Whats Law Got to Do with It?

:
An Essay About the Balance of Power in
Corporate Governance Between Officers,
Directors, and Shareholders
ERIC J. GOUVIN*

INTRODUCTION

n 2014, the Market Basket supermarket company was the focal point of an
extraordinary showdown. The stakeholders of the corporationthe
vendors, customers, employees, and communitiesorchestrated by a
team of senior managers, squared off against the shareholders and the board
of directors in a dispute over who should serve as Chief Executive Officer. To
my knowledge, this remarkable episode is unique in the annals of corporate
law.
It is tempting to tell the Market Basket story as a morality play with the
virtuous Artie T prevailing over the avaricious Arthur S. That is pretty much
how Daniel Korschun and Grant Welker decided to tell the story in their book
We Are Market Basket. I am skeptical that the dispute between the family
factions was as simple as that. Given the years of litigation between the
shareholder groups, the numerous related-party transactions on Artie Ts
side, and the general messiness of balancing the legitimate expectations of
management and ownership, the good guy vs. bad guy trope will not
satisfy a sophisticated audience. In my experience, almost never is one side
entirely good and the other side entirely bad.
Alternatively, you could tell the Market Basket story as an epic struggle
for the soul of corporate law. In this version of the tale, the case forces an
examination of the question of whether directors must be blindly subservient
to the shareholder wealth maximization imperative, or whether there might
be room in corporate management for a company to also be a good citizen, a
generous employer, and a fair trading partner. Korschun and Welker use this

*2016,

Eric J. Gouvin, Dean and Professor of Law, Western New England University School

of Law.

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theme in their book as well. But this story, too, is overblown. As I will discuss
below, Massachusetts corporate law does not pose such a stark choice
between profit maximization and good corporate citizenship, and to frame
corporate law in that way creates a false dichotomy.
So, failing that, one might wish to spin the Market Basket phenomenon as
being about community and the role of a corporate entity in the creation
and perpetuation of community. The Korschun and Welker book also
embraces this motif, but Market Baskets feel good story of 2014 is a very thin
veneer on the actual history of supermarkets in the United States. In its
current form, Market Basket is a beloved mainstay of many New England
towns, but in the mid-twentieth century supermarkets (including Market
Basket) were disrupting an entire industry. Although today supermarkets like
Market Basket are taken for granted as part of a communitysponsoring
Little League teams and employing lots of peoplenot long ago
supermarkets were job destroyers, driving community-based mom and pop
grocers out of business. Far from creating community, throughout much of
the last century supermarkets did much to rip the fabric of many
communities apart.1
Even today, big retailers in the grocery business wreak havoc on
communities across the United States. Recent experience with Walmart in
rural towns bears this out. Earlier this year, Walmart closed 154 locations
across the United States. Thats business as usual for big companiesonly the
profitable locations survive. The irony, however, is that when Walmart
arrived in many of those towns it drove local grocers and pharmacists out of
business.2 The local retailers who had been satisfied with a lower return on
investment than Walmart could accept are now gone and with the Walmart
stores closing, food deserts have been created for a significant number of
people.3 One does not get a sense that there was a lot of hand-wringing at
headquarters in Bentonville, Arkansas over the devastation to communities
caused by Walmarts pursuit of profit maximization, or as they call it,
portfolio management.4

1 Marc Levinson provides an excellent treatment of the cultural history of supermarkets in

his book. See generally MARC LEVINSON, THE GREAT A&P AND THE STRUGGLE FOR SMALL
BUSINESS IN AMERICA (2011).

See Shannon Pettypiece, Wal-Mart: It Came, It Conquered, Now It's Packing Up and Leaving,
BLOOMBERG (Jan. 25, 2016, 5:00 AM), http://www.bloomberg.com/news/articles/2016-0125/wal-mart-it-came-it-conquered-now-it-s-packing-up-and-leaving .
3 Associated Press, Walmart shutdowns create new food deserts, CBS NEWS, http://www.cbs
news.com/news/walmart-shutdowns-create-new-food-deserts (last updated Jan. 27, 2016, 3:10
PM).
2

In its official press release, Walmart noted that The decision to close stores is difficult
and we care about the associates who will be impacted . . . but there was no mention of the
impact of the decision on communities where the closed stores were located. See Walmart
4

