The REAL story behind Market Basket~ The crisis which unfolded this summer involving the Demoulas Market Basket grocery store chain can be viewed as simply a dispute between employer and employees, or “associates” as they preferred to be called. Alternatively, many current accounts are portraying it as a story of a benevolent leader and a greedy corporation. Yet the real roots of the issue are much deeper, much older and all about the complexities involved in a family business and unfortunate events over forty years earlier. A billion dollar empire, built on the deep loyalty of the people, is embroiled in a massive, public dispute because of a simple lack of foresight and a lot of pride—a story worthy of Sophocles. Setting the stage—In 1917, Athanasios and Esfraine Demoulas, newly emigrated from Greece, opened a neighborhood food store in Lowell, MA. In 1954, they sold the business to their sons, George and Telemachus. George and Telemachus worked diligently to build a significant regional presence in the grocery industry. They created an operating entity with 300 voting shares held by each brother and 200 non-voting shares held by each spouse. They bought land, built locations, and leased the buildings back to their company operating the stores. The play begins—June 27, 1971: George dies unexpectedly while vacationing in Greece with his family. Telemachus is the trustee for George’s estate, which now holds George’s 300 voting shares. There’s no provision in the operating agreement for adding another voting member to the operating entity. Telemachus now has 100 percent voting control. He continues to make effective choices to grow the company, adding new locations, services and markets. The real estate entities designed to buy the land and lease the locations to the operating company are now 100 percent owned by Telemachus and his immediate family. The new services, such as pharmacies in the store locations, are also owned by Telemachus and his family. Soon the entities owned by Telemachus and family are larger than the grocery operating entity, and the former simply absorbs the latter, diluting any shares owned by George’s descendants. The action escalates–April 30, 1990: George’s son, Arthur S., files a civil complaint against Telemachus for diverting assets from George’s family’s estate. Telemachus loses a protracted legal battle and is forced to pay $206 million and yield 50.5 percent of the shares in the entire interest to George’s descendants. Then it gets really messy. George’s other son, Evan, dies and 4 percent voting interest passes to his wife, Rafaela. In 2008, she breaks the direct familial loyalty lines and votes in favor of Telemachus’ son, Arthur T., as the new president. Arthur T. makes a number of dramatic moves over the next 5 years, including investing the entire $46 million profit-sharing plan into Fannie Mae and Freddie Mac preferred shares, which are wiped out in 2009. Arthur T. loses a court case and must pay back the $46 million. He also provides generous pay and benefits for employees, including pay for cashiers averaging over $40K annually and bonuses of up to 8 weeks of pay per year. These generous benefits come at the expense of shareholder profits. Despite being lauded by employees, in June of 2013, Rafaela switches allegiances and votes to support Arthur S. The climactic scene—June 23, 2014: Arthur T. is fired by the board, which is now under the control of Arthur S. Employees protest, stores are shut-down and the media descends. Arthur T. is portrayed as a benevolent leader of the people, opposed by a greedy corporation. After months of rancorous, and very public, debate, Arthur T. cobbles together an investment group to buy out the opposing family faction for $1.6 billion, including $1.3 billion of debt. The curtain falls as the audience can only wonder about how the company will fare going forward unburdened by old rivalries, but laden with new debts.
Posted on: Wed, 12 Nov 2014 21:36:19 +0000
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