When the subject of how he got control of his father’s multibillion-dollar business finally comes up, Martin Grass tugs at his contrasting collar and averts his eyes. For a 44-year-old, his eyes are prematurely tragic.
“People saw this article in Forbes where it makes it sound like my dad was an incompetent or something,” he explains with a nervous chuckle. He is referring to a recent write-up on the Rite Aid Corporation, which his father, Alex Grass, founded in 1962 and ran imperiously until 1995, when Martin took over. The Central Pennsylvania-based company is the nation’s largest drugstore chain, with $11 billion in annual sales and over 4,000 locations coast to coast, the highest concentration of which is in the Philadelphia region.
Martin assumes I know all about the Forbes article, because the Grasses are accustomed to having people know all about them. This has been true since their family business went public in the late ’60s, when Alex Grass presented Martin with a yellow Teenager’s Guide to the Stock Market. “Learn this,” he told his 14-year-old son. “It’s more important than baseball cards.”
The Forbes article was generally positive on Rite Aid and everything that Martin Grass has done to improve it during his three years at the helm, including his real estate buying spree to replace all the cramped strip-mall stores with larger, peppier freestanding buildings and a $2.5 billion acquisition of West Coast chain Thrifty PayLess. The article made it clear that he is earning his $1.9 million in annual salary and bonuses and has helped double the company’s revenues and boost the price of its stock—including his shares, which are now valued at over $70 million. Just as Fortune, Business Week and Chain Drug Review have done, Forbes painted him as much more than a guy who got the job only because he was the boss’s kid.
“But the tone of the article,” Martin says with another collar tug, “is to make me look tremendous at the expense of my father. The headlines are, like, biting, and some of the captions …”
The line under an ancient file photo of Alex reads, “He taught his son well, then got pushed aside.”
Martin acts baffled by the piece. “I don’t know if it was so much the reporter who added that spin,” he says. “Maybe it was the caption editor. But the tone of the article is that things have been going great since I took over as CEO and that things weren’t going so great when my dad was CEO.”
Is that true?
He pauses. “Things … have … changed,” he tells me, “and you can’t take things out of context. But it’s not the kind of tone you want at the expense of your father.”
Alex Grass did not find out about the Forbes article from Martin, his firstborn son. Instead, the patriarch got a call about it late one night from his younger son, Roger, whose own promising career at Rite Aid came to an abrupt and mysterious halt in the late ’80s, not long after another Forbes story that featured a telling photograph of both sons flanking their smiling father. In the picture, Martin looks broody, a Riccardo Muti of discount mouthwash. Roger wears an easy grin, like Jim Belushi in a business suit.
On Thanksgiving 1988, Roger fled the company, for reasons he is only now ready to explain, and he and his father didn’t speak for seven years. Roger and Alex broke their screaming silence about three years ago, reconciling just around the time that Martin either did or didn’t push his father out of the business. Now Martin’s relationship with his 71-year-old dad is frosty. And while his relationship with 42-year-old Roger is warmer—they still call each other “buddy,” when they call each other at all—it has yet to completely thaw.
As soon as he read the recent Forbes article, Roger phoned his dad and faxed him a copy. Alex Grass’s response was immediate. He called Roger back to bemoan the fate of the family and the business. “I don’t understand why he’s doing this to me,” Roger recalls his father saying. “I gave Martin everything. He has so much money today. I don’t understand it.”
But Roger understood it all too well.
“Look, Dad,” he said, “the reality is, you made money the currency of love.”
With the possible exception of weapons-grade plutonium, there is nothing more precious and volatile than a family business. And in the life of a family business, there is no period more perilous than when the specter of succession begins to haunt every major decision, every minor decision, every conversation and, ultimately, every fleeting glance. That period can last a week, a year, a decade, seemingly forever. But once it starts, almost anything can happen, ranging from a smooth handoff to a devastating fumble. Experts estimate only one third of family businesses are successfully passed on to a second generation. Only 17 percent make it to the third generation.
The rest are either sold off or self-destruct like King Lear. In the past few years, there have been some rather spectacular family business implosions across the country. In Washington, D.C., the Haft family blew itself up fighting over control of its $1 billion empire of Dart drugstores, Crown bookstores and real estate after the father changed his mind about the succession plan for his eldest son. In Dallas, the Simmons family, which made its billions first in pharmacies and then in mining, went to war over multimillion-dollar trust funds Harold Simmons set up for his four daughters, ostensibly so they wouldn’t have to work in the family business. In New York, the Pressman family, founders of the tony clothing store Barney’s, were recently humiliated when their years-long effort to expand the chain and pass on the business to the next generation ended with favorite sons Bob and Gene Pressman expelled from the company.
