T. will soon be the majority stock holder.

    • Joel
      | Reply

      Thanks for your comment. The very observation you made of other grocery chains is what scared the Market Basket team members into rising up to bring him back. They knew that if the company was sold to a European chain that they would lose so much of what made Market Basket special. As of the end of last month, Artie T. and his side of the family are majority owners.

  2. Evan
    | Reply

    Our Operational HQ in Nepal is nearing the Dunbar number and I already feel like I don’t know everyone that comes and goes.
    Interesting story for sure, thanks for sharing.

  3. Gerard Savoie
    | Reply

    JOEL. YOU DID A GREAT JOB ON PHENIX C.E.O.RISES AGAIN.
    THANKS, Gerry
    PS: I was a protester every day @ the East St. Market Basket outside of the warehouse & was at all the rallies.
    I walked along side & talked with a lot of warehouse,customers,truck drivers, (my son in law being one of them) , office workers & fired management leaders from different sections of the Market Basket. All of them inspired me & others to fight along side of them & not to give up hope. All you people know who you are. It started with the team leaders that were fired along with the truck drivers & the warehouse selection team, then the part timers. You guy’s did it for all of the rest, you did it to keep things the way they were & the way it should be. Thank you everyone for bringing back Market Basket stronger & better than it ever was, & thank you Artie T. for all your loyalty to each & every employee that works for you . Regards Gerry Savoie

    • Joel
      | Reply

      Gerry, thanks for sharing with us a bit of what it was like in the trenches. I can only imagine the sense of fear that all of you must have felt. Bravo for accomplishing an incredible feat. You will no doubt inspire many people across the globe who face similar issues.

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