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Thomas A. Kochan | COMMENTARY

How to solve the Market Basket standoff

Workers spelled out their support for Arthur T. Demoulas with produce trays in the Market Basket in Haverhill.

Josh Reynolds for The Boston Globe

Workers spelled out their support for Arthur T. Demoulas with produce trays in the Market Basket in Haverhill.

The amazing Market Basket saga continues.

For the past week and a half, New England has been watching, supporting, and in some cases joining a broad cross-section of Market Basket warehouse and clerical employees, supervisors, and managers protest the firing of their president, Arthur T. Demoulas, and an effort by his cousin Arthur S. Demoulas to generate more short-term returns for the family owners. While the stores remain open, little if any fresh produce or meat products have been delivered and other inventories have gradually depleted. The broad base of customer and public support these actions have generated suggest the only way to restore the business, its value to the owners, and the jobs at stake is to regain the respect and support of the workforce.

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There may be a way forward that resolves these difficulties and returns Market Basket to the marketplace sooner rather than later, but it will require a change in approach by both the company’s board of directors and the protesting employees.

First, let’s identify the short- and longer-term interests of the parties any plan must address.

• Employees want Arthur T. back in charge because he has led the company in ways that built loyalty with both employees and customers.

• Employees also want the executives who were fired to be reinstated.

• As is now evident through their admission of a desire to sell, the Arthur S. faction of the family is apparently seeking higher and more immediate financial returns. They thought they could obtain these through gaining control of the board and hiring new co-CEOs, but this approach clearly is not working. The value of their equity has fallen dramatically and will continue to fall further if they stick with this strategy.

RELATED: Pressure mounts on Market Basket board of directors

Since the only way to restore the value of their shares is to bring customers back to the stores and the only way to do this is to get employees to urge customers to come back, reestablishing employee trust and commitment is essential to their financial interests.

Here are steps that would meet these core interests.

1. Employees announce they will go to work immediately rebuilding stocks and urge customers to return as soon as the stores are adequately stocked and staffed.

2. Arthur T. Demoulas and the managers who were fired for protesting should be rehired by the board of directors, perhaps on a contract or consulting basis, to focus on coaching the business back to normality as a sale process proceeds.

3. The sale process should proceed in two stages and be led exclusively by the independent members of the Market Basket board of directors. In a first stage, lasting no more than three months, the board should agree to negotiate exclusively with Arthur T. Demoulas. If, after that period of time a sale is not agreed to, the board can, at its own risk, return to the general market of bidders.

4. In order to expedite the process and provide the Arthur S. faction with a price that compensates shareholders in the general economic neighborhood they anticipated before the crisis, the Arthur T. offer should be established at a price that independent auditors judge to be the value of the company before this collective action began on, say July 1, 2014.

New ownership options that the Arthur T. group might consider should include:

• Sole ownership by Arthur T.;

• Ownership by Arthur T. supplemented by a partial employee stock ownership plan (ESOP) that shares ownership between the employees and Arthur T. while also providing him with an exit strategy to sell a full ESOP down the road; or

• Ownership by Arthur T. in partnership with a conventional private equity investor group committed to a business strategy and governance process built around high levels of employee commitment, productivity, and customer service.

5. A business partnership council should be established to oversee operations and rebuild employee and customer loyalty throughout the transition, which would include a cross section of employees, managers, board members, the fired executives and Arthur T.

How does this plan meet the short- and long-term criteria for success?

1. It ends the downward spiral and brings customers back as quickly as possible because employees publicly urge them to return to their former buying habits. Indeed, the positive publicity that the return of employees motivated to rebuild the business would likely generate many new customers and so the anticipated surge of business would need to be built into the “reopening” strategy.

2. Agreeing to a buyout of current owners at a price set equal to the value of the firm prior to the protests provides those shareholder looking for greater short-term returns a price well above the current value of the company and the even lower value (possibly zero) that will result if the downward spiral is not stopped and quickly reversed.

3. Employees gain a voice both in the transition via the business council and Arthur T., and the executives who were fired have a short-term role in rebuilding the business and employment. Whether Arthur T. and the other executives return to their former positions once the restructured company is established would be determined by both their preferences and the decision of the new management. The same is true of the current co-chief executives.

4. Customers gain from both the short-run steps to restock the stores and from continuation of the competitive strategy that emphasizes low prices and high quality customer service.

The Market Basket story is beginning to attract a national audience. It is a refreshing and welcome story that breaks down many of the stale caricatures describing labor and management in the American workplace. Market Basket employees have asserted an implicit right of “ownership” of what they believe to be their company. Whether that psychological ownership can be at least partially realized through legal ownership is up to insiders to determine.

Whatever the result, it is important to not deny what is new here, a brave assertion by thousands of people with much at risk to protect their livelihoods and to demand leadership they can trust. At the end of the day, that message should be responded to affirmatively by the current owners of Market Basket.

Thomas A. Kochan is co-director of the Institute of Work and Employment Research at the MIT Sloan School of Management.
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