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While Market Basket appears to be more civic-minded than Walmart, it

nevertheless is a participant in an industry segment that has been a major
disrupter of community.5 Market Baskets development of a brand that
purports to value community seems like small recompense, especially
when viewed through cynical eyes, where Artie Ts management team used
the power of community as a tool to preserve its grip on control of the
Market Basket corporate enterprise.
So, what is a plausible story for the Market Basket episode? As a matter of
corporate law, the lesson should have been pretty straightforward: in a
Massachusetts corporation, the board of directors is supposed to manage the
business and affairs of the corporation.6 That is, responsibility for decisions
about the business plans ultimately resides with the directors. The law is
clear that officers, such as the Chief Executive Officer, do not have unilateral
power to run the corporation, but instead:
Each officer has the authority and shall perform the duties set
forth in the bylaws or, to the extent consistent with the bylaws,
the duties prescribed by the board of directors or by direction of
an officer authorized by the board of directors to prescribe the
duties of other officers.7

Under the bylaws of DeMoulas Super Markets, Inc., the president was
designated the chief executive officer and had general operating charge of its
business.8 At the same time, the president serves at the pleasure of the board
of directors. In the end, the board is supposed to make the big plans and the
president is supposed to execute those plans. The board is free to change
course and the president, as a good soldier, is supposed to fall into line and

Continues Sharpened Focus on Portfolio Management: Company Exits Walmart Express Pilot As Part
of Closing 269 Stores Globally; Impacted Associates to Receive Assistance, WALMART (Jan 15, 2016),
http://news.walmart.com/news-archive/2016/01/15/walmart-continues-sharpened-focus-onportfolio-management.
5 Even today, supermarket chains, including such benign operations as Market Basket,
create incredible pressure on locally owned businesses like bakeries and delicatessens, forcing
many out of business. See George Graham, Gus & Paul's Closing has Customers Bereft, THE
REPUBLICAN, Jan. 1, 2014, at A1, available at 2014 WLNR 2246443 (reporting on the closing of
Gus & Pauls' Deli and Bakery); Jim Kinney, Yeast rises, sales fall at Gus & Paul's Bakery, THE
REPUBLICAN, July 23, 2012, at D08, available at 2012 WLNR 17538358 (reporting on the
challenges faced by a third generation baker from competition by big box retailers).
6 MASS. GEN. LAWS ch. 156D, 8.01(b) (2012) (All corporate power shall be exercised by or
under the authority of, and the business and affairs of the corporation shall be managed under
the direction of, its board of directors, subject to any limitation set forth in the articles of
organization or in an agreement authorized under section 7.32.).
7 Id. at 8.41.
8 See Bylaws of DeMoulas Super Markets, Inc. Article Second, Section 3 (Jan. 16, 1999) (on
file with author).

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execute those new plans. As a matter of corporate law, the board of directors
had every right to terminate Artie T as president, and they had every right to
change the policies that Artie T had put into place. The law on these points is
hardly worth discussing.
But thats not what happened in the summer of 2014.
Forces on the ground that were loyal to Artie T were able to assert the
power that resides with officers in corporate governancea role different
from and sometimes in opposition to the roles played by directors and
shareholders. In a worldview where corporate governance struggles are
played out between management and ownership this scenario does not
make much sense, but if one contemplates a more complicated mix of forces
in the governance process, where officers have their own agenda of control
that may not always jive with the interests of the shareholders or the directors
they elect, then the picture becomes clearer.
Through a brilliant branding strategy, the officers of Market Basket
subverted corporate law and forced an outcome that Artie T would have had
great difficulty obtaining through the courts relying on corporate law alone.
Hence the title of this essayWhats law got to do with it? The outcome of
the Market Basket case turned not on corporate law, but rather on clever
brand management and the economic power of that brand in the marketplace
to bolster the power of management. In a sense, the minority owner, Artie T,
was able to use the Market Basket brand and the fierce loyalty it created in the
employee, customer, and vendor ranks as a poison pill to allow him and his
fellow officers to retain their grip on control of the enterprise and to defeat the
stronger corporate constituents who should have won under corporate law.
What Market Basket is really about is the power of officers to create a
brand that is bigger than any corporate constituency; it is not about good vs.
evil, the value of community, or the soul of corporate law.

