Boston's Supermarket Family Feud

Boston's Supermarket Family Feud

 

Market Basket workers may be more worried about their profit-sharing nest eggs than their jobs.

 

 By Holman W. Jenkins, Jr. in the Wall Street Journal

A reader asks why the national press isn't paying more attention to the Market Basket story, where fans are busy saving (or destroying) a beloved local Boston grocery chain with boycotts after the ouster of its longtime leader: "I have never heard of such customer and non-union employee dedication to their CEO."

Yes and no—the sincere loyalty of customers and employees, who have protested the firing of Arthur T. Demoulas, is heartwarming. Even the vanishing wild-card hopes of the Red Sox have taken a back seat to a battle that has transfixed New England.

Not so heartwarming is the bile among Demoulas family members who control the chain. Not so heartwarming is their battle over the profits. Last Saturday the Boston Globe finally noticed that the beloved CEO had engaged in a considerable pattern of non-arm's length transactions with companies owned by his closest relations.

Related-party transactions are always suspect under accounting directives. They're what landed several Enron executives in jail. They are especially suspect in a company where the CEO is at war with family members who own 50.5% of the stock.

Hate is not too strong a word. They've sued each other, ratted each other out for labor-law violations, accused each other of planting listening devices, allegedly tried to blackmail a court employee to swing a legal outcome against each other.

In 1994, after Boston's longest-running civil case, Arthur T.'s father was found guilty of trying to steal the company from the heirs of his late brother and partner, now represented by cousin Arthur S. Demoulas. Arthur T.'s side still views the verdict as a travesty, handing the fruit of their labor to a bunch of layabouts. Ever since, power has been divided nearly down the middle and occasionally shifted from one faction to another, lately at the hands of a single widow who has a history of questioning how her daughter's stake is managed.

Arthur T., his family opponents might say, had every incentive to behave in ways that inveigled employees to his side. He had every incentive to keep costs inside the company and shift profits outside to related parties, where 50.5% wouldn't go to relatives he detested.

Let's take not an easy case but a hard one. He is lionized in the media for using company money to make up $46 million in losses in the employee profit-sharing plan from Fannie Mae and Freddie Mac stock. Maybe this was a good business decision. Maybe it wasn't. But Arthur T.'s act of generosity was half-funded by family members he hates.

Heroic or cynical (the company certainly won't be compensating employees for every stock that declines), the action kicked off a round of boardroom warfare that ultimately led to the chain being placed under two professional managers who apparently take seriously their marching orders to run the company for the benefit of shareholders.

Even this story is not so simple. The employee protests are organized by several of the company's improbably long-serving staff members. The Boston Business Journal cites a supermarket industry expert as saying employees "seem willing to destroy the company under any other option" except restoration of the Arthur T. regime.

Many workers have made it quite clear, perhaps encouraged by Arthur T., that they believe up for grabs is an accumulated $550 million in profit-sharing funds, a plan said to be especially generous to workers with many decades of service, some of whom expect to withdraw well in excess of $1 million.

These workers rationally might care more about their nest eggs than their jobs. (As Danny DeVito said in "The Heist," "Everybody needs money. That's why they call it money.") Yet such considerations haven't stopped pundits almost universally from cramming the story into the class-warfare mold, as peculiar as it sounds to hear our lefty friends lachrymosely praising a non-union company for its workers' dependence on bossly paternalism.

The Vietnam War ended eventually and so will the Market Basket war. That ending may come soon.

The company is likely to be sold either to an outsider—Cerberus, a private-equity firm suitably named for the guard dog of Hades, has been cited as a potential buyer. Or it will be sold to Arthur T., the one who was ousted, in a buyout of rival family members, which by the way would likely quash any inquiry into how he's been running the place.

Any culmination, though, is likely to lead to Market Basket being run more leanly and meanly to pay down debt incurred in buying it. Customers and workers who are bingeing out on sanctimony right now may come to see their own role in a more complicated light. Workers might have found their leverage greater if they had rolled with the change in control from Arthur T. to Arthur S. rather than forcing a crisis that ends with the company being sold and worked to satisfy debt holders.