In Philadelphia, several prominent family businesses find themselves at generational crossroads, trying to avoid such calamities. These include Comcast, controlled by the Roberts family; Boyds, run by the Gushners;Philadelphia Magazine, run by second- and third-generation Lipsons; and L. Sarcone & Sons Bakers. They all hope to avoid the kind of familial divisiveness that left Philadelphia with two Bookbinder restaurants and a half-dozen would-be royals all laying claim to the divine right of kingship in cheesesteaks.
Harrisburg does not have many Robertses or Gushners, any more than it has Mellons, Biddles, Annenbergs, Dorrances or Kennedys. Instead, it has the Grasses. They are Harrisburg’s “rich people,” along with the clan that begat the Grasses: the Lehrmans, the merchant family of Alex Grass’s ex-wife, Lois.
Today, few Grasses and Lehrmans actually live in Central Pennsylvania. Of the main players in the family drama—all male, naturally—only Alex still resides in Harrisburg, although he and his second wife spend much of the year traveling or at their condo in Palm Beach. Rite Aid’s corporate headquarters remains in Camp Hill, a big Stealth-black building just across the river from the ornate rotunda of the state capitol. But Martin doesn’t live there anymore. He commutes every day from suburban Baltimore. He used to have a driver—and in fact chose Baltimore over Philadelphia when he left Harrisburg in 1993 primarily because of the shorter car ride—but now he travels daily by personal helicopter, disregarding the protests of some of his Green Spring Valley, Maryland, neighbors who went to court to try and stop the noise. (Earlier this year, at the height of the helicopter racket, he quietly looked into relocating to Philadelphia.) His two sisters, one older, one younger, neither directly involved in the business, both live in Baltimore as well.
For the past four years, his brother Roger has been living quietly—or as quietly as Roger can—in suburban Philadelphia with his wife, Laurie, and their four sons. Despite the high profile of the family and the company, he has somehow managed to stay under the radar of the local and national press, even though Laurie is an assistant district attorney in Montgomery County. After leaving Rite Aid and Harrisburg to run a drugstore chain in Indianapolis that eventually went bankrupt, Roger briefly moved his family to Israel before settling here in 1994 to be closer to family and further devote himself to being a more observant and quietly philanthropic Jew. He initially tried to buy a well-known local family business, and when that didn’t work out, he started a chain of stores that sell after-market parts and accessories for Harley-Davidson motorcycles. In a recent attempt to expand his Biker’s Depot chain, Roger and his father partnered in a company called Golden Cycle and tried an unfriendly takeover of his main wholesaler, California-based Global Motorsport. It didn’t work, but they made a lot of money anyway. This is the Grass family equivalent of playing catch.
Lew Lehrman, an uncle of Martin and Roger, also left Harrisburg long ago. He and his twin brother all but retired on their Rite Aid stock fortunes in the ’70s, when they were about Martin and Roger’s age. Lew moved to New York, where he was narrowly defeated in a self-financed 1982 bid to become governor. He succumbed to Mario Cuomo and negative publicity generated by his family business. Since Lew had no political experience, he ran on his business acumen as the former president of Rite Aid. This triggered a bizarre family squabble over who had been the true “brains” of the operation, Lehrman or his ex-brother-in-law, Alex Grass.
Some of this information I know because I looked it up and did interviews. The rest I absorbed over the years because of my lifelong acquaintance with Martin and Roger Grass. We played in the same Iddy-Biddy basketball league at the Harrisburg Jewish Community Center, half of which was built by donations from their very generous family. We grew up in local family retail businesses. (While Martin’s Furniture didn’t quite catch on the way Rite Aid has, it was founded during the same era by my grandfather and his brother, who built it up until they stopped speaking to each other over a real estate commission. My father joined the company in his late 20s and took it over five years later.) And we all ended up coincidentally leaving Harrisburg to attend Penn. Although Martin and Roger are older and not my close friends, I have always shared the hometown curiosity about what their lives are really like.
When I arrive to interview Martin for a pretty straightforward profile about his new gig at Rite Aid, it never occurs to me that he will reveal any of the behind-the-scenes drama of the family business. But I underestimated how much thermonuclear family energy boils beneath the surface of even the most successful multigenerational business, especially a company like Rite Aid, which was built by subsuming so many independent family-owned chains and individual corner pharmacies.