DISCUSSION
Corporate law looms large in the history of Massachusetts, a state that
started as a corporation.9 The charter of the Massachusetts Bay Company
gave management authority to make laws, enforce them, decide cases, and
otherwise run the colony as a community, but in all other respects was the
charter of a business corporation.10

9 The early English settlement of North America came about as the result of action of
English corporations including the Plymouth Company and the Massachusetts Bay Company.
See JOHN F. MARTIN, PROFITS IN THE WILDERNESS 13537 (1991). Massachusetts was not unique
in this regard; most of the original thirteen colonies started as proprietary ventures and then
evolved into polities. See generally ALAN TAYLOR, AMERICAN COLONIES (2001).
10

LAWRENCE M. FRIEDMAN, A HISTORY OF AMERICAN LAW 8 (3d. ed. 2005). In time,

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Despite the central importance of corporations to the development of the

United States, however, our law has never clearly established exactly what
corporations are or how they should behave. Over the years, legal scholars
have attempted to impose order on the thinking about corporations, showing
a logical progression in the theory of corporations from a so-called artificial
person that existed by a concession of the sovereign, through a natural
being that existed by virtue of certain kinds of group activity, and to an
aggregate of economic actors bound together by a nexus of contracts.11 As a
descriptive project, however, corporate theory has fallen short.
Given the general incoherence of the jurisprudence, it is not surprising to
find that the Market Basket case cannot be readily explained by reference to
some immutable theory of corporate law. Legal scholars have spilt a great
deal of ink trying to develop a robust theory of what corporations are and
what ends they should serve. In the early twentieth century, the leading lights
in this scholarship were professors Adolf Berle and Gardner Means. From
their point of view, there were three possible answers to the question of
who should be the primary beneficiary of corporate law: (a) the
shareholders, (b) the managers, or (c) the community.12 Although they
believed corporate law should serve shareholder interests over managerial
interests, they also believed that corporations should be attentive to
community needs.13
The groundwork laid out by Berle and Means shaped the debate in
corporate law for a long time, but it is fair to say the discussion generated
more heat than light. As former Delaware Chancellor, now Professor, William
Allen, has noted, American jurisprudence has a schizophrenic conception
of the corporation.14 Professor Allen has identified two competing theories of
the corporation, which he refers to as the property conception and the
social entity conception.15 The property conception sees the corporation
as the private property of its shareholders and having as its purpose
shareholder wealth maximization.16 The social entity conception sees the
however, the crown revoked the charter of the Massachusetts Bay Company and made it a
royal colony rather than a chartered colony. JAMES O. ROBERTSON, AMERICA'S BUSINESS 72
(1985).
11 See generally Morton J. Horwitz, Santa Clara Revisited: The Development of Corporate Theory,
88 W. VA. L. REV. 173, 173224 (1985) (providing an overview of the attempts in the past 200
years or so to conceptualize the corporation).
12

ADOLF BERLE, JR. & GARDNER C. MEANS, THE MODERN CORPORATION AND PRIVATE
PROPERTY 356 (1932).
13 Id.
14 William T. Allen, Our Schizophrenic Conception of the Business Corporation, 14 CARDOZO L.
REV. 261, 261 (1992).
15
16

Id. at 26465.
Id. at 265.

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corporation as a social institution tinged with a public purpose. He notes

that over the years one conception or another ascends in dominance, but
never to the point of excluding the other theory from the discourses of law
or the thinking of business people.17 Others have made similar distinctions.
This dialectic fits nicely into the story that Korschun and Welker tell, with
Arthur Ss faction being the champions of the property view and Artie Ts
group being the champions of the social entity view. They clearly want the
social entity theory to win.
It may be that theorists attempts to describe the ends of corporate law are
doomed to fail because they may be trying to describe something that has
hybrid qualities and refuses to settle into any pre-determined platonic form.
Just as light can exist as both wave and particle, perhaps corporations, too, are
both property of shareholders and social entities imbued with the obligations
of good citizenship.18 Having such a fluid view of what corporations are
makes it very difficult to develop a theory that has any determinative or
predictive value.
It has become pass to note the indeterminacy of legal theory.19 The idea
that corporate theory is indeterminate was persuasively argued by the
pragmatist philosopher John Dewey in the mid-1920s.20 Deweys article
seemed to signal the end of the discussion on legal theory.21 Coming as it did
during the ascendancy of the legal realist movement, Deweys article played
down the importance of abstract legal theory at a time when the Legal

Id. at 26465.
Professor Charles OKelley, Jr. has attempted to synthesize the competing theories of
corporate existence by positing that the corporation may be seen as an entity in some
situations and as an aggregate in others. See generally Charles R. O'Kelley, Jr., The
Constitutional Rights of Corporations Revisited: Social and Political Expression and the Corporation
After First National Bank v. Bellotti, 67 GEO. L.J. 1347, 135268 (1979). On the other hand, any
attempt to synthesize competing theories into one may only serve to illustrate John Dewey's
observation that the human mind tends toward fusion rather than discrimination, and the
result is confusion. John Dewey, The Historic Background of Corporate Legal Personality, 35 YALE
L.J. 655, 670 (1926).
17
18

