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Market Basket board meetings the stage for family strife

Transcripts of Market Basket board meetings reveal ill will, wide divisions over authority, employee compensation, and where profits should go

The feud between cousins Arthur S. Demoulas and Arthur T. Demoulas has been going on for years.

Joanne Rathe/Globe staff/file 2008

The feud between cousins Arthur S. Demoulas and Arthur T. Demoulas has been going on for years.

Arthur T. Demoulas was getting tired of having people, especially his cousin, question his authority.

The setting was a November 2009 Market Basket board meeting at which Arthur T.’s proposal to give employees up to $40 million in bonuses was being picked apart by Arthur S. Demoulas and his ally on the board.

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Arthur S. wanted to know the amount and timing of the payment, and when it would be submitted for approval to him and other directors of the supermarket chain. “It’s extraordinary. It’s an extra $20 million to $40 million,” he said.

GRAPHIC: A closer look at key conversations

Not one to pass up a challenge from his longtime foe, Arthur T. fired back at his cousin.

“I want to tell you, Arthur, you hired me to run the company,” he said, according to a transcript of the meeting obtained by the Globe. “And my management style is not to come back to this board to request and ask for permission. I’m going to do it.”

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The transcripts, spanning more than a decade, lay bare the enduring ill will among
Demoulas family members and others vying for control of Market Basket.

Since Arthur T. was fired as president of Demoulas Super Markets Inc. in June, the feud between the two men has become a rallying cry for many people, who view it as a struggle to put people over profits; rallies on Arthur T.’s behalf have drawn thousands of employees who say they will work only for him.

Read Market Basket documents

‘I’m really curious how you would normally go about deciding what the fair rent is. You’re clearly on both sides of it.’

Nabil El-Hage, former Market Basket board member 
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But for others, it’s a sad tale of warring relatives whose disdain for each other is so consuming that a once-thriving company is now close to ruin.​

Meeting transcripts show their fight is not so easily distilled to “good” versus “bad” Arthurs. It also reflects issues that stir within every corporation, and resonate around many kitchen tables — employee compensation, food prices, the role of a chief executive, and who should benefit most from corporate profits.

At that 2009 meeting, a comment by Arthur T. foreshadowed the current showdown. “Without [our employees], this place will go down the tubes quicker than you can say hi-ho,” he said.

This summer’s standoff has proved that point. But the path leading to the grocery chain’s paralysis was drawn by a much deeper series of disagreements.

‘$45 million is bull----?’

TIMELINE: Recent events in standoff

Market Basket’s success has contributed to one of its most intractable disputes: whether extra cash from more than $4 billion in annual revenue should be distributed to shareholders or reinvested in stores.

Arthur S. and other board members have repeatedly said family members who own the company should be paid higher dividends. But Arthur T. believes those shareholders — along with employees and customers — would be better served by opening more stores and paying bonuses to workers.

“We certainly believe that [putting] the money in the company is where we’re going to get the best return, especially in today’s environment,” Arthur T. said during an October 2011 meeting.

At that meeting, he outlined a schedule of store construction and expansion projects, including a $45 million loan made to a developer to build a store in Westford — an action he took without prior board approval.

An Arthur S. ally — board member Gerard J. Levins — began bickering over Arthur T. spending money without input from company directors, and asked to see documents in the Westford deal.

“You’re nitpicking like a little lady,” Arthur T. said.

“Don’t get defensive,” Levins responded.

“I’m not defensive at all, Gerry,” Arthur T. said. “Time is precious. We’ve got a business to run. We’ve got bull---- to get over. That’s nothing but bull----.”

An apparently incredulous Levins replied, “Forty-five million is bull----? You’re telling me as a director that $45 million is bull----?”

‘You don’t ask me questions.’

Board meetings were particularly contentious in the years after a court ruling in the late 1990s that found Arthur T.’s father, Telemachus, defrauded Arthur S.’s family out of its shares in the company.

The ruling split the business between the two Demoulas clan factions. Arthur S. served as a board member representing himself and other relatives. In 2001 and 2003, he regularly clashed with other board members and company executives about access to company information.

During a June 2003 session, Arthur S. and then-board chairman William J. Shea disagreed over how the meetings were being conducted.

Read Market Basket documents

“People have been interrupted, and people have felt that they haven’t been able to get what they wanted to say out on the table properly,” Shea said. He singled out Arthur S. as the main source of the discomfort, setting off a tense confrontation.

“You know something, Mr. Shea? I know what this is all about,” Arthur S. said, according to the transcript. “And you know, the funny thing is we all know . . . ”

“What’s it all about?” Shea said.

