Sunday, September 20, 2015
We Are Market Basket
_We Are Market Basket: The Story of the Unlikely Grassroots Movement That Saved a Beloved Business_ by Daniel Korschun and Grant Welker
NY: AMACOM, 2015
(xiii) On the other side of this conflict - Arthur T.'s side - were employees (all nonunion workers who call themselves associates), customers, suppliers, and a growing contingent of lawmakers. They were fighting for the man who they believed had always fought for them and whose management style had fostered a unique company culture: He championed profit sharing; bonus checks that often paid four figures or more each year; paid days off if a worker needed to tend to a sick loved one; scholarships to help pay for employees to attend college; low prices, high quality, and exceptional service for customers; and flexibility and reliability to suppliers. His supporters wanted more than to save this man's job however. They saw this as a struggle to save a culture and business model that was important for New England. Market Basket was more than a grocery store for these people. It represented an ideal. A "way of life" that should not - and could not - be tampered with.
(xvi) Unpredecented. That is the word so often used to describe the Market Basket protests. Never before had nonunion employees banded together to reinstate a fired CEO. Never before had a protest involved such a broad coalition of employees: from cashiers to store directors to truck drivers to office workers, and all levels of management. Never before had a worker protest spilled over, involving both customers and suppliers, all working in unison to shut down a company this large for this long.
(2) As Chief Executive Officer Arthur T. Demoulas likes to say, it's simply "a person serving another person."
This is Market Basket.
At the time of writing, the chain has seventy-five stores in three states: Massachusetts, New Hampshire, and Maine. More than two million New Englanders shop there each week. It's a $4.5 billion supermarket chain that retains its mom-and-pop feel. Market Basket is a family-owned busniess, and it has been since its inception almost one hundred years ago.
(16) NB: Titus Plomaritis - star running back of the legendary late 1940s Lowell High School football team wrote an autobiography published in 2012: Kerouac connection?
(24) Burt Flickinger, Strategic Resource Group: "Market Basket looks at store staffing and service as an investment, where all their competitors look at store labor as being an expense."
(31) Arthur T. puts service to customers, employees, and suppliers first. He believes that a manager's role is to nurture a culture and design a set of practices that benefits them; if this is done successfully, shareholders will benefit as a consequence. Arthur S., in contrast, takes the view that shareholders should come first; a manager's primary responsibility is to maximize profits for shareholders, which in theory is aligned with the goals of customers, employees, and others. These are fundamentally different ways of thinking that do not coexist well.
(33) Even after joining the board of directors just a year out of high school in 1974, he kept an even keel. Arthur T. was steadied by a true love for the grocery business.
It is unusual for the son of a CEO to work so many nonmanagement jobs. It is even more unusual for a member of the board of directors to do so. This gave Arthur T. an uncommon perspective.
(36) Associates recall leaving his [Telemachus Demoulas'] office trembling after Telemachus chastised them for not thinking through something carefully enough. It was the style of a boss of his generation. Arthur T., on the other hand, is perhaps better suited to today's workplace. He is equally demanding but is also more of a listener. Associates _seek_ his opinion. "He is a magnet," [William] Marsden says....
He once told Marsden, "[Money is] not what drives me. I want to be a good merchant. That's all I want."
(37) At one meeting in 2010, he [Arthur T.] introduced himself to Nabil El-Hage, a new director at the time, by stating his priorities as an executive. Arthur T.'s central contention was that serving customers well would always result in rewards for shareholders but that rewarding shareholders first can sometimes make it difficult to serve customers well. "I want you to know how I think," he said. "The customers come first. The associates of the company come [next]. The communities are now our social responsibility, and then come the shareholders."
(42) It does appear that some company cultures are more effective at driving performance than others. Business scolars find that the cultures that contribute most to performance share three characterisitcs: members agree on objectives, the culture is distinctive compared with those of other organizations, and the culture encourages adaptability in the face of challenges. In other words, the best cultures are clear, unique, and adaptable....
