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Arthur T. Demoulas stays CEO, but things will change

New Hampshire Union Leader

July 19. 2013 8:21PM

Carlos Ospina, an 24-year employee of Market Basket at the Tewksbury warehouse, shows his support for incumbent CEO Arthur T. Demoulas with a hat that read in English on one side and Spanish on the other outside a company board meeting on Thursday. (DAVE SOLOMON/Union Leader)

Arthur T. Demoulas kept his job as CEO of the region's most successful grocery store chain after a remarkable outpouring of support by Market Basket employees, who used social media to mobilize, put their own money into advertising campaigns and turned out by the hundreds to pressure directors as they gathered on Thursday.

But it's unlikely he will be able to run the company with almost complete independence from the board of directors, as he has since being appointed CEO in 2008.

Directors sympathetic to his cousin and nemesis, Arthur S. Demoulas, now control the board. Although they did not vote on the CEO position at a marathon session on Thursday, they no doubt intend to assert their authority.

"I am pleased with Thursday's result. I hope to work constructively with the board going forward," Arthur T. said in a statement released Friday morning. "It is my desire to continue to look out for the best interests of our customers and employees. Together we have built a fine organization and I am extremely proud of you. Thanks to everybody for their tremendous outpouring of support."

Only the board members know what went on for the 13 hours they huddled in a conference room at an Andover, Mass., hotel, while employees throughout New England nervously followed various news media, Twitter accounts and Facebook pages for minute-by-minute updates, until the news broke around 10 p.m. that the meeting had adjourned with no vote on CEO.

That left Arthur T. in charge, but under what restrictions remains to be seen. Minutes of past board meetings, made public as part of a lawsuit by Arthur S. to force Thursday's board meeting, reveal a group of seven directors divided over Arthur T.'s management style.

Board meetings boycotted

Arthur T.'s repeated assertions over the years that he would not defer to board authority on contracts, even when they involved his own family members, may have cost him his majority on the board and, ultimately, his absolute control of the company built by his father and uncle.

When a new board was elected on June 18, with a 5-2 majority in support of Arthur S. Demoulas, it looked like Arthur T. was in trouble. The two members on his side boycotted attempts to hold subsequent meetings at which a new CEO was to be appointed.

In his lawsuit, which successfully forced the Thursday meeting to take place, Arthur S. provided minutes of board meetings going back to 2009. They reveal a tense power struggle between a CEO who wanted a board that functioned only in an advisory capacity, and board members who wanted their votes to matter.

In a 2009 discussion of the company's profit-sharing plan, which was one of the key issues that divided the board, Arthur T. did not mince words.

"I want to tell you, Arthur, you hired me to run the company, OK, and when you hired me you hired my management style," he said to his cousin. "My management style, OK, is to do what's in the best interest of DeMoulas Super Markets, OK, on any topic that I believe we're doing that's in the best interest of DeMoulas Super Markets, and my management stye is not to come back to this board to request and ask for permission. I'm not going to do it. I have no problem notifying the board, whether it's before or after the fact, but when I know and sense that something is in the best interests of this company, this management team is going to pull the trigger."

Accused of nitpicking

At a 2011 meeting, when board members raised questions about a $45 million investment loan, Arthur T. accused them of "nitpicking," prompting Director Nabil El-Hage to reply, "In my religion, only the Pope is infallible."

Arthur T. fired back.

"Listen, I'll tell you right now that the way we manage and the stage were in at this company here, OK, we're going to continue to manage and make deals as we see fit that are in the best interest of this company here. I have no interest in having a restriction put on as to what we do, and how we plan, and how we go about things," he said.

At a 2012 board meeting, at which similar issues arose, Arthur T. struck a similar tone: "I'm running this company with the philosophy, very strong philosophy, that there's only one boss in the company. There's not two. There's not three. There's not five. There's only one boss in the company. I have a very limited appetite for having a restriction on how and what amount — I don't care if it's 10 million or it's a billion — on this management team."

The final straw may have come at a May 23 meeting, when board member Keith Cowan made a motion that would require the CEO to obtain board approval for any transaction "not in the ordinary course of grocery business" in excess of $10 million, including any real estate transactions.

When that motion failed, El-Hage asked if any limit would pass, and received negative replies from majority board members at the time.

On June 18, Class A shareholders used their voting power to elect a new board, with Cowan and El-Hage now part of the new majority group.

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