One supermarket proved it can provide employees with a livable wage, annual bonuses, and a retirement plan. They can beat Walmart’s prices. They can turn a profit, too. So why was its CEO just forced out?
On July 29, 2014, Chris Faraone writes in Esquire:
Americans have grown to accept that corporations will invariably take advantage of their low wage workers, and executives have done nothing recently to pretend like this isn’t the case. When asked if his multinational beast would fight a federal hike in employee compensation, Walmart U.S. President Bill Simon told reporters in May, “We are not opposed to a minimum wage increase, unless it’s directed exclusively at us.” Compassionate stuff.
It’s a dangerously low bar set by the nation’s largest retailer — don’t expect your bosses to support an acceptable living wage for workers, let alone bonuses or a 401k, or even respect.
That’s why, for those viewing from afar, the story of Market Basket — a Massachusetts company currently in the throes of a corporate overhaul — must seem completely unbelievable.
Here’s the most unusual part: Protesting employees are demanding the return of their beloved CEO, ousted by a board focused solely on the bottom line. After store workers were fired for skipping shifts to rally outside Market Basket headquarters last week, their then-chief executive, Arthur T. Demoulas, said in a statement, “This is not about me. It is about the people who have proven their dedication over many years and should not have lost their jobs because of it.”
Now, after two weeks of letting produce rot and leaving shelves unstocked, the demonstrators and their growing army have won the support of everyone from disaffected shoppers to reporters all across the country.
But why does this matter to those ogling from outside New England?
Market Basket’s formula proves that executives and managers and cashiers can all profit, together. Employees get the benefits of a 15 percent profit sharing plan provided by Market Basket, while the groceries the store sells are less expensive, on average, than Walmart’s. As for the register: Market Basket rang in $4.6 billion in revenue last year, and is the 127th biggest privately owned company in America.
And it proves that none of this matters in the American economy if those at the top aren’t getting more than enough. Executive pay is the only beast America’s brand of the free market is designed to feed in 2014. CEOs made 331 times what an average workermade in 2013, and it’s clear that there will be no exceptions.
The American economy no longer exists to support a thriving middle class, or to help the weakest among us attain a livable wage for an honest day’s work. It is solely in existence to add to the pile of wealth for the unchecked at the top.
That’s why it’s gained traction in, of all places, the parking lots of a supermarket chain all throughout New England. If Arthur T. fails in his attempt to buy the company back, and the cousin who booted him sells out to a conglomerate as expected, there’s a chance this grand experiment will disappear forever. It would become a bellwether for a corporate America that has created a caste for itself, where workers can only expect to be treated fairly until the rug they have made is eventually pulled out from beneath them.
If this is, in fact, the story of the beginning of the end for the American middle class, here’s Part One.
The Backstory
The turmoil engulfing Market Basket did not start as a rallying cry for the dying American middle class. It is, in fact, only the latest theater in a complex multigenerational battle that’s a better fit for HBO than it is for an economics textbook, and it’s been dutifully outlined every step of the way from local blogs to legal publications.
The original Demoulas family grocery opened in Lowell, about thirty miles northwest of Boston, in 1917. After building their business into a small empire, the founding couple, both Greek immigrants, sold the company to their sons, George and Telemachus Demoulas, in 1954. After George passed in 1971, Telemachus took charge, thereafter earning the increasing ire of George’s son, Arthur S. Demoulas.
You can hardly blame the media for its fascination. The costly and perpetual lawsuit and appeals war between Demoulas factions is said to be one of the ugliest civil spats in state history, with the opposing sides now helmed by similarly named arch enemy cousins, Arthur S. and Arthur T. Demoulas, the latter a son of Telemachus. Despite the very public airing of their soiled laundry, Market Basket business boomed. But after the state’s highest court forced Arthur T.’s side to pay more than $200 million to his nemeses in 2000, the decision only led to more infighting among shareholders over the chain’s seventy-one locations.
This June, the majority board allegiance shifted toward Arthur S., who axed his cousin upon assuming control of the company, therefore prompting widespread worker protests and customer boycotts. So remember: Before this was a lightning rod for workers’ rights, it was simply fisticuffs at the family barbecue.
