Unrest at a family-owned Massachusetts-based grocery chain has implications for the broader debate over shareholder versus stakeholder capitalism
At its inception, the dispute within the DeMoulas family over the future of their chain of 71 Market Basket supermarkets looked like just one more squabble in a privately held company. As it has unfolded, however, it has become a proxy in the debate over the responsibility of businesses to customers and employees as well as shareholders.
The markets date back to 1916 when two Greek immigrant Demoulas (later spelled DeMoulas) brothers opened a market specializing in fresh lamb. It passed to two of their children, George and Mike, who transformed it into a 15 store grocery store chain. The death of George is where the discord began. In 1990, George’s heirs filed a lawsuit claiming that Mike’s family had defrauded them out of much of the enterprise. They prevailed in 1994 and were awarded 51% of the stock in the company. Tensions have flared on and off ever since.
Market Basket roared into the news recently when CEO Arthur T. DeMoulas was ousted by his cousin, Arthur S. DeMoulas in late June. Boardroom fights are not unusual but this one quickly made news because workers came to the defense of Arthur T., as he is popularly known.
A report on CNN summed up the workers’ sentiment: “’He is a man of great integrity,’ said Joe Schmidt, who until recently was a store operations supervisor. ‘He is a man that puts employees and people first, and with that comes a successful business model.’” More than 100,000 customers signed a petition supporting the reinstatement of Arthur T as CEO. Workers abandoned their posts and asked customers to boycott the chain. Managers threatened to resign. Several long-term employees were fired for their actions.
Ron Lambert, a store director with 40 years tenure with the company, told local public radio station WBUR that the
employees are not striking. “We don’t want more money. We don’t want any more benefits. We don’t want any better conditions.” Lambert said, “We want our leader back.” Market Basket is known not only for having lower prices than its competitors but also for paying a living wage, offering benefits, and having a profit-sharing plan for employees.
To date, the board has stood firm. Arthur T. has offered to buy the company but has not received a response.
Thought Leaders Weigh In
Forbes’ columnist Steve Denning predicted that 2014 would be the year that thought leaders would coalesce around an idea other than shareholder value focus as the purpose for corporate existence. He quotes former GE CEO Jack Welch in calling managing a company to maximize shareholder value as “the dumbest idea in the world.” Denning also calls the stakeholder view a “discredited idea” and offers Roger Martin’s customer capitalism as the correct alternative.
I agree with Denning that, ultimately, customers determine the success or failure of a company. However, as the Market Basket dispute makes clear, being aware and respectful of the needs of employees and other stakeholders ultimately can serve customers as well as shareholders. Boycotting customers are loyal to Market Basket employees as much as they are to the chain’s famous low prices.
Until now, the debate over shareholder capitalism versus stakeholder capitalism (or customer capitalism, conscious capitalism, or any of the other variants that dispute the supremacy of the pursuit of shareholder returns) has taken place among academics or through the actions of individual companies such as Costco or Patagonia (and many Center member companies such as United Stationers, Henry Schein, Cascade Engineering, and others) that have chosen to march to their own beat. (Leon Neyfekh provides an excellent overview of the debate in The Boston Globe – the shareholder-above-all emphasis is fairly new).
The events at Market Basket have taken that polite discussion into the streets. Much like the confrontations at Lexington and Concord that signaled the beginning of the American Revolution, the actions of Arthur T’s supporters may ignite a broader fight with the potential to catalyze long lasting changes.
Thomas Kochan of MIT’s Sloan School of Management says that the “broad-based collective action is unprecedented in modern U.S. labor history.” He cites three lessons for corporate America: 1) workers at all levels are frustrated with “short-term, self-interested owners and corporate executives”; 2) America’s labor laws are out of date because Market Basket’s supervisory and managerial employees are completely unprotected from retaliation from owners; and 3) business schools need to “teach the next generation of managers how to lead in ways that better balance and integrate the interests of all stakeholders.”
Nancy Koehn of Harvard Business School told public radio station WGBH, “I honestly think that Shakespeare, in putting together King Lear, had nothing on the Demoulas family.” She takes away lessons for any CEO from the employee loyalty to Arthur T: 1) Be visible on the front lines. “Showing up once a year for the company holiday party doesn’t count”; 2) Communicate well and often – face-to-face; 3) Single out the efforts of individuals; 4) Offer good wages and benefits to “send the message to employees that their labor is valued”; and 5) Give people opportunities to advance. Koehn noted that many of the protesting employees, including several who were fired, had spent decades with the company. Every CEO should ask himself or herself if employees would risk a career to come to their defense.
Zeynep Ton of MIT, known for her advocacy for “good jobs,” visited stores to experience the situation firsthand. She called the support that employees are giving their ousted CEO “priceless” in a post for Harvard Business Review. She noted that the support is rooted in belief in the vision and direction for the company as much as it is in wages and benefits. She said that they are fighting for “their values, their culture.” “Their,” I must say, is the operative word; the employees are expressing their ownership in the Market Basket brand and customer experience.
We can’t yet say where the Market Basket saga will end up. For now, store shelves are empty and the company is coming closer to implosion. Employees are hanging tough as is the board. It is a dangerous game of chicken. What we at the Center for Higher Ambition Leadership are happy to see unfolding is more vigorous engagement on how to define corporate success. This fight is about trust, commitment, and accountability. Market Basket’s employees and customers are demonstrating that this is not an academic debate; there are passion and real, significant consequences for how – and why – companies do what they do.