Why B-Schools Should be Teaching Market Basket

Why B-Schools Should be Teaching Market Basket
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New England is home to scores of world class business schools, and Boston is teeming with management theorists who make their living teaching the next generation of business leaders while seeking in their own research to unlock the secrets to what makes businesses and other enterprises successful.

Let's hope that some of these astute minds are paying attention to the Greek tragedy unfolding at Market Basket. Far from being a regional business story, the fate of this feuding family's grocery store empire offers up a compelling case study about the purpose of business, the potential to rethink the sclerotic state of labor-management relations and the obligations of family members and insiders to their employees when considering whether to "sell out" to private equity.

Market Basket, founded in 1917 as DeMoulas Market in Lowell, Massachusetts, is a feel-good Horatio Alger-esque tale of Greek immigrants with strong work ethic and values. The company survived the Depression to hit its stride in the post-war years. In the 1980s the company overcame a decade-long and extremely costly law suit among warring factions of heirs (enlivened by greed, claims of adultery, jury-tampering and wire-tapping) to build a business model around core values that appeared to be working for the shareholders as well as everyone else.

At last count, the Market Basket chain and affiliated businesses has $4 billion in revenue and 25,000 employees across three states including towns in which it is the only grocery store. And as recent events illuminate, it has earned an extremely loyal base of both customers and employees due to a winning model of low prices and high-road employment practices--including good wages ($12/hour vs. $8 minimum in Massachusetts) and employee engagement.

Yet lurking behind the well-functioning business has been a deeply personal power struggle amongst cousins that rocked the Board room and took a bad turn this year with the firing of the CEO.

The employees love the now ex-CEO, Arthur T. Demoulas. Beloved CEOs are in short supply today, and "ATD," as he is warmly referred to by supporters, is so well-liked by both employees and managers that demands for his return has become the cause célèbre for protesters who show no signs of letting up. What makes this situation unique is that the protests have been joined by top-level managers along with warehouse workers, cashiers, delivery truck drivers and even customers.

The month-long protests have cost the company dearly, but they have the feel of a family protecting their own. In this case, the "family" consists of managers, workers, suppliers and community residents who benefit from the values inherent in the business model now at risk--a strategy that puts "employees first," is customer focused and community-minded. The loyal beneficiaries in turn treat Market Basket like it is their own business.

Just as striking, this is a private company, reportedly debt free. And the investors are a combination of family heirs and insiders--not anonymous shareholders. Directors of Market Basket don't have to contend with public markets demanding faster growth or higher margins or a bigger share of the pie. The decisions here are in the hands of family members who benefit today from the early and sustained efforts of generations who came before them, and who should be stewards of an enterprise with a great future.

This is why this real world story is so instructive for business students. The tensions playing out here are fundamental to any enterprise. What is the business designed for? What is the purpose of Market Basket? The teachable lessons embedded here about the Purpose of the Corporation are equally true for both private and family owned businesses:

First, shareholders have diverse interests; they are not always aligned with each other, with employees, or with the best judgment of the people running companies. Public companies have share-holders who stay with the company for decades as well as share-traders who stick around for only a day. The same array of interests is playing out at Market Basket. Some of the company's shareholders appear to want more of the pie now. Others believe that the formula that has allowed the grocery chain to last since 1917 and to continue to expand (while offering benefits like affordable health care and profit-sharing) should, and can be, sustained.

Second, for both public and private corporations, the public interest and purpose are legitimate concerns. The Corporation is not property; legally, it's not even "owned" by the shareholders. It is an institution granted a corporate charter and its attendant privileges by the state. The public doesn't grant privileges to shareholders so they can pursue personal interests at the expense of workers, customers, suppliers and communities. The Market Basket saga is a cautionary tale against treating the Corporation like a piece of property.

Finally, as we have seen in the events unfolding in Massachusetts and neighboring states, because of its success, Market-Basket-the-Corporation is much, much more than Market Basket's shareholders. The story is not fully told, and as employees begin to sacrifice pay, their commitment may waver. However, the lesson here is that employees, managers and even customers imbue the Corporation with their own ideas of what makes a good decision and a durable enterprise, and in turn, they both contribute to and share in its success.

Central to these shared commitments is the company's purpose. In spite of the legal fiction, Corporations are not "persons", but when mission, values and actions are aligned ---as has been the case at Market Basket-- they can take on human-like characteristics. The forceful protests at Market Basket are a testament to just how powerful it is for a company to truly live by a lofty purpose like honoring employees and customers--and the peril of ignoring what is then unleashed.

The Aspen Business and Society Program recently launched the discussion paper, "Unrealized Potential: Misconceptions about Corporate Purpose and New Opportunities for Business Education" -- a teaching resource on the Purpose of the Corporation.

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