August 12, 2014
"Publicness" and Market Basket
Posted by Lisa Fairfax

As Joan Heminway has pointed out, I participated in a discussion group at the SEALS annual conference last week entitled "Does the Public/Private Divide in Securities Regulation Make Sense?"  It was an engaging discussion with a lot of interesting ideas and views shared.  Part of the discussion focused on the notion of "publicness" as that term was used by Hillary Sale, Don Langevoort and Bob Thompson.  That is, a public-driven demand for regulation of public corporations that accounts for more than just managers and their shareholders, but also for a corporation's "societal footprint" and its impact on non-shareholder constituents.  As Sale puts it, "the failure of officers and directors to govern in a sufficiently public manner has resulted not only in scandals, but also in more public scrutiny of their decisions, powers and duties." Sale suggests that because the definition of public corporation and the public's view of the corporation has evolved, directors' and officers' understandings of their obligations needs to evolve.  I was in Boston this past weeked at the ABA annual meeting, and it struck me that the ongoing back and forth at the grocery chain Market Basket raised some interesting issues surrounding publicness.

Market Basket is a private company with 25,000 employees and 71 stores in Massachusetts, New Hampshire and Maine caught in a battle for control.  In June 2014, then president Arthur T. Demoulas and two other executives were ousted by the board, controlled by Arthur T.'s cousin Arthur S. Demoulas. Since that time, the company has been plagued by rallies, strikes, and protest, one attracting crowds of over 5,000, seeking to reinstate Arthur T.  According to the Boston Globe, the turmoil apparently has "crippled" the company's operations, resulting in the company losing "millions of dollars a day," "stores with little food," and a "steep decline in business."  Apparently, the outpouring of support for Arthur T. stems from his support of employees, which includes not only ensuring that managers and other employees are well-compensated and receive regular bonuses and special benefits, but also his "personal touch"--remembering the names of low-level employees and their sick relatives.

Last Friday, Massachusetts Governor Deval Patrick entered the fray, which news outlets found remarkable because until that time the governor had insisted that he would not get involved in what he termed a "private" dispute between a company and its shareholders.  But it seems like the public impact of that dispute compelled him to act.  The governor wrote a letter to the Market Basket board offering to help resolve the dispute.  Although the governor insisted that he would not take sides, the letter noted that the dispute had gotten "out of hand." The letter went on to state, in part: "Your failure to resolve this matter is not only hurting the company's brand and business, but also many innocent and relatively powerless workers whose livelihoods depend on you."

The dispute is still ongoing and involves a lot of important issues both related to employees and the struggle for control of the company, but the dispute and the letter is an interesting commentary on publicness and the idea that even directors of private companies must be aware of the impact of public scrutiny and the manner in which that scrutiny may shape their decisions, powers, and duties.

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Comments (1)

1. Posted by joanheminway on August 14, 2014 @ 19:55 | Permalink

So glad you posted this, Lisa! It's a great follow-on to our discussion session. But more than that, it's a bit of a trip down memory lane for me.

As you may recall, in my prior life, I (like you) worked up in Boston. I can assure you that the Demoulas family and Market Basket have been in the courts before: shareholder derivative action for breach of fiduciary duty in the close corporation context, judicial recusal, etc. See, e.g., Demoulas vs. Demoulas Super Markets, Inc., et al., 428 Mass. 543 (1998) and 424 Mass. 501 (1997). A few of my colleagues wrote a brief in the fiduciary duty action, as I recall. I also remember, I think, some family members assaulting each other in court in that action. Colorful stuff . . . .

Thanks for the memories!

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