The result is a company culture with four fundamental pillars: service to the community, a feeling of family, empowerment, and originality - that is valuing innovation over imitation.
What makes Market Basket's culture powerful is not only that the pillars are clear, unique, and adaptable but that the pillars work together. The sense of community purpose motivates people to commit to the family, and the culture of empowerment encourages people to be resourceful in helping the Market Basket family. The pillars of the Market Basket culture are at the heart of why the 2014 protest took flight and how it beame successful.
(44) In the early days, corporations had very clear purpose. Their "characters" were generally short-term and focused on a tangible goal or even a single voyage. But gradually, corporations survived beyond single voyages. As time wore on, the purpose became more and more ambiguous, sometimes sidestepping any purpose entirely.
Embedded in the Market Basket culture is the notion that the company exists in order to serve the community....
Arthur T. says that "Market Basket has a moral obligation to the communities we serve."
(51) Bonano [farmer and MA Farm Bureau] explained to Peterson, "We only produce 15 percent of the food in Massachusetts." He told him, "All of us collectively cannot supply enough food for Mass[achusetts], so I don't ever feel like I'm competing with my neighbor." He saw other growers as his allies who had a common objective of supporting local agriculture and building a strong infrastructure. "We don't wnat to lose the truck drivers, the pesticide people. We gotta maintain that infrastructure in Massachusetts," he said.
When Boanano thinks about Market Basket, he doesn't just see a high-volume buyer; he sees a key player in that infrastructure. It has become a sort of aggregator of vendors. "I know everybody that grows mums for Market Basket. I see them at the Christmas parties. Three or four are in my town. You're part of team." He says that team is motivated because they know they are contributing to the welfare of the state. Every zucchini and every mum they sell has meaning. It demonstrates that they are having a tangible impact on the region's economy.
(53 - 54) [Adam Grant's Wharton School university alumni fundraising call center experiment - http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.180.1119&rep=rep1&type=pdf & http://knowledge.wharton.upenn.edu/article/putting-a-face-to-a-name-the-art-of-motivating-employees/] Those who had received the self-interested stories raised less money after the intervention than they had the week before. Meanwhile, those who had read the stories that explained the larger significance of their work almost tripled the funds they raised. The control group remained unchanged, as one would expect. The lesson is clear: reminding people that their work can improve other people's lives can work better than asking employees what's in it for them.
(56) After learning how serious the injury was, Demoulas probed further: "Terry, is that hospital able to handle her injury?" McCarthy thought so, but he was still unsure if she would make it.
Then Demoulas asked a question that forever changed the relationship McCarthy has with the company. He asked, "Do _we_ need to move her?"
McCarthy says of that moment, "I'll take it to my grave." He had always felt part of the Market Basket family, but this made an indelible mark on him. He saw a level of commitment from Arthur T. and his team to his family that he hadn't been aware of before. He felt that he was part of Market Basket's extended family.
McCarthy's story has a happy ending. The hospital was able to handle the injury. His daughter fully recovered. He told the story at a couple of the rallies in the summer of 2014, with his daughter - in tears - by his side. As he finished his story, McCarthy asked the crowd, "[Arther T.] asked me 'Do _we_ need to move her?' I ask you, who's _we_?"
There was a saying on many signs at the rallies and on the picket lines: "Blood makes you related, but loyalty makes you family."
...His sense of loyalty is reciprocal. He requires himself to be as loyal to others as they are to him.
(59-60) Those who know him best say that Arthur T. often speaks in inclusive terms of "we" rather than "I." It is another way that he demonstrates that associates are in it together. Psychologists have a term for this shift from "I" to "we." It's called "social identification," in which a person feels a strong belonging to a group and begins to see others through that lens.
(60) Psychologists realized that the more a person defines himself or herself as belonging to a particular race, the more likely they would be to help others who were deemed to be of the same race while simultaneously discriminating against those who were considered of a different race.
This effect is not limited to race at all. And it is powerful enough to be recreated in an exercise lasting only a couple of minutes.