So Martin and I talk about his company’s $2.5 billion merger with Thrifty Payless, which came after the government blocked his $1.8 billion attempt to take over Revco. We talk about Rite Aid’s leadership role in a huge price-fixing lawsuit against all the major pharmaceutical manufacturers, and the company’s recent court victory against the pharmaceutical benefits giant Merck-Medco. We talk about pharmacy robots filling prescriptions, which Rite Aid debuted in Syracuse in June, with a national rollout planned for later in the year. We talk about the pressures of being the youngest major CEO in the pharmacy industry by more than 10 years, and one of the few sons who has succeeded his father at the helm of a major publicly owned company even after the family sold its controlling interest.
And in between, we talk about family stuff. Martin invites me to call his father and brother to follow up on our conversation. They counter with their own family stuff. Alex, an elongated Ben Gazzara, sits pensively beneath an exquisite Degas charcoal in his mini-museum of a home in suburban Harrisburg. Roger relives every high and low with poignant hilarity as he bounces around a couch in his gated mansion near the Barnes Foundation; his wife, perched close by, is amazed and thrilled to hear him speak so openly at last. And suddenly I find myself in the middle of a pained saga set in the health and beauty aids business, the last chapters of which are being written before my eyes.
One of the few things that Alex Grass and his two sons still agree on is where the family saga begins: Scranton, 1936, when Alex lost his own father at the age of nine. “Look at any successful entrepreneur and you’ll find a dead father in the woodpile,” quips Roger.
Alex, his younger brother and their mother should have been able to live comfortably on their share of the payout from his father’s hat manufacturing firm. “But my mother had a bunch of brothers who came to her and borrowed money, and she never received it back,” Alex explains. So the family ended up in Miami Beach, where his mother went to work during the war. After high school and 15 months in the Navy, Alex got his law degree at the University of Florida. He also met Lois Lehrman, a Jewish Bryn Mawr girl from Harrisburg who was in Miami for Easter vacation. The couple eloped and settled in Central Pennsylvania, where Alex hoped to build a career as a tax attorney but eventually found himself working at his wife’s family’s business, a profitable wholesale food distributor, Louis Lehrman & Son. By his late 20s, Alex was all but running the place as his father-inlaw, Ben Lehrman (the “Son”), began easing into retirement.
Until the late 1950s, discounting prices was illegal in many states, because the ironically named “fair trade” laws allowed manufacturers to set binding retail prices. When the U.S. Supreme Court threw out “fair trading” in 1960—in a landmark case brought against pharmaceutical manufacturers by Dart Drugs owner Herbert Haft—Alex Grass, like many other entrepreneurs, got interested in the discount store business. Since he had already developed a side business rack-jobbing health and beauty aids to the company’s wholesale grocery customers, he chose them for his main product line. And since he didn’t want to compete with his local wholesale and rack-job clients, he opened his first retail stores in and around his hometown of Scranton, in 1962.
His intense desire to succeed, combined with the obvious geographical difficulties of getting home for supper in Harrisburg, put a strain on his marriage. “Growing up, we didn’t see my dad a lot,” Martin says, “and we didn’t do much in the way of family vacations. I think one of the reasons I started working for the company as a teenager was the opportunity to spend more time with him.”
“My parents had a very bad marriage,” Roger recalls. “It’s like they broke up, but then it lasted another 23 years. Just a bad situation, constant fighting and arguing and kids hearing stuff they shouldn’t hear at a young age.”
The stores, however, were an immediate hit. They quickly grew into a small chain and then acquired a discount health and beauty aid chain in Philadelphia, Martin’s. Initially, the stores did not sell pharmaceuticals. It wasn’t until they swallowed a drugstore chain that they found themselves in that business. The stores were called Thrif-D and Rack Rite before going public in the late ’60s. “Merrill Lynch, our underwriter, said they sounded like schlock names: ‘Come up with another one,’” Alex recalls. “We’d selected Rite Aid for our private-label products, so we used that.”
With an impending stock sale came the question of equity. While Alex had built the family business into a small empire, he didn’t own any of it. He assumed that since the retail business had been his baby all along, his father-in-law would give him half. Instead, his father-in-law gave him a hard time, and a very uncomfortable negotiation ended with Alex grudgingly accepting 30 percent of Rite Aid, along with a similar stake in the family’s other two businesses. Equity shares were given to Ben Lehrman’s two sons—one of whom, Lew, had become active in the business—but not to Ben’s daughter, Alex’s wife.