After more back and forth, Levins accused Shea of talking behind Arthur S.’s back and not having “the guts” to confront him earlier in the meeting. “You’re inconsistent time and time again,” Levins said.

Then Arthur S. jumped back into the fray. “You’re a liar,” he told Shea. “That’s why you’re inconsistent.”

Moments later, as Shea sought to regain control of the meeting, Arthur S. said he was running it like a “third-grade class.”

Shea eventually called a recess to let tempers cool.

Evan Horowitz: The saga of Demoulas’ Market Basket

Conflict only intensified after Arthur T. was hired to be chief executive in February 2008. He and Arthur S. were often at odds over spending decisions, real estate deals, and the profit-sharing plan. At the November 2009 meeting, the board voted on a proposal to make a 20 percent contribution to the plan. All the directors voted in favor, except Arthur S., who abstained.

“You’re not in favor?” Arthur T. asked.

“Arthur, you don’t ask me questions,” Arthur S. replied. “I ask you questions.”

GRAPHIC: A closer look at key conversations

‘Only one boss’

In 2011 and 2012, several directors sought to place limits how much Arthur T. could spend without approval from the board. The effort was led by two newer directors: Keith O. Cowan, a former executive at BellSouth Corp. and Sprint Corp., and Nabil El-Hage, a former Harvard Business School professor who specializes in corporate governance.

In October 2011, El-Hage asked Arthur T. whether he thought he had unlimited spending authority as chief executive.

“I do not know of any restriction that’s out there, and I do not care to have any restriction, quite frankly,” Arthur T. said.

“You’re not Catholic, are you, Arthur?” El-Hage said. “That’s a serious question. You’re Greek, so you practice Greek Orthodox.”

“Right,” Arthur T. replied.

El-Hage zeroed in on his point: “That explains it, because in my religion we believe only the pope is infallible.”

The issue surfaced again during ensuing board meetings. In August 2012, Cowan proposed the board’s audit committee consider setting a spending threshold for Arthur T., noting executives at Sprint and BellSouth were not allowed to unilaterally spend over $75 million.

“There can’t be, in any company of any size, absolute delegation of authority on transactions,” Cowan said. “There just can’t be.’

El-Hage seconded the assertion. “To say that the CEO has unfettered authority to do a $100 million deal . . . is not fulfilling our oversight duty as a board,” he said.

RELATED: Managers ordered to take down protest signs

Arthur T. was having none of it.

“It makes zero sense to me, zero sense to me, knowing what goes into these deals,” he said, launching into an argument that took up several pages of the meeting transcript. He told board members he would keep them informed of real estate deals and other priorities, but that instituting a spending limit would interfere with his ability to do his job.

“I’m running this company in the best interest of this organization,” he told the board. “I’m running this company with the philosophy, very strong philosophy, there’s only one boss on this company. There’s not two. There’s not three. There’s not five. There’s only one boss in this company.”

‘Do you sit in front of the mirror and talk?’

The dispute over spending was not just about power and strategy. Arthur S. also repeatedly accused Arthur T. of conducting real estate transactions from which he and his relatives benefited.

Read Market Basket documents

A retired judge hired by the board to investigate those allegations found no evidence of fraud or improper “self-dealing” by Arthur T. But the boardroom disagreements persisted as Arthur T. used entities owned by his side of family to pursue building new Market Basket stores in Massachusetts and New Hampshire.

During a February 2012 meeting, El-Hage questioned Arthur T. about how he negotiated store rents with a development firm called High Rock. That company — largely funded by Arthur T.’s family and run by his friend David Sweetser — worked with Arthur T. to develop Market Baskets in Bourne and Brockton.

El-Hage wanted to know how Arthur T. could ensure he got the best deal for Market Basket, since higher rent paid by the supermarket chain would mean more money for High Rock.

“Literally, what do you do? Do you sit in front of a mirror and talk?,” El-Hage asked. “I’m really curious how you would normally go about deciding what the fair rent is. You’re clearly on both sides of it.”

GRAPHIC: A closer look at key conversations

Arthur T. responded, “I would handle Mr. Sweetser no differently than we handle any other landlord. You sit and you talk, and you get the lay of the land, and you try to make the best deal you can.”

Later, El-Hage circled back to the matter, asserting the board needed to establish a better way to review real estate projects. But his proposal — that all deals should get approval from Arthur S.’s side or the board’s independent directors — was dismissed as unworkable.

Board member Terence Carleton told El-Hage the plan made sense, until the discord that has split the Demoulases for decades was factored in.

“Everything theoretically here works until we try to put it in a practical application,” Carleton said. “And then it blows up because of the contentiousness of the two families.”

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