[Labeling people as over-estimators and under-estimators]
(60-61) The researcher has now succeeded in creating two groups based on something completely trivial. The surprising result is that when research participants are then asked to share money or points with others, "overestimators" almost always give more to fellow overestimators and take from those who they think are underestimators. Underestimators favor fellow underestimators in the same way. If this effect can be detected in the lab in a matter of minutes, imagine how powerful a force identity can be if it is reinforced day after day as it was in many communities that resisted the Brown v. Board of Education ruling.
(62) Consider the words of Arthur DiGeronimo, who was once the CEO of Victory Supermarket. "We were always able to attract good help from other companies," DiGeronimo said. "Name a company and we could get them. Except one. We were never able to get a Market Basket employee to jump ship."
December bonuses based on company performance totaled $44 million in 2013 and then $49 million in 2014. That is more than $1.6 thousand per associate on average.
(65) In the 1980s, Fantini Bakery made some missteps that sent it into bankruptcy for a time. Fantini says that many other chains would have kicked a weak supplier to the curb. Instead, Market Basket worked with Fantini's father, which enabled him to get back on track and grow into the sizable regional player the bakery is today. The support he received from Telemachus, Arthur T., and other managers like Miamis and Lacourse not only saved the business but in Fantini's estimation "save [his] dad's life." These were gestures that Fantini and his father never forgot.
(66) He [Fantini] says Market Basket executives treated him well from the start but that he had to work to gain their trust. To do that, "you have to make sure that you are always putting Market Basket customers' needs first and foremost."
(71) Associates believe that their job is important and that they as individuals have roles in the success of the company.
When academics talk about empowerment, they describe it as "intrinsic task motivation." It is how much a person feels that their individual role fits in with the environment at the company. Empowerment is not so much a personality trait as it is something that resides within the culture of a company. One cannot empower oneself; rather, one can feel empowered because of one's relationship with supervisors. Supervisors have to be willing to give decision-making authority to their subordinates. In essence, empowerment means handing over the reins to employees so that the person closest to the situation, the one who is presumably best informed, makes the decision.
Companies can create an empowered workforce by first hiring people who have the self-esteem to make decisions on their own. But more important, they need to convince these employees that what they do has a real impact on the organization at large and that taking the initiative will be rewarded.
How does a company convince employees of this? Market Basket empowers associates primarily in two ways. First, the company distributes leadership across the company. And second, the company provides constant tutelage.
(72) Academics call what Arthur T. and his management team do "distributed leadership." Distributed leadership challenges the view that needs to be one leader around whom followers revolve. It's been called a "decidedly _un_heroic" form of management. Instead of concentrating decision making around a single person, it is dispersed and shared. In distributed leadership, everyone in the company has a role to play, and everyone can have an impact.
(73) The researchers [from SMU, U of MD, and Seattle U] noticed that the groups with the highest scores on distributed leadership were those in which members felt the greatest sense of purpose, had the most social support (feeling of family) from colleagues, and felt most comfortable making their voice heard. This was all highly consistent with factors that the research team predicted would be related to distributed leadership.
The big surprise came when they looked at the effects of distributed leadership. They asked clients to rate each team according to performance in serving the client. The researchers found a significant correlation between the distributed leadership of teams and a team's ability to serve clients well.
(74) She [Susan Beek] recognizes the chain of command at Market Basket. In fact, Beek is quick to describe her role in self-deprecating terms: "I'm just a worker." Yet she articulates the management culture at Market Basket perfectly: "you know the pecking order. We have that. But instead of bad stuff falling downhill [like at other companies], for us it's good stuff. So it all falls down to us, and in the end our customers receive it. We are expected to work hard, but we do receive benefits for that hard work."
(75) She says "if you ask anything of him [Joe Rockwell, VP of grocery sales and marketing], he always gets back to you with an answer - maybe not the one you wanted but always an answer and a reason for such answer." He and other executives encourage open discussion about ways to improve the store. They are willing to entertain just about anything as long as it is motivated by improving how the company serves customers.