Lew Lehrman was 11 years younger than Alex and had joined the company full-time in 1964. What he brought to the business—youth, charm and a less provincial perspective—clearly helped drive the company to the next level. Much more than Alex, he was the personality type to be lionized by Wall Street. Together, the pair was great for Rite Aid’s bottom line. But in family businesses there are two bottom lines, one for business and one for family. The family ledger showed mounting red ink, beginning with a disagreement over titles after the company went public. “My father-in-law lived through Lew,” Alex recalls. “My father-in-law never went to college, so his satisfaction came from the fact that his son went to Yale, went to Harvard. So he wanted Lewis to become president of the company, and after some discussion, I agreed to become chairman of the board and CEO.”
Roger recalls this story somewhat differently: “Lew tried to knock my dad out of the top spot,” he says. “That is one of the keystone events in my dad’s life. … After something like that, you don’t trust anybody.”
The 1968 initial public offering made all the equity holders millionaires overnight. Roger remembers his father beckoning him to come over and look at something on his bureau. “There were two checks, one made out to Mom, one to him, for a total of over $10 million dollars,” he says. “I was sorta blown away.”
Alex doubts they were actual checks—“I may have had photostats”—but recalls the powerful feeling of being able to “convert my net worth into something that was very tangible and measurable. It put some real money in my pocket for the first time. I had been a workaholic, and so this was tangible satisfaction.” Alex had married into a family that was considerably higher up on the social food chain than his. Now he had his own money.
But the money brought no peace. The power struggle “blew up our family,” Roger says. “My mom broke off her relationship with her brothers and father. And my dad stopped talking to Ben. He never talked to him again. Every day he walked right past him, like he wasn’t even there.” Also in 1968, Rose Lehrman, the family matriarch and perhaps the only person to whom everyone was still speaking, died. In 1972, Alex and Lois Grass divorced.
There were several other stock offerings in the next few years, and the surging price and frequent splits of Rite Aid shares were often the topic of discussion around town, since so many members of the close-knit Harrisburg Jewish community were betting on the local family’s continued success. The Grass and Lehrman families were remarkably powerful and generous: Nobody ever criticized them for not giving anything back to the community or to charities in the United States and Israel.
But while their fortunes were coveted, their lives were not envied. “We have a saying in our family,” Roger jokes, “we’re not happy unless we’re unhappy. You know what UJA stands for? ‘Unhappy Jews of America.’ My dad could just never get comfortable with what he accomplished. He’s always looking over his shoulder.”
By the early ’80s, the next generation had already settled in at Rite Aid. Martin had received a B.A. from Penn and an MBA from Cornell and was clearly being groomed to succeed his father—as anyone would have assumed back when he swapped summer camp at the age of 14 for a job in the company print shop making Day-Glo banners. His only hobby was learning how to fly at 15; he’d become enamored watching the pilot who flew his dad around to the locations of their stores. Whether it was just the nature of his personality or the bunker mentality of a family business governed by the rules of the Securities and Exchange Commission, Martin does not recall being genuinely close with anyone outside of Rite Aid until he married in 1987. He was closest to his father and his gregarious, mercurial younger brother.
Roger received a B.A. from Penn, and while he, too, had worked summers in the family business, he initially chose the training program of another company. Then his father and brother had a talk with him. “It was the first time my dad ever sold me anything about Rite Aid,” Roger recalls. “He never asked us to come into the business and buy into the program. This time, he was working me. And Martin is there smiling at me—he knew my dad was working me. And then, at the end of the conversation, we’re sitting around drinking Jack Daniels—vintage my dad—and he says, ‘By the way, what were you going to get paid down there?’ I told him $11,500. He said, ‘Well, this is Harrisburg. I’m going to hire you at $10,500,’ and if I hadn’t taken it, it would have been about my manhood.
“That’s my dad—everything is about your manhood. My father would reciteInvictus: ‘I am the master of my fate, I am the captain of my soul,’ you know—‘My head is bloody but unbowed. …’ My father was a very serious guy. …But he could motivate the crap out of people.”
The boys had been with the company for only a few years when, in 1982, their uncle Lew Lehrman made his tenure at Rite Aid a major campaign issue in his run to be governor of New York. And as with all campaign issues, the rhetoric overshot some of the facts. Alex, Martin and Roger took it personally. “History was being distorted,” Alex recalls today. “My achievement was being clouded.”