19 The indeterminacy of law debate that flared in the 1980s and 1990s now seems old hat.
See Joseph Singer, The Player and the Cards: Nihilism and Legal Theory, 94 YALE L.J. 1, 925
(1984); Mark Tushnet, Defending the Indeterminacy Thesis, 16 Q.L. REV. 339 (1996); Mark
Mangabeira Unger, The Critical Legal Studies Movement, 96 HARV. L. REV. 561, 56870 (1983).
But see Ken Kress, Legal Indeterminacy, 77 CAL. L. REV. 283 (1989) (arguing that law might only
be moderately indeterminate).
20 By examining the employment of various theories of the corporation to enlarge or
restriction the powers of corporations and trade unions, Dewey demonstrated that theories of
the corporation were so malleable that [e]ach theory has been used to serve the same ends,
and each has been used to serve opposing ends. . . . [B]oth theories have been upheld for the
same purpose, and each for opposed ends. Dewey, supra note 18, at 669.
21

Horwitz, supra note 11, at 175.

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Realists were already moving in that direction.22 As a result of the Realists

influence, debate about the theory of the corporation first focused on its
futility,23 then lay dormant for many years. In the 1980s and 1990s, however,
the debate over the nature and purpose of the corporation reemerged.24
The scholarly debate at that time moved away from the descriptive
project and focused more on the overall goal of corporate governance. These
theoretical approaches tended to focus on the idea of primacyexplaining
corporate governance as a device to protect and promote one corporate
stakeholders interest as the primary goal of corporate law. Of course,
shareholder primacy is the oldest example of this genre,25 but director
primacy came on strong as well,26 and other variations, such as managerial
primacy, employee primacy and creditor primacy (at least in some situations)
were all part of the scholarly conversation.
In a recent article, Professor Robert Thompson analyzes the various

See GRANT GILMORE, AGES OF AMERICAN LAW 7780 (1977). See also Lon Fuller, American
Legal Realism, 82 U. PA. L. REV. 429, 42962 (1934) (discussing, generally, legal realists); Grant
Gilmore, Legal Realism: Its Causes and Cure, 70 YALE L.J. 1037, 103748 (1961) (discussing,
generally, legal realists).
22

23 See Elvin Latty, Corporate Entity as a Solvent of Legal Problems, 34 MICH. L. REV. 597, 63536
(1936) (concluding that the solution of most legal problems involving corporations do not turn
on the nature of the entity); Max Radin, The Endless Problem of Corporate Personality, 32 COLUM.
L. REV. 643, 667 (1932) (concluding that the solution of most legal problems involving
corporations do not turn on the nature of the entity).
24 John C. Coates, Note, State Takeover Statutes and Corporate Theory: The Revival of an Old
Debate, 64 N.Y.U. L. REV. 806, 807 n.7 (1989). The reemergence of the debate, coming as it did
as a way to justify ideological positions, instead of after reviewing the history of the concept,
led Professor Horwitz to comment: We have spent too much intellectual energy in the
increasingly sterile task of discussing legal theory in a historical vacuum. That is one of the
many reasons why Anglo-American jurisprudence constantly seems to get no further than
repeated rediscoveries of the wheel. Horwitz, supra note 11, at 224.
25 See, e.g., D. Gordon Smith, The Shareholder Primacy Norm, 23 J. CORP. L. 277, 27778 (1998).
The classic statement of shareholder primacy in the case law is the old chestnut, Dodge v. Ford
Motor Co., in which the court states that [a] business corporation is organized and carried on
primarily for the profit of the stockholders. . . . [I]t is not within the lawful powers of a board
of directors to shape and conduct the affairs of a corporation for the merely incidental benefit
of shareholders and for the primary purpose of benefitting others . . . . Dodge v. Ford Motor
Co., 170 N.W. 668, 684 (1919). The underlying theory of the Ford court might not be as
straightforward as strong form shareholder primacy, because it really appears that the court is
operating on the assumption that whatever is in the best interests of the corporation is also,
almost by definition, in the best interest of its shareholders. In refusing to interfere with the
board's decision to pursue a business expansion plan, for instance, the Court states:
assuming further that the plan and policy and details agreed upon were in the best interest
of the company and therefore of its shareholders . . . Id.
26 See generally Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate
Governance, 97 NW. U. L. REV. 547, 574606 (2003).

