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Market Basket CEO faces revolt led by his cousin

Arthur S. Demoulas (right) is trying to oust his cousin, Arthur T. Demoulas, as CEO of the Market Basket grocery chain.

Arthur S. Demoulas (right) is trying to oust his cousin, Arthur T. Demoulas, as CEO of the Market Basket grocery chain.

At a typical corporation, the chief executive is expected to be beholden to the board of directors. But Market Basket grocery titan Arthur T. Demoulas asserted otherwise one day when some board members challenged his authority to spend money as he saw fit.

“There’s only one boss in the company,” Demoulas told directors in August 2012, according to a transcript of the board meeting. “There’s not two. There’s not three. There’s not five. There’s only one boss.”

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For more than two decades, Market Basket has been anything but typical.

Even for the most contentious boardrooms, Demoulas’s statement underscores the strong-willed personalities in his extended family, which built the Market Basket chain into a regional powerhouse despite spending much of their time fighting one another. The latest battle again pits Arthur T. Demoulas against his cousin, Arthur S. Demoulas, who is moving to oust the former after finally gaining control of the board this year.

Minutes of company meetings read like episodes of “The Apprentice,” with directors hurling expletives and insults, and bickering constantly over everything from meeting procedures to multimillion-dollar real estate transactions.

Arthur S. has been no exception.

“You’re a liar,” he said in 2003 to then-board chairman William J. Shea. At the time, they were locked in a heated argument over meeting decorum. “What, are you running this like a third-grade class?” Arthur S. said.

And so it goes for a family whose competitive drive has made it as combative as it is successful.

“When a family business works well, you can’t beat them. They are extraordinarily powerful,” said Ted Clark, executive director of the Northeastern University Center for Family Business. “And when they don’t work well, they are great fun to watch.”

The next clash is scheduled for Thursday, when the board meets to consider firing Arthur T., arguing he is spending money recklessly and refusing to accept the authority of the board.

In his defense, Arthur T. Demoulas, 58, asserts that Market Basket has grown and prospered during his five-year tenure as boss: opening 12 stores and renovating another 11; last year it recorded net income of $217 million on $4 billion in revenue. He said those moving to fire him are trying to manipulate company finances to further enrich themselves.

“It certainly appears to be in my judgment a group of shareholders looking to extract large amounts of cash out of the company,” said Demoulas, who has worked at the company for 40 years. His attorney noted that his opponents have repeatedly pushed for the company to take on debt in order to pay members of the Demoulas family more than $1.5 billion in distributions.

In total, the company, formally known as Demoulas Super Markets Inc., has nine shareholders, all members of the family that founded the company in the 1950s.

Mike Demoulas, shown in the window of his family’s Lowell store, and brother George worked together to build the chain.

The combatants are the offspring of Telemachus “Mike” Demoulas and George Demoulas, now-deceased brothers who both named their sons Arthur after the family patriarch. The brothers turned the business into a juggernaut with dozens of stores, shopping malls, and other holdings. Today, it has 21,000 employees and more than 70 supermarkets.

After George died of a heart attack in 1971, his children accused Mike of stealing their shares in the company. The resulting lawsuit in the early 1990s escalated into a decade-long saga whose bitterness is impossible to overstate. Family members accused one another of drug abuse, extramarital affairs, underhanded legal tactics, and extreme greed. At one point, Arthur T. and Arthur S. got into a fistfight during a court recess.

It also created a spectacular sideshow, when two lawyers for Arthur T.’s side were eventually disbarred and a third suspended for an elaborate scheme to discredit the judge overseeing the trial, whom they had viewed as biased against them.

Ultimately in the late 1990s, George’s side of the family, including Arthur S., won a stunning legal victory that gave them a slight majority ownership. However, Arthur S. was unable to exert control over the board because a member of his side of the family ended up supporting Arthur T. over the years.

But in early June, that relative, Rafaele Evans, switched sides and instead supported candidates backed by Arthur S., giving his side control of the seven-member board.

Evans could not be reached for comment. But her change of heart triggered a rapid chain of events. The board quickly sought to meet June 24, to vote on firing Arthur T. But the members backing Arthur T. didn’t show, preventing a quorum needed for the board to take any action.

That landed the family back in court, where Arthur S. and his allies sought — and received — a court order requiring the board to meet July 18. Their complaint accused Arthur T. of “self-dealing”; that is, entering into business deals with companies controlled by his wife and other relatives.

Arthur T. and his lawyer countered in an interview that those allegations were long ago found to be meritless by an outside arbiter called in several years ago to referee complaints about his management. Indeed, Judge Mel L. Greenberg, a former Massachusetts Appeals Court judge, found no significant breaches of fiduciary duty by Arthur T. in several transactions with the companies owned by his wife and brothers-in-law.

“What they are complaining about, I don’t know,” said Arthur T. “It was fully vetted.”

Arthur S. and other family members could not be reached for comment.

Though the numbers now appear to be against him, Arthur T. shows no sign of giving up without a fight. He said he will make the case that the Market Basket chain remains strong — despite the constant family squabbles — and that it is better off for his leadership.

“I enjoy this business very much, and we’ve done our best to separate board matters from the behind-the-scenes family matters,” he said, adding: “In the event the board decides to take another direction, it would be very unfortunate for this organization. I guess time will tell.”

Casey Ross can be reached at cross@globe.com.
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