Roger describes the situation more colorfully. “Initially, my dad’s attitude was, ’I don’t give a shit about what they say about Lew,’” he recalls. “We said, ‘Dad, you busted your ass for all these years. We have scars from the way we were raised. And now he’s gonna steal your legacy?’ …No matter how bad my dad treated me, if you screw my dad, I’ll kill you. It is for me to insult and critique him, and not anybody else.”
Alex recalls being initially supportive of his former brother-in-law’s ambitions, donating money to the campaign. He also recalls seeing “a piece of campaign material on which [Lew] was not even a founder, but the founder of the Rite Aid corporation. I concluded he was responsible, because in my knowledge of him, that kind of mistake would not have occurred.”
The issue exploded into the public eye in late March of 1982, when New Yorkmagazine featured an article by Michael Kramer called WHO IS THIS GUY LEW LEHRMAN? The piece included an interview with Alex Grass, who believed that by talking to Kramer, he would set the record straight—but in so doing set it a little too straight. “I don’t mean to denigrate Lew,” he is quoted as saying, “I just want to set out the facts.” After years of generally respectful coverage in the media—the worst of which was independent drugstore owners bemoaning the Rite Aid juggernaut—Grass didn’t seem to realize that openly discussing the family squabble was like throwing chum into the water. He invited the media sharks to use family feuds as a way of making a modestly interesting candidate fascinating: Nobody likes a politician, but everyone loves a good brotherly screaming match. Kramer called Rite Aid board members and even the company’s senior vice president, lawyer Franklin Brown, trolling for quotes about the relationship between Alex and Lew and a comparison of their roles at Rite Aid. Kramer was able to fill half his story with the quotes, some of which were not kind to Alex. Those from Franklin Brown, Alex Grass’s top adviser, were the most damaging. “I don’t want to detract from Alex,” he began one explanation, which, of course, did.
Three weeks later, Alex Grass sued New York magazine, Kramer and one of the Rite Aid board members who spoke to New York. Then Franklin Brown took out a three-quarter-page ad in the New York Times—with $20,000 of what he said was his own money—declaring that the New York article was misleading and his remarks were misrepresented. After Kramer did a raucous follow-up inNew York, the story made the front page of the Wall Street Journal.
In the piece, the Lehrmans and Grasses all threw shampoo in each others’ eyes. Lois Lehrman Grass told the Journal she sided with her ex-husband instead of her brother. “Gibby” Lehrman, Lewis’s twin, moaned, “Thank God my mother isn’t here to see this.” Three months later, Alex sued another New York source.
The entire affair was believed to have hurt Lehrman’s campaign down the stretch; he ended up losing by only 3 percent. Eight months after the election, Alex Grass got a printed apology in New York and withdrew his suits. While the magazine said it regretted any embarrassment he suffered because of “derogatory and misleading statements,” the sources did not deny making the statements but “retracted” them and apologized.
After it was over, Alex Grass and his two sons got back down to business. Martin was in the real estate department, making deals for new store locations. Roger was in purchasing, learning from scratch how to be the pharmacy buyer, then the candy buyer, and then taking over purchasing for drugstore business. Martin, conservative and controlled, was more the corporate-office type. Roger, with his oversize personality and coarse honesty, was better-known at the store level, not only to longtime Rite Aid managers and pharmacists but to the trembling employees of the chains that Rite Aid picked apart or swallowed whole.
Although Martin was older, it was Roger who settled down first. In 1984, he married Laurie Frankston, who came from a very observant Conservative Jewish family and was considered a surprising choice for the likes of Roger Grass, the rich child of divorced Reform Jews who were culturally and philanthropically active but completely nonobservant.
Three years later, Martin, then 33, married Jody Harrison, a design consultant from a prominent family in Norfolk, Virginia. Her mother is the legendary Edie Harrison, a spitfire political activist and liberal Democrat who served in the Virginia General Assembly and founded the Virginia Opera Association.
By that year, 1987, it seemed 59-year-old Alex Grass finally had his family and his business where he wanted them. He had long since remarried, and he had just finished a two-year stint as national chairman of the United Jewish Appeal, one of the most important positions in Jewish philanthropy. (One of the best incentives to donate money is an invitation to his home, where he has an extraordinary collection of paintings by Picasso, Monet and Lichtenstein.) Both of his boys were rising to the top at Rite Aid, and the company was doing extremely well.