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threads of constituent primacy theory that have been advanced over the years
and concludes that they are all off-base, or at least incomplete. In his view,
corporate governance must be understood as a shared power among the three
primary constituents in the corporate enterprisethe shareholders, directors
and officers.27 By making more space in the theory for the role of officers,
Professor Thompson brings theory closer to observed practice.
The first core principle in Prof. Thompsons shared governance approach
is this: (1) Managers are the key decision makers in corporate decisions, a
point that reflects the influence of market and economic realities more than a
command from law . . .28
The Market Basket scenario seems to bear out Prof. Thompsons thesis
that in the modern corporation the officers call most of the shots and have a
significant role in corporate governance. Although the article makes room for
officers to be important players in the shared governance scheme, he
develops the theory of shared governance primarily through the lens of the
shareholder/director conflict. Indeed, the article does a nice job of framing the
theory within the context of the Delaware jurisprudence that grew out of
Unocal v. Mesa Petroleum29 and Revlon, Inc. v. MacAndrews & Forbes Holdings,
Inc.,30 among others.
Those cases can be framed as disputes between directors and officers on
one side and shareholders on the other, but the Market Basket dynamic is
odd, since it pits officers on one side against directors and shareholders on the
other, a conflict that is rarely the subject of legal action. As Prof. Thompson
notes, under our legal tradition:
[. . .W]ithin the three named groups [ed.: managers, directors and
shareholders], if the dispute is between managers and directors,
there will be almost no judicial involvement. Managers will make
most decisions ostensibly under the direction of the board. The
board retains the legal authority to overturn every decision
management makes, but realistically holds for itself only a small
subset of corporate decisions. But if the board does override the
management, there is little legal basis for management to seek
judicial intervention to reverse the decision. Management will
look to non-judicial channels to address its concerns about
director actions. This ends up being less of a legal boundary
policed by the courts but rather one where boundaries are

27 Robert B. Thompson, Anti-Primacy: Sharing Power in American Corporations, 71 BUS. L. 381,

381 (2016).

Id. at 404.
See generally Unocal Corporation v. Mesa Petroleum Co., 493 A.2d 946, 95359 (Del.
Super. Ct 1985).
30 See generally Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 180 (Del.
1986).
28
29

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defined by economic and market relationships.31

What makes Market Basket special, therefore, is the framework of the

dispute: the management team standing up to the directors and the
controlling shareholders. As Prof. Thompson suggests, a dispute of this kind
ends up being less about legal rights that can be policed in the courts and
more about boundaries defined by economic and market relationships.32
That is certainly the case with the Market Basket episodeusing the
economic power that comes from building up the goodwill of the company
over many years, the management team was able to thwart the efforts by the
shareholders and the directors to change course in managing the company.
When push came to shove in the battle for the corporate governance of
Market Basket, the carefully wrought strategy of management to enlist the
economic power of employees, customers, and vendors in an extra-legal bid
for Artie Ts group to retain control of the corporation carried the day.
To appreciate how special this maneuver was, one must first understand
the legal background against which the case unfolded. Although the
Korschun and Welker book caricatures corporate law as being solely devoted
to shareholder wealth maximization, in no jurisdiction is that the case.
Although some states require the directors to act in the best interests of the
corporation and its shareholders,33 and Delaware law famously requires
director decisions to focus on shareholder wealth maximization when the socalled Revlon duties kick in, most states actually charge the directors to act in
the best interests of the corporation, not the shareholders.34

Thompson, supra note 27, at 410 (citation omitted).

Id.
33 See, e.g., CAL. CORP. CODE 309(a) (Westlaw 2016) (requiring the best interest of the
corporation and its shareholders); N.Y. BUS. CORP. LAW 717 (Westlaw 2016) (requiring the
directors consider the long term and short term interests of the corporation and its
shareholders, and also the interests of a whole host of corporate constituents). The American
Law Institutes formulation of corporate governance starts with a classic shareholder primacy
position, stating that [A] corporation should have as its objective the conduct of business
activities with a view to enhancing corporate profit and shareholder gain. AM. L. INST.,
PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS AND RECOMMENDATIONS 201(a) (1994).
But it tempers that position by stating that a corporation:
31
32

(1) Is obliged, to the same extent as a natural person, to act within the boundaries set by law;
(2) May take into account ethical considerations that are reasonably regarded as appropriate
to the responsible conduct of business; and (3) May devote a reasonable amount of resources
to public welfare, humanitarian, educational, and philanthropic purposes., even if corporate
profit and shareholder gain are not thereby enhanced.
Id. at 201(b).
34 See, e.g., 15 PA. CON. STAT. 512(a) (Westlaw 2016) (directors "stand in a fiduciary relation
to the corporation . . ."); MASS. GEN LAWS ch. 156D, 8.30(a)(3) (2012) (requiring the best
interest of corporation); CONN. GEN. STAT. 33-313 (Westlaw 2016) (requiring the best interest