The Characters
It’s important to note that neither co-star in the Market Basket drama is entirely innocent. Though the recently ousted Arthur T. is widely regarded as the hero and his cousin Arthur S. is the perceived antagonist, both have scraped the bottom of the ethical barrel in their dealings with each other. That said, the Batman Vs. Joker narrative rings demonstrably true from the perspective of the vocal majority of employees.
Arthur T. is famous in New England for his personal flair. Stories include him granting months of paid sick leave to cancer-stricken workers. Arthur S.? Notably less generous. In one instance, after Arthur T. replenished nearly $50 million in employee profit shares that bottomed out in 2008, the Arthur S. contingent cried foul.
A comparable dispute came last year when, to his cousin’s consternation, Arthur S. moved to pay out $300 million in dividends to shareholders. Protesting employees fear that losing Arthur T. will lead to liquidation and, then, an erosion of Market Basket’s benevolent company culture. Part of that culture, for example, is ensuring guaranteed annual raises, a high starting salary, vacation time and a profit sharing plan for employees at the supermarket.
And those protestors are probably right. As was just reported this past Friday, Arthur S. has entertained a sale to the private equity behemoth Cerberus, which already owns such major grocery store chains as Shaw’s, Safeway, Star Market, Acme, Jewel-Osco, and Albertsons.
The Climate
Late last month, under mounting pressure from fast food worker advocates, the Massachusetts legislature passed a hike that will raise the Commonwealth’s minimum hourly wage to $11 by 2017. It’s a relative win for service employees, but in the struggle between bees and business coalitions, the public was subjected to repeated baseless claims by everyone from food industry flacks to lawmakers about the crippling potential of providing living wages.
This is even in liberal Massachusetts, so it’s surprising to learn that an enterprise like Market Basket has been so successful without financially strangling its workforce. According to the so-called experts, that kind of equitable math isn’t supposed to add up in America. After all, the leading food retailer nationwide is Walmart, and Walmart encourages its employees to go on food stamps to get by.
The Numbers
As it turns out, the Market Basket formula does work. In a recent study of Massachusetts grocery store chains, the nonprofit Washington DC-based Center for the Study of Services found “DeMoulas Market Basket’s prices averaged about 22 percent lower than the average prices at the Shaw’s stores [they] checked and 10 to 21 percent lower than the prices at the Stop & Shop stores.” Despite paying starting full-timers $12 an hour and having many career employees on the payroll who make six figures, the survey found that Market Basket had, on average, lower prices than all of their competitors — including Walmart.
Despite such presumably tight profit margins, Market Basket pays its roughly 19,000 workers yearly bonuses that often equal up to several months worth of salary, plus invests the equivalent of 15 percent of every paycheck into a retirement plan. At the same time, the company is impressively profitable. Shareholders have pocketed in excess of $1 billion since 2000, while the business is currently the 127th biggest privately owned American company according to Forbes. In 2013, Market Basket reportedly rang in $4.6 billion in revenue.
The Prospects
The worker and supporter rally outside the Market Basket headquarters in Tewksbury last Friday was the largest yet. Some waved makeshift company flags made out of plastic shopping bags. An ocean of homemade and custom-printed T-shirts reflected an unflinching dedication to Arthur T. Drum circles and brass players stoked the crowd; at one point a propeller plane flew over the parking lot with the horde’s top demand spelled out in tow: “ARTIE T SAVE MARKET BASKET BUY THEM OUT.”
Inside, store shelves across the region are reportedly less than twenty-five percent stocked, while an assistant manager at one location told the Boston Globe his supermarket lost about $1.1 million in sales over this past week of demonstrations. As a result of lost revenue and news of rotting trailers full of food abandoned in the upheaval, a minority of reflexive conservative sillies have broken from the chorus of economists who suddenly have kind things to say about profit-sharing. But while they claim that Market Basket customers who shop elsewhere for too long might trade allegiances forever, the emerging cynics fail to recognize how deeply personal this whole ordeal is to those involved —employees and patrons alike.
They’re not morons. Every one of them seems to understand that if Arthur S. unloads the supermarket to private equity, Market Basket as they know it will cease to exist.