That summer, Forbes did a glowing story on the company, by then the largest drugstore chain in America, with 2,050 outlets in 22 states. Even though the company’s $1.7 billion in sales and earnings of $77.9 million did not top the industry, its net profit margin of 4.3 percent and its five-year return on equity of 22.9 percent were the best in the business. The stores were described as “almost garish,” catering to “the middle class, and below,” with advertising that was “downright chintzy.” But Grass was making an unglamorous, lowbrow fortune. He and his family controlled 10 percent of the company’s shares. At that time, their stake would have been worth nearly $150 million.
By posing for the photo in Forbes with his sons, Alex was sending a message about where the company was going. The text made it clear that Martin now had the “number two spot in the company,” but Roger, who had risen to senior V.P. in charge of marketing, was a major player, too. To the outside world, it looked like one big, happy family business.
Anyone with even a smattering of human insight could look at this photo of a powerful father and his two smart, hungry sons and guess at the divisive forces at work. There is generational competition: Father thinks the sons want too much too soon, sons think the father wants too much control for too long. Then there is the brotherly competition, the unlevel playing field that favors the firstborn as well as the larger battle between siblings who are the products of nearly the exact same biology and sociology but still come out entirely different. Turn up the volume level to 11—because Alex, Martin and Roger Grass are all capable of being brutal, confrontational and unflinchingly Machiavellian—and give the prize money seven or eight zeros, and you have the makings of a family business where everyone keeps saying, “There’s more than enough to go around,” yet there is never, ever, enough.
As the years passed, Roger felt he could no longer deal with the reality of his future at Rite Aid. Martin says Roger’s basic problem was that he was never going to be in charge at the company. Roger admits that he “loved everything about working at Rite Aid except the dynamic of ‘I can never catch my brother no matter what.’ … Now that I have sons of my own, I understand the whole thing better. Unless my oldest was, like, mentally retarded, I would do the same thing my dad did. … But at the time, it was difficult. …When the proxy comes out in the annual report and I’m making $175,000 and Martin’s making $250,000, it’s, like, tell me—is he $75,000 better than me?”
But Roger insists that the more important problem was the way his father was treating both of them. “Everybody at the senior level knew there was friction with Alex,” he recalls. The dynamic being played out was one that often occurs in a family business. “Alex was less involved with everyday operations and wanted to take more time off,” Roger says. “But he felt his authority was going to be diminished by Martin and me. When he would get back from vacation, he would get pretty visceral with everybody the first day. He’d be, like, coming in, breaking shit up and then in the afternoon saying, ‘Okay, you guys go back and run the business—I just want you to know I’m in charge and I’m the boss.’ I hated being in business that way. The whole dynamic sucked. It was never about Martin and me competing. If I ran a division managers meeting, I knew that if my father came in, I should switch gears into something that didn’t matter, because it was not beyond him to correct me in front of 25 subordinates. It was like Woody Hayes slapping that player on national TV. I mean, kick my ass, but do it in private. Don’t humiliate me in front of people, because I hate you for it. I fought back. Martin just absorbed the blows.”
Martin is more circumspect in his description. “When you’re working in a family business where the father is extremely aggressive and accomplished and self-made, there are always times of tension. … I’m not a sycophant, I don’t agree because he’s my father… [but] in a group or privately, I was never looking to create friction.”
Alex Grass does not care to respond directly to questions on personal matters such as these. “I don’t want to get into a public discussion or argument as to what occurred,” he says. “All I want to talk about is my record and my achievement and let what I did stand on its own.”
The year 1988 had already been a difficult one for Martin. In June, his first child, a son, was delivered stillborn. (He and his wife now have three children.) Not long after, Roger began saying that he wanted to leave the company. From mid-1988 on, however, Martin’s and Roger’s family narratives become different stories.
Martin says his brother decided to leave the firm when it became obvious that Alex was soon going to name Martin president—his official heir apparent. “Roger came in around Thanksgiving and said he was going to resign,” Martin says. “I thought he was crazy. I couldn’t understand why he was walking away from this tremendous position he had. He was in charge of purchasing, and by any estimate he was one of the top half dozen people in the business. But he was emphatic that he was going to be his own boss and do his own thing.… It’s hurtful that he couldn’t feel comfortable that the place was big enough for both of us.”
When Roger is told of Martin’s recollections, his eyes bug out from behind his wire-rims. He says he is going to tell me what really happened and how far he and Martin had been willing to go to “move the succession process along,” something the two brothers talked about constantly when Roger was with the company. The story comes complete with visual aids (which he runs upstairs to get), a very ’80s financial theme, and a really unhappy ending, one that Roger still rewrites in his mind at least once a day. It’s a story that has never been revealed publicly.
“When LBOs [leveraged buyouts] were first happening,” Roger says, “I was becoming friendly with a guy who was at Drexel Burnham, and we put together a business plan to buy back all my father’s stock—like, $100 million. We’d let him remain chairman of the board, but Martin would run it and I’d be number two, and that would be it. It would be veiled as a partial recapitalization of the company, buying back 50 percent of all the stock. Martin got everybody on board. It was the top five executives, highest level, totally covert. Martin and I met at my house, had lunch there with the Drexel investment bankers.… I said, ‘Marty, this is the moment of truth. You gotta lead. You gotta look the old man in the eye and say if you don’t do this deal, we’re both outta here.’ That was the only leverage we had.”
The deal, for which Roger still retains the blue “Project Keystone” proposal book from Drexel Burnham, would also have given Martin, Roger and other inside management enough incentive stock that each son would have more shares than his father.
In retelling this story, Roger finds it hard to believe what was being planned. “I was 33, Martin was 35—it’s a little obnoxious,” he says. “Here’s this $2 billion to $3 billion company my dad had built from scratch, and we thought we’d done all the heavy lifting after, what, 10 years? But we didn’t see anything wrong with that at the time. You have to get a little older. The point is, however, you don’t get that way on your own. If you work in an environment that says, ‘Kill anyone, kill anything,’ that’s what happens.”
Roger says Martin agreed to take the “Project Keystone” plan to the company’s high-powered board of directors. “Marty says, ‘Don’t worry, buddy, we’re gonna do it, ’” Roger recalls. “From August through November, Martin would say, ‘I went to New York and had a meeting with Leonard Stern [of the Hartz Group], and I’m getting him on board.’ He said he had four or five meetings with different board members, and he would tell me all the nuances. And I was saying, ‘Good, because I can’t take this much more.’
“It gets to be around November, and I said to Marty, ‘If we don’t tell Dad now, I’m outta here.’ So Martin is going to New York to have this last important meeting with Leonard Stern. What Martin doesn’t know is that I developed a relationship with Leonard Stern over the years. I’d see him at the annual meeting [Roger was on the board], and he’d say, ‘Why are you still here, why don’t you get the hell out of here if you’re so miserable? I had an autocratic father—I know.’ And I had visited him a couple times, just to talk. So Marty calls me a few days before Thanksgiving, and I ask how it went with Leonard Stern, and he told me it went great—‘It’s great, don’t worry, buddy.’ And I’m excited—oh, man, he’s gonna step up, he’s gonna go see dad, we’re already there.
“And then Leonard Stern called me back later that day about something else, and I said, ‘How did your meeting go with Martin?’ And he said, ‘What meeting?’ And I said, ‘Haven’t you had a number of meetings with Martin?’ No. ‘Phone calls?’ No.
“I was crushed! The next day, Martin and I are supposed to fly to Kentucky on the company jet. And I get on the plane with him, and I’m, like, in the sequence where Michael Corleone is talking and he’s hearing nothing. Martin is talking to me—‘Leonard says this’—and it’s all a lie. And I’m listening to this, and I can’t even begin to explain to you what it feels like—the depth of the deception was beyond the beyond.”
Roger says he waited until they were back in the office the next day to confront his older brother. “I just went off on him,” he says. “’How could you do this to me? Just tell me you don’t want to do this thing. What are you fucking doing? How do you expect to run this company? You’re not a man. How can you live with yourself?’”
On that day, Roger Grass knew he was done at Rite Aid. The next day, Thanksgiving, his father called and said he’d heard the brothers had a blowup. “I told him the whole story,” Roger recalls. “He sat there, and he was in shock. I said, ‘At least I can look you in the eye and say, I love you because you’re my dad but I can’t stand working with you, it’s killing me. And Martin and I wanted to throw your ass out!’”
Later in the day, the three men met at the office. “We’re supposed to be at my mom’s house for Thanksgiving dinner,” Roger recalls. “Instead, we’re there. My dad says to Martin, ‘Roger told me this whole story; is it true?’ He wouldn’t answer. I said, ‘Marty, why don’t you fucking be a man?’ He wouldn’t answer. What happened was, my dad said to me, ‘I don’t believe you.’”
Martin today calls his brother’s story “ridiculous” and “crazy,” insisting, “There is no truth that we did anything but listen to a presentation.… That’s as far as it went. … If he said that’s why he left the business, because we wouldn’t do an LBO, that’s a little surprising.… He wanted to run his own business. It wasn’t in the cards that he was going to run Rite Aid.… Ninety-nine-point-nine percent of people believe he left because he wasn’t going to be president and I was. … The real situation is that Roger thought there should be some kind of co-president.”