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Nothing in Massachusetts corporate law required the directors to

maximize shareholder value. Instead, they are legally charged with making
decisions in the best interest of the corporation. The statute is clear:
Section 8.30. GENERAL STANDARDS FOR DIRECTORS
(a) A director shall discharge his duties as a director, including
his duties as a member of a committee:
(1) in good faith;
(2) with the care that a person in a like position would
reasonably
believe
appropriate
under
similar
circumstances; and
(3) in a manner the director reasonably believes to be in
the best interests of the corporation. In determining what
the director reasonably believes to be in the best interests
of the corporation, a director may consider the interests of
the corporations 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.35

The legal issues confronting the managers, directors and shareholders of

Market Basket were not really that earth-shattering. Under Massachusetts
law, if the directors wanted to run Market Basket in a way that did not put
shareholder profit maximization first, they were free to do so. The board is
supposed to make the high-level strategic, enterprise decisions for the
business, including the kind of corporate citizen the corporation will be.
Obviously, as a legal person, the corporation must operate its business within
the constraints of the law, but a board may decide to go above and beyond
the minimum requirements of the law to provide higher quality goods, more
reliable service, higher paid employees, significant community investment or
other things if the board of directors in their discretion find those things to be
in the best interest of the corporation.
Until 2013, Artie Ts side controlled management, and by virtue of a
voting agreement with Rafaela Evans, the widow of Arthur Ss brother, Evan
DeMoulas, the board of directors. As long as the Artie T faction had the
support of Rafaela, they controlled the board of directors and there was no
issue about management discharging the policies that Artie T championed.
Throughout American history, we see many examples of where
capitalists use their resources to make the world a better place, at least a better

of corporation).
35

MASS. GEN. LAWS ch. 156D, 8.30(a).

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place from their point of view. During the nineteenth century while the
railroad robber barons were maximizing profits and riding rough-shod over
anyone in their paths, others were developing model communities to improve
the lives of their workers while at the same time producing a profit for the
business. At the time, the idea that a capitalist could profit while also taking
care of workers was not considered logically inconsistent. Lowell and
Lawrence, Massachusetts, where Market Basket got its start, were planned
industrial communities which seem bleak by twentyfirst century standards
but which were huge improvements in worker conditions in the mid-1800s.
Pullman, Illinois is another company town that started out as a model
community, although it ended up as something of a sad footnote in labor
relations. Eventually, learning some lessons from Pullman, Illinois, chocolate
baron Milton Hershey would be able to establish a company town in
Pennsylvania that can still claim to be the Sweetest Place on Earth.36 In
short, there was plenty of precedent for corporate managers to use corporate
resources to be fair to employees, customers, and vendors in the hope of
benefitting the corporation over the long run.
So, here is one of the great dilemmas of corporate law. While the directors
owe a duty to act in the best interests of the corporation and are usually under
no obligation to maximize shareholder value, their actions are ultimately
monitored by the shareholders. Of all the stakeholders in the corporation, the
only ones to have standing to sue the directors are the shareholders. They are
also the only ones who get to vote for and remove directors. This creates a
dynamic where directors tend to do what shareholders like best (maximize
profits) because that is the easiest way to avoid litigation.
During the time that Artie T controlled both management and the board,
he could decide to keep prices low to build customer loyalty, or provide a
generous profit-sharing plan to build a devoted employee pool, or to give a
fair shake to vendorsthose decisions are all within managements
prerogative. But management works for the board and if the board changes
direction, the management should fall in line, resign, or be removed.
When Rafaela switched her allegiance, and control of the board went over
to the Arthur S faction, the new board had every right to change policies and
they had every right to insist that the officers of the corporation carry out
those directives or be removed from office. Thats how corporate law works.

Semiutopian corporatesponsored towns were neither uncommon nor were they

foreign to Massachusetts. The neighborhood in Andover, Massachusetts called Shawsheen
Village is probably one of the last of its kind, but it represented an attempt to create a model
industrial community. See Don Robb, Andover Stories: Shawsheen Village, A Unusual Company
Town, THE ANDOVER TOWNSMAN ONLINE (Nov. 10, 2011), http://www.andovertowns
man.com/news/local_news/andover-stories-shawsheen-village-a-unusual-companytown/article_1d52526b-b884-53fd-8e8f-ee49ee4b48d1.html.
36

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Artie T was no piker when it came to Massachusetts corporate law. He

and his cousin had been in constant litigation, more or less, for more than two
decades. Given the resolution of earlier litigation giving Arthur Ss side
50.5% of the shares, Artie T knew he could not take over the business. But, he
also did not want to be taken over by his cousin, which he knew could
happen if Rafaela changed sides, which she ultimately did.
Given his vulnerable position, Artie T used the power of operational
control to turn the Market Basket corporate culture and brand into a poison
pill that would prevent the shareholders and directors from successfully
ousting the incumbent management. This is a twist on Professor Thompsons
theory, but one that I believe is consistent with it. In the three-way struggle
for power in the corporate governance structure, Artie T, the minority
shareholder who had just lost his majority representation on the board, had
one trick up his sleevethe threat of a scorched earth outcome for Arthur Ss
side if incumbent management was removed.
In the end, the real power in the battle for Market Basket was not
corporate law, it was brand management. Artie T had built a brand so
powerful that it inspired people to act. He and his top managers had built in a
defense mechanism designed to keep management in powerchange the
corporate culture or brand of Market Basket and it will self-destruct, the
officers of the corporation would see to it. After surviving an attempt by the
board to remove him in July 2013, Artie T had a game plan to mobilize the
various constituentsemployees, customers, and vendorswho could keep
him in office and in operational control of the corporation.
Artie Ts poison pill relied on his ability to mobilize three key
constituents: employees, customers, and vendors. Building on the solid brand
his father, Mike DeMoulas, had established years earlier, he turned the fierce
loyalty those three constituencies felt toward him into an insurance policy to
keep control of the company. It was, in effect, a very unconventional proxy
contest to determine control of the enterprise.
The employees of Market Basket were Artie Ts primary bulwark against
change imposed by a hostile board of directors. Artie T by all accounts has a
special touch as a manager. Through the power of his personality he brought
a significant amount of goodwill to the business. By not being afraid to make
personal contact with his employees and by learning their names, even
though he is the big boss, he created an incredibly deep pool of employee
loyalty. Of course, paying well, providing a generous profit-sharing plan, and
providing meaningful pathways for advancement within the company were
also important factors in earning him the devotion of the Market Basket
workers.
As the saying goes, money talks. Throughout modern times industrialists
have bickered about what the proper wage should be for workers. Henry
Ford famously raised his workers pay to $5 per day and was decried by his

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fellow industrialists as a traitor to his class. Fords move was, in fact, a

brilliant business decision.37 In one stroke he went from having a workforce
with almost 400% annual turnover rate to one where attrition was essentially
eliminated. He raised worker morale and killed any early attempts at labor
organization. He got so much free publicity from the move that he hardly
advertised Ford automobiles for many years after the wage increase.
Incidentally, it also provided a real benefit to his workers. Recently a tech
entrepreneur in Seattle decided to raise wages at his company and made
headlines across the country.38 Aaron Feuerstein became a local legend
twenty years ago when he used insurance money from a fire that destroyed
Malden Mills to pay his workers Christmas bonuses and two months pay
while he went about rebuilding the company.39
It is worth noting that the decision of what to pay workers, and how to
treat them, is a business decision. In August 2015, the New York Times ran
a story exposing an abusive worker culture at Amazon.com. Many of the
workers interviewed reported a high-pressure work place with no
compassion for workers and rewards for the most ruthless strivers.40 It was
not a great PR moment for Amazon and Jeff Bezos, the companys CEO,
spent much of the following weeks doing damage control.
Despite the bad press, making the business decisions to foster a highpressure work culture is not per se a bad idea. The proof of that approach
seems to be Amazon itself, which is actually a pretty successful company
despite being a terrible place to work (allegedly, of course). On the other
hand, a different company with different management might make a
conscious decision to create a more welcoming workplace in order to
engender employee loyalty or to make employees feel more invested in the
success of the company, or to keep union organizers at bay.
This second approach was the tack Artie T took. As the Korschun and
Welker book documents in some detail, Artie T earned the loyalty of the
rank-and-file Market Basket workers by showing concern for them as

37 See generally STEPHEN MEYER III, THE FIVE DOLLAR DAY: LABOR MANAGEMENT AND
SOCIAL CONTROL IN THE FORD MOTOR COMPANY 19081921 (1981).
38 Paul Keegan, Here's What Really Happened at That Company That Set a $70,000 Minimum
Wage, INC., http://www.inc.com/magazine/201511/paul-keegan/does-more-pay-mean-mo
re-growth.html (last visited May 16, 2016).
39 See Joan Vennochi, The Mensch of Malden Mills at 90, BOSTON GLOBE (Nov. 29, 2015),
https://www.bostonglobe.com/opinion/editorials/2015/11/29/the-mensch-malden-mills/
0BvhlVZgPxveuD9s9eAY1O/story.html (recounting the story).
40 Jodi Kantor & David Streitfeldaug, Inside Amazon: Wrestling Big Ideas in a Bruising
Workplace, N.Y. TIMES (Aug. 15, 2015), http://www.nytimes.com/2015/08/16/technology/
inside-amazon-wrestling-big-ideas-in-a-bruising-workplace.html?module=ArrowsNav&
contentCollection=Business%20Day&action=keypress&region=FixedLeft&pgtype=article.

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people, and demonstrating it through acts as simple as visiting them in the

hospital or inquiring about the health of relatives. The Market Basket
approach is at the other end of the spectrum from the culture the New York
Times says exists at Amazon, but in the end the boards of these two
corporations are the ones who decide how to attract and maintain a
motivated workforcewith the carrot or with the stick. Significantly,
Market Basket workers were not unionized.
The second line of defense in Artie Ts plan was the loyal customer base
of the Market Basket chain. The Korschun and Welker book is replete with
stories of customer loyalty, reinforced by attentive employees. My father-inlaw, Bob Lovejoy, grew up in Lowell and his family shopped at one of the
early DeMoulas grocery stores. In the late 1950s his dog, Duke, got in a fight
and was severely injured. Telemachus Mike DeMoulas, upon hearing of
Dukes condition, told Bob that the only thing to help a dog in that condition
was beef hearts and sheep hearts. So Mike got the hearts for Bob. After that he
regularly inquired about the dog. Duke recovered and lived a long time. The
simple gesture of Mike DeMoulas in trying to help made a lasting imprint on
Bob. His family continues to shop at Market Basket to this day (although Bob
still refers to it as Demoulas). This story is not unique and Artie T was able
to trade on that kind of customer service in building customer loyalty.
But, again, as the saying goes, money talks. Customer loyalty for many
shoppers started and ended with pricing. Market Basket was consistently the
low price leader in the markets where they operated. What they lost on
margin, they made up on volume. This is another business decision and one
that rightfully resides with management, as monitored by the directors.
During 2014, under Artie Ts management, Market Basket started
providing a 4% rebate to customers at the cash register on their total
purchase. This may have been good public relations, or perhaps it was
something more nefarious. Having narrowly survived an attempt to remove
him from office in July 2013, and knowing that the balance of power within
the shareholder ranks had shifted, Artie T may have been far-sighted enough
to see a showdown coming where he would need to mobilize the customers
to his side. One need not be a cynic to suspect that the 4% discount gimmick
was a down payment on an attempt to buy positive public opinion and
customer loyalty to support Artie Ts management team.
The last piece in the poison pill was the vendors and they were the most
difficult to enlist. One advantage that Market Basket had flowed from the first
two components of the plan: many vendors had been dealing with the
company for a long time and had built up strong relationships with
DeMoulas buyers and managers. In a small world, reputations and
relationships matter. Although Market Basket often was a hard negotiator on
price, they made up for it by treating vendors right on things like speedy
work on the loading dock or help meeting quotas.

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Once again, however, money talks. Market Basket frequently used local
vendors. The company was often the only outlet for those small operations, so
they had a lot riding on a continuing relationship with the chain. Even among
more established firms, Market Basket could move a lot of inventory, so they
needed to figure out where their bread was buttered. Once Artie Ts group
had the employees and the customers mobilized, the vendors had to decide
whether to fall into line and hope that Artie T eventually carried the day, or
continue to deal with the new management and risk a strained relationship if
Artie T came back into control. It was a difficult spot to be in, as Korschun
and Welker illustrate quite nicely, but in the end a critical mass of vendors
joined or were coopted into Artie Ts poison pill.
In the end, as Professor Thompsons theory predicts, in disputes between
the management and the board, management will look to non-judicial
channels to address its concerns about director actions.41 That is exactly what
happened here.

CONCLUSION
The Market Basket case will be remembered for being so unusual.
Although it fits into Professor Thompsons theory that corporate governance
is a shared three-way balancing act between management, directors, and
shareholders, it is an illustration of a conflict that does not arise very often in a
way that can be observed. The clever way Artie T and his troops leveraged
the loyalty of employees, customers, and vendors developed over years by a
disciplined corporate culture and company brand, was brilliant. The other
parties to the disputethe board of directors and the Arthur S faction,
thought they were playing by the rules of established corporate law. But Artie
T changed the rules of engagement. The replacement CEOs had no idea what
they were walking into and were not equipped to respond. In the end,
although the DeMoulas familys legal squabbles helped buy boats, pay off
vacation homes, and finance college educations for an army of lawyers for a
very long time, the resolution of the issues between them transcended law.

41

Thompson, supra note 27, at 410.