(78) Managers need to explain how correcting the mistake will benefit the customer and the company. When this is done well, correcting a mistake once has a more lasting effect because the associate is now aware of why what they did was ineffective and what a better way looks like.
NB: customer focused purpose drives down into the details
(80) Market Basket's management has no use for people who make decisions based on what works for others.
(82) Moreover, promotions at Market Basket are not based on seniority. Senior managers say they give promotions strictly on merit. While the years an associate has served the company is valued, it is rarely the basis for advancement. The system is a bit like how one advances in some of the martial arts; one gets promoted to the next color belt after demonstrating mastery of the techniques at the current level.
By promoting only from within and strictly based on merit, associates know that the only way to get ahead is to demonstrate their ability to solve problems and seize opportunities.
(94) In contract, Arthur T. saw bonuses and profit sharing as an investment, not an expense. "If that's reckless spending," he said, "I'm guilty."
(114) They [an informal group of eight senior managers] called a meeting at headquarters. They assembled the full corporate office staff in the lunchroom and laid out their plan. If the CEOs fired one manager, everyone would walk. They asked for support and offered anyone who was not in agreement the chance to leave.
Then with everyone still assembled in the lunchroom, they brought down Thornton and Gooch. They gave the CEOs their demands. Thornton and Gooch were to go to the board and request that Arthur T. be returned with full authority. They wouldn't work for anyone else. There was to be no discussion. The group had agreed beforehand on a code word to end the meeting; when the group had finished laying out their demands, Tom Trainor said the code word. Everyone stood up in unison and began to file past a stunned Thornton and Gooch. "They were just standing there with their mouths open," recalls Trainor.
(116) "This isn't work for all of us; this is a family," Tom Gordon said. It was a group that was clearly unnerved and anxious but also determined. "You take down one, you get the twenty-five thousand behind us," Gordon said.
Steve Paulenka added, "We're crazy bunch. if this was a poker game, we just went _all in_."
(123) At Market Basket, [David] Courteau says that everyone is treated equally. It is a climate, he says, that "starts with Arthur T." and the kind of environment where if "you work hard, they notice it."
(132) Some people questioned whether a nonunion workforce could sustain a protest over weeks. But their sense of unity, based on their affiliation with the company, was as powerful as any union membership. "This company never needed, or ever will need, a union," Operations Supervisor Joe Schmidt told public radio station, WBUR. "We're far stronger than that."
(137) What they had not counted on was the loyalty of Market Basket customers. "As soon as we asked people to stop coming in, it pretty much stopped," [Karla] Foster said.
(138) He [James Post] says a lot of people interviewed on the picket line said things like, "you know, I haven't been a big Market Basket customer, but I really love what they are doing, and I want to be a part of that."
(140) Customers pressured other customers to boycott even more than associates did. Associates would encourage people to boycott, but never was there a report of heckling a customer who entered a store. Associates assumed that shoppers had no alternative. "It was a positive protest," she says.
(147) As Steve Paulenka said at one point during the protest, "The customers are the locomotive pulling this whole thing right now. They have shut this company down and they are not coming back until we come back and we are not coming back until our boss comes back."
(150) "One of the things they did well was they made an effort to buy as much locally grown as they could," he [Rich Bonanno, president of the MA Farm Bureau and farmer] said. "So when this happened, it wasn't hurting a California grower who amybe sold to twenty grocers. You're talking about businesses around here, and Market Basket is a big enough player that they're really hurt."
(160) He [State Senator Barry Finegold] says, "It was one fo the most bipartisan issues that I ever got involved with."
(166) This [disgruntled employees, boycotting customers, and disappearing vendors] appears to have left Arthur T.'s offer as the only viable bid left standing. Moreover, it was at preprotest value and for the full 50.5 percent owned by George's heirs (Arthur S.'s side). Estimates placed the bid around $1.5 billion.
(174) There was literally dancing in the aisles at one store. A couple hundred shoppers organized - with the help of the store director in Londonberry, New Hampshire - what one might describe as part flash mob, part conga line. Customers cheered and danced triumphantly while the Pharrell Williams song "Happy" blared from the public address system.