Martin does concede that he was at the meeting with Drexel Burnham that Roger described and his father was not. “But I never contemplated [doing] it,” he says. “I saw it as an unrealistic proposal by friends in the business who make fees by doing deals and who enticed Roger to invite me over to a meeting. During that period of time, with all the LBO fever, my dad and I probably met with five different investment bankers. Most of the presentations I went to with my dad and without Roger.”
Three weeks after Thanksgiving, Alex called Roger and asked him to come to the house. “Dad said, ‘I can’t believe you,’ and I said, ‘Believe whatever you want to believe, ’” Roger recalls. “He said, ’I just believe your brother didn’t want to tell you he didn’t want to do it.’”
Then their conversation took a turn that would cost them seven years of their father-son relationship.
“So, what deals are we going to do together? I’m willing to put up $1.5 million in any deal,” Roger recalls his father offering. In return, however, “He said, ‘I want you to sign over the rights to your Rite Aid stock to me.’ It was stock he had given to me since the inception of the company.
“I said, ‘What, are you out of your fucking mind? I’m not signing over anything.’” The stock, at that time, was worth over $20 million.
Several weeks later, they met again to discuss finances. “My dad says to me, ‘Well, I have brought a document home, and I want you sign over the rights to your Rite Aid stock to me, ’” Roger recalls. “I said, ‘I’m not gonna let you have the stock; it’s mine.’ He was controlling everyone’s money. He thought it was all his money.…
“He said, ‘If you don’t sign it over, I’m done with you. And I’m cutting you out of the Super Rite deal.’”
Super Rite was the wholesale and retail grocery business the old Louis Lehrman & Son had become when Rite Aid took it public in 1983. Alex was negotiating to buy out Rite Aid’s stock in the company and take it private again—assuming, correctly, as it turned out, that he would be able to take it public again later at a better price. Roger estimates his share of the Super Rite deal alone would eventually have been worth over $15 million.
When Roger wouldn’t sign over the stock, his father threatened legal action. Roger threatened back. “We took it to him,” he recalls. “We sent him a brief, saying we were going to sue him. We said, ‘You don’t want this to become public,’ and he turned over the stock.” But Roger was cut out of everything else, and the other family members were forced to choose sides.
“The whole thing probably cost me $50 million,” Roger says. “But to have a decent life and get away from that cuckoo business, it’s been worth every dime. No amount of money could make me stay. It was kind of like, ‘If you stay in the business, you’ll be dead.’ My wife would have left me. I was mistreating her, because I was drinking. It was a bad time.”
He and Laurie had two sons then, and she was pregnant with their third. In the months to come, Roger got involved with a deal, along with Robert Bass’s Texas-based investment group Acadia, to buy an ailing 120-store pharmacy chain based in Indianapolis. A half dozen mid-level Rite Aid executives came with him to the company, renamed Reliable Drug stores, leading his father to mount legal action, which he later dropped.
Roger and his father didn’t speak for seven years. Roger and Martin didn’t speak for many months. The first time they talked was in April 1989, only weeks after Martin had been named president of the company. Roger just wanted to make sure his brother was okay, because Martin had been arrested in a Cleveland airport hotel room for allegedly attempting to bribe a state pharmacy board member.
Today, when you enter Martin Grass’s spacious split-level office, you can’t help but notice a framed letter and check on the wall leading into the main room. (On Fridays, you also can’t help but notice the boxes of Revonah pretzels he has delivered.) The letter is from the pharmacy board member, apologizing for the sting he led Martin into and the resulting criminal indictment, which a judge threw out a year later after hearing the prosecution’s case.
In one of many mergers and unfriendly takeovers in America’s chain drugstore business, Rite Aid had swallowed the Ohio-based Peoples Drug Store chain whole. The state pharmacy board member, a pharmacist from Peoples, tried to foil the takeover by accusing Grass of bribing him. The company argued this was just a typical hardball severance agreement: The pharmacist was being offered a corporate check for $33,249.93 to leave the company and resign as its representative on the board, so Rite Aid could replace him with someone who represented them. One could question the wisdom of so high-ranking an official in the company carrying out such a midlevel, unpleasant airport-hotel transaction—which cost the company an estimated $2.5 million in legal fees, as well as endless bad press before the case was dropped. But once indicted, Grass fought back with bