Who owns Market Basket, really?

August 13

Protesters holding "Arthur T" signs in Andover, Mass., Monday, Aug. 4, 2014. (AP Photo/Elise Amendola)

OPINION |

Millions of New Englanders still cannot buy their groceries this week, at least not at their favorite supermarket.

Market Basket, the no-frills low-price grocer, has been hamstrung by a protest that has now lasted a month. Some estimates put the losses to the company at several million dollars per day. Thousands of employees (they call themselves associates) have combined forces with droves of customers and a loyal group of suppliers in a campaign of corporate disobedience. The protest involves strikes, disruptions to operations, picketing, a consumer boycott and a social media campaign.

At issue is the ousting of beloved CEO Arthur T. Demoulas — the grandson of the company’s founder — and key members of his management team. On the opposing side is Arthur S. Demoulas, Arthur T.’s cousin and the leader of a group of shareholders who hold 50.5 percent of the private company. About six weeks ago, Arthur S. and the board of directors he now controls replaced Arthur T. with co-CEOs. And just this week, those new CEOs reportedly sent letters to roughly 200 absentee employees, stating they would lose their jobs if they don't report back to work by Friday.

The story pits cousin against cousin, employees and customers against shareholders, and some say good against evil. It certainly holds lessons for how family squabbles can escalate into a multi-billion dollar debacle. But it may also force us to rethink what a corporation is and who owns it.

Conventional wisdom holds that shareholders own the corporation. Scholars since the 1960s — most notably, Milton Friedman — have argued that because shareholders are its owners, the goal of any corporation should be to maximize their long-term profit. As a result, owners may not run the daily operations of a venture, but they have the final say in strategic matters. They choose the board, which is charged with acting on their behalf. The board chooses a CEO, still with the duty to maximize shareholder profit. And so the chain continues, through to employees: the outermost link in a web of agents working at the service of the shareholder.

From this perspective, the Market Basket protesters are launching an illegitimate claim on shareholders’ wealth. If shareholders are owners, the argument goes, then they get to hire and fire at will. Whether their decisions are perfectly rational or misguided is irrelevant. Only they have the right to choose the direction of the company. The protesters have breached their role as indirect agents of the shareholders, and they have a legal and ethical responsibility to stand down.

Yet the Market Basket protesters espouse a radically different approach. They do not automatically concede an ownership claim on the company to shareholders. Rather, they present a more malleable idea of ownership, one which distinguishes between owning shares and being a genuine owner. They believe that some shareholders (in this case, Arthur S. and his supporters) are trying to destroy a business model that has benefited millions of people over generations.

In a surprising twist of fate, the protesters may have the Supreme Court on their side. (Just not in the way you might think.) In Citizens United v. FEC and Burwell v. Hobby Lobby, the court ruled that corporations are covered by the First Amendment and that freedom of religion can be extended to corporations. Cornell Law School professor Lynn Stout has asserted that these rulings solidified the notion that a corporation is an independent entity, similar to a person. She said, “Because of the legal ‘personhood’ of corporations, buying a share in a corporation is like making a contract with the legal ‘person’ that is the company, which is different from buying the company.” In short, the notion that a corporation is simply a giant sole-proprietorship where shareholders have total control is legally untenable.

So if shareholders don’t own the company, who does? Market Basket’s employees, customers and suppliers say they do.

They say their years of hard work and loyalty earn them the right to call some of the shots. Among the most important of these decisions is naming the CEO. Walking through the more than 10,000 protesters at a recent rally, the picket signs and T-shirts I saw were unambiguous: "This is our [expletive] company!" "Artie T. is our CEO." They love Market Basket and everything they believe it stands for, and they see themselves as a bulwark against marauding shareholders.

You may have gathered by now that the motivations driving the Market Basket protesters are not those of a typical labor dispute. But Market Basket is not a typical company. The protests are possible because Market Basket managers have forged strong relationships with associates, customers and suppliers over a period of years. Each of these groups is loyal to the same core purpose of providing quality low-cost groceries. It may be a simple message, but these groups are highly committed to it. That is why you hear people like Joe Schmidt, one of the managers who was fired by the new CEOs, make statements like, “What you find in a lot of corporate America companies is ‘What about me?’ and that's not here. It's ‘What about us?’”

It is still anyone’s guess how this dispute will end. What is clear is that these protesters are fighting for more than their CEO. Should they succeed, it could represent a turning point in how we think about corporate ownership. A corporation might just belong to whoever cares about it the most.

Daniel Korschun is an assistant professor at Drexel University, and a fellow of the LeBow Center for Corporate Reputation Management and Center for Corporate Governance. He is writing a case study on the Market Basket crisis.

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