(175) In the autumn following the sale agreement, at least two documentaries were in the works (Market Basket Saga and Food Fight).
(176) "As I stand before you, I am in awe of what you have all accomplished," he [Arthur T.] began, "and the sterling example you have all set for so many people across the region and across the country." The big stuffed giraffe was right at his side. Some managers were back in suits and ties, whereas others still had their t-shirts with slogans like "Market Basket strong."
"The public watched in awe and admiration because you empowered others to seek change," he said. Seeing everyone again, he said, was like "a little piece of heaven on earth." Some associates interrupted with shouts of "We love you."
"I love you too."
He continued, "May we always remember this past summer first as a time where our collective values of loyalty, courage and kindness toward one another really prevailed, and in that process we just happened to save our company.... You have demonstrated to the world that it is a person's moral obligation and social responsibility to protect a culture that provides an honorable and a dignified place in which to work."
(179) Speaking at an event a month after the protest ended, Arthur T. renewed his commitment to the Market Basket business model: "We go forward with a commitment to go forward and grow a socially responsible company that, at all times, is focused on teh well-being and best interests of the associates, the customers, the vendors, and the communities that we serve."
What he describes is not so much a destination but a continual effort to maintain a business that improves lives.
(182) Many of those associates went to bat for Arthur T. and his management philosophy. They fought for the combination of respect in the workplace and wealth sharing.
(190) The idea that companies need to serve a range of people has even won over some who were once proponents of the shareholder idea. Jack Welch is one of these. He was one of the most successful CEOs of General Electric in the 1980s and 1990s. He was once held up as a hero who was willing to do whatever it took to generate value for shareholders. But now he says, "On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy... Your main constituencies are your employees, your customers and your products."
(191) Cornell Law School Professor Lynn Stout is a leading scholar who is questioning the very idea that shareholders own the company. She explains that the US Supreme Court has recently ruled that a corporation is an entity unto itself, similar to a person. This gives corporations a certain independence and the same free speech that a person enjoys. She says that caes like Citizens Unites v FEC and Burwell V Hobby Lobby hold up this idea. In the Citizens United case, the court ruled that corporations are covered by the First Amendment and can express political views. In the Burwell case, the court extended freedom of religion rights to a closely held arts and crafts company on the grounds that it is its own entity. Stout explains that a person cannot own a company any more than a person can own another person. "Because of the legal 'personhood' of corporations," she says, "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."
(193) As almost all corporations - Market Basket included - board members have a fiduciary responsibility to serve the _corporation_. Make no mistake: shareholders are part of the extended enterprise and, in fact, have a special place and importance in a corporation. However, shareholders are one of many stakeholders a board needs to consider in its decisions. This responsibility is stated clearly in the Massachusetts Corporate Code, which sets guidelines for companies that are incorporated it the state (as is Market Basket). The code states that each director is expected to serve in good faith, use appropriate and reasonable judgment, and act "in a manner the director reasonably believes to be _in the best interests of the corporation_" (emphasis added). In determining what is in the best interest of the corporation, "A director may consider the interests of the corporation's employees, suppliers, creditors and customers, the economy of the state, the region and the nation, community and societal considerations, and the long-term and short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation."
(194) ... Massachusetts, a state that has, according to one study, one of the top ten hgihest income disparities in the country. (New Hampshire ranked twenty-eighth on the list.)
(198) Rather than trying to become more like Market Basket or some other prototype, companies need to become better at being themselves. What companies need to do is dig deeper into who they are and how they can serve others better. It is what some are calling "corporate purpose." That purpose is a company's reason for being....
Many companies are successful in terms of financial performance. Much fewer are successful in making a difference in people's lives that others cannot imitate.
(203) Bill Marsden, the senior executive who was fired along with Arthur T. and has now returned as key advisor, sums it up this way: "We're a rich company, but it's not because of the money; it's because of the people."