Meanwhile, the controlling board members remain stuck in a rote corporate mindset. They hired JP Morgan Chase & Co. to advise them in regards to buyout offers, including one by Arthur T., of which there are rumored to be several in the $2.8 billion to $3.3 billion range. Last week, while thousands of workers were picketing in Tewksbury, the board met at the white shoe Boston law firm Ropes & Gray. Proving they’ve paid no attention whatsoever to the grievances or facts afoot, the Arthur S. side issued a statement to the press criticizing “the negative behavior of certain current and former associates,” and claiming, “It is now clear that it is in the interests of all members of the Market Basket community for normal business operations to resume immediately.”
If only it were that simple.
Arthur T. Demoulas, the ousted CEO and co-majority owner, seeks to buy the Market Basket back while his cousin, who booted him, seeks to sell out to a conglomerate. In all this the workers, because they are not the OWNERS have no say in the matter. Without ownership participation workers are essentially just human resources and a cost factor as with all other non-human capital assets. Thus, without ownership and full voting rights, workers, no matter how “fairly” they are believed to be treated, are always subject to “the rug being pulled out from under them.”
As tectonic shifts in the technologies of production have and will continue to destroy jobs and devalue the worth of labor, this is and will continue to be the cause of the end of the American middle class, and further the depression of poverty and dependency on taxpayer-supported government welfare, in all it guises.
Meanwhile, the controlling board members remain stuck in a rote corporate mindset:: sell to the highest bidder. There is no chance that JP Morgan Chase & Co. will advise them in regards to a self-liquidating employee buyout offer, which would significantly the workers over the long term. Such a 100 percent buyout could be structured as an “Empowered Employee Stock Ownership Plan (ESOP)” using a capital credit loan repayable with pre-tax earnings generated by the company’s future revenue, without the requirement of employee contributions, “past savings or equities, or a diminish wage and benefit package.
Such a 100 percent leveraged buyout would adhere to the operating principals of successful businesses, but instead of benefiting a few already wealthy owners, it would benefit the 19,000 employees of the company.
Most businesses, particularly national and multi-national businesses operate as state statute-granted corporations whose essential job is to maximize profits and deliver the highest return possible to its owners, or otherwise fail in an increasingly competative business universe. The key operative is OWNERS and in the case of Market Basket the Demoulas family owns it.
Corporations are an assemblage of both human laborers and non-human capital assets––two independent factors of production. The people factor are labor workers, including the board members, CEOs, management, and workers, who contribute manual, intellectual, creative and entrepreneurial work. Capital assets include land; structures; infrastructure; tools; machines; computer processing; certain intangibles that have the characteristics of property, such as patents and trade or firm names; and the like owned by the individuals who are the registered owners of the corporation. Thus, fundamentally, economic value is created through human and non-human contributions.
The role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. They strive to minimize marginal cost, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price, or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role. Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital asset input has been rapidly changing at an exponential rate of increase for over 235 years. Such tectonic shifts in the technologies of production have and will continue to destroy jobs and devalue the worth of labor.
This reality is now impacting the entire American and global economies as the population majorities are limited systemitically to earning an income SOLELY through a JOB. And when there are no jobs, populations become dependent on coerced tax extraction and promisary national debt to redistribute wealth and provide welfare programs for people who are jobless and propertyless.
Universally, every person desires to earn enough to raise a family, build a modest savings, own a home, and secure their retirement. But because the majority of people have been blinded not to see any other means than a JOB to realize those desires, working people will continue to be limited by earning income solely through their labor worker wages, and they will be left behind by the continued gravitation of economic bounty toward the top 1 percent wealthy ownership class of the people that the system is rigged to benefit. Working people and the middle class will continue to stagnate, resulting in a stagnated consumer economy. More troubling is that this continued stagnation will further dim the economic hopes of America’s youth, no matter what their education level. The result will have profound long-term consequences for the nation’s economic health and further limit equal earning opportunity and spread income inequality. As the need for labor decreases and the power and leverage of productive capital increases, the gap between labor workers and capital owners will increase, which will result in turmoil and upheaval, if not revolution.
This reality is causing more people to question the future of the American corporation––what its purpose is, how it should be run, and whom it should be engineered to benefit. As numerous writers have suggested, the argument that maximizing profit and shareholder value is only one way of defining corporate success. Nevertheless it will remain the predominant objective of business in an increasingly competitive global environment.
Still, there is much that can be done to improve the relationship between shareholders and all of the other parties that help account for the success of a company. But the first essential step is to BROADEN OWNERSHIP of companies to include ALL employees and to extend ownership opportunities to customers as well. This can be accomplished through the use of creative financial mechanisms that do no require “past savings” or a denial of consumption in order to purchase ownership shares in growth companies. Such mechanisms would use insured, interest-free, low service cost capital credit loans repayable out of FUTURE earnings of the investment in technological innovation.
We also need to eliminate all tax loopholes and subsidies, encourage corporations to pay out all their profits as taxable personal incomes to avoid paying corporate income taxes and to finance their growth by issuing new full dividend payout shares for broad-based citizen ownership, and eliminate the payroll tax on workers and their employers.
But also a well-run company needs to be managed in a way that benefits not just the investors who own its stock, but a wide range of “stakeholder” constituents––employees, customers, suppliers, and creditors as well as the broader community–– who can now become share owners as well. In such a corporate structure the company’s employees and customers can gain far greater prosperity and contribute to and sustain a company’s success.
At the Center for Economic and Social Justice (www.cesj.org) we advocate Justice-Based Management (JBM) as a leadership philosophy and management system that applies universal principles of economic and social justice within business organizations. The ultimate purpose of JBM is to create and sustain ownership cultures that enhance the dignity and development of every member of the company, and to economically empower each person as an owner and worker.
JBM promotes a company’s long-term profitability within the global marketplace by enabling all worker-owners to serve and provide higher value to the customer. JBM connects every worker’s self-interest to the bottom-line and long-term success of the company, without adding pass-through costs to customers.
The JBM process builds upon a written articulation of the philosophy and principles of the company’s leader (typically the CEO or chairman of the board) and leadership core group, in terms of universal principles and core values of the company. JBM proceeds in stages to build a consensus upon these fundamental shared values and vision of the company within each work area of the company.
These articulated values provide the foundation for enhancing the productiveness of workers in tangent with the significant productiveness of the technological factor and company profitability, and include such structures as employee-monitored economic incentive programs, participation and governance structures, two-way communications and accountability systems, conflict management systems and future planning and renewal programs.
One of the main components of JBM is the “empowerment ESOP.” While the Employee Stock Ownership Plan (ESOP) was originally invented as a means for providing working people with access to capital credit to become owners of corporate equity, most ESOPs are set up as just another employee benefit plan or tax gimmick, or as an employee share accumulation plan (“ESAP”). Most ESOPs today are not designed to treat worker-owners as first-class shareholders. The “empowerment ESOP,” on the other hand, is designed to encourage workers to assume the responsibilities and risks, as well as the full rights, rewards and powers, of co-ownership.
Furthermore, all academic and government studies to date have concluded that ESOPs alone are not enough to affect individual and corporate performance. Within a JBM system, in combination with a regular gainsharing program tied to bottom-line profits, and structured systems of participatory management, the empowerment ESOP stimulates everyone in the company to think and act like entrepreneurs and owners.
Justice-Based Management offers an ethical framework for succeeding in business. JBM balances moral values (treating people with fairness and dignity) with material value (increasing a company’s productiveness and profits while enriching all members of a productive enterprise). JBM’s three basic operating principles are:
- Build the organization on shared ethical values—starting with respect for the dignity and worth of each person (employee, customer and supplier)—that promote the development and empowerment of every member of the group.
- Succeed in the marketplace by delivering maximum value (higher quality at lower prices) to the customer.
- Reward people commensurate with the value they contribute to the company—as individuals and as a team.
Justice-Based Management is guided by the concept of social justice, as articulated by the late social philosopher William Ferree, S.M. Social justice involves the structuring of social organizations or institutions (including business corporations) to promote and develop the full potential of every member.
JBM also embeds within an ownership culture the three principles of economic justice defined by the late lawyer-binary economist Louis Kelso and philosopher Mortimer Adler: (1) “participative justice,” or the right to the means and opportunity to participate in the economic process as an owner as well as a worker; (2) “distributive justice,” or the right to the full, market-determined stream of income from one’s labor and capital contributions; and (3) “social justice,” or the right and responsibility of each person to work in an organized way with others to correct the “social order” or institution when the principles of participative or distributive justice are being violated or blocked.
Within JBM the principles of social and economic justice provide a logical framework for defining “fairness” and structuring the diffusion of power within the corporation.
