Demoulas Factions Fight for Control of Company

TEWKSBURY, Mass. — The future of Demoulas Supermarkets was thrown into chaos last week as infighting between descendants of the company’s founding brothers came to a new head.

The board of directors of the retailer last week was engaged in a court-ordered meeting to decide whether to fire Chief Executive Officer Arthur T. Demoulas, but it made no motion to remove him over the course of the 13-hour meeting.

Demoulas operates New England’s popular Market Basket chain. Thousands of its employees and shoppers last week were rallying behind its embattled CEO, whose job was in jeopardy after losing control of the board of directors to his cousin, Arthur S. Demoulas.

The Demoulas cousins — both named after their grandfather, Arthur — are sons of Market Basket’s founding brothers, Telemachus “Mike” and George Demoulas. Arthur T. Demoulas, Mike’s son, has served as Market basket’s CEO since 2008. Arthur S. Demoulas is the son of George.

Update: Demoulas CEO Survives Board Challenge

The Demoulas cousins have battled decades for control of the company, beginning when the family of George Demoulas accused the Mike Demoulas side of stealing their shares following George’s death. A lengthy legal battle in that matter resulted in a judge awarding 51% of the company’s stock to Arthur S., and a unique board composition giving each side of the family the power to elect two board members, with the remaining three board seats going to directors elected by all Demoulas shareholders.

Although Arthur S. Demoulas’ family (the Class A stock holders) controls slightly more stock than his cousin’s Class B shareholders, the latter was able to control the board until the company’s annual meeting last month, when a shareholder previously loyal to him, Rafaele Evans, switched allegiances and supported Arthur S.’s slate of director candidates.

The newly elected board less than a week later called a meeting to vote for Arthur T.’s dismissal, but the remaining two directors loyal to Arthur T. — Sumner Darman and William J. Shea — skipped the meeting, preventing a quorum. That resulted in a lawsuit and the court order for last week’s meeting.

The complaint, filed by Arthur S. Demoulas in Massachusetts Superior Court, paints Arthur T. Demoulas as a headstrong CEO who ran the company “with little to no restrictions on his control and authority.” Board meeting minutes in the suit quote Arthur T. declaring, “I’m running this company with the philosophy, the very strong philosophy, 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.”

The case also accused Arthur T. of “self-dealing” include business arrangements with companies run by his wife; of withholding certain information from the board of directors; and of wasteful spending including a plan to boost capital expenditures despite declining profits.

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A spokeswoman for Arthur T. in turn alleges that losing control of the company would reverse gains made under his watch, which include a recent building spree, growing sales by 52% behind 12 new stores and 11 renovations. Directors attempting to remove him would look to raise prices, slow capital expenditures and take on $1.5 billion in debt to fund payouts, the spokeswoman, Justine Griffin, told SN.

Market Basket operates 71 stores and posted sales of $4 billion and net income of $217 million in 2012.

“By every industry standard — total revenue, operating margin, sales per square foot, lowest consumer prices — Market Basket is the leader in its region, despite being a regional company competing against much larger companies in an intensely competitive industry,” Griffin said. “The secret to that success has been Market Basket’s philosophy, which is to take care of our customers and employees first, control our properties and have no debt.”

The controversy in the meantime enveloped Market Basket shoppers and employees, who took to social-media sites and gathered at the site of the meeting in Andover, Mass., last week in a show of support for Arthur T. An on-line petition urging the board to keep Arthur T. in charge had more than 44,000 signatures.

Employees said they appreciated a profit-sharing policy under Arthur T. and that fact they received Christmas bonuses. “I have worked for the company for 23 years, and I can honestly tell you that none of the management [or] staff of any of the stores I have worked in have a negative thing to say about [Arthur T.],” Keith Dotson, a worker at Market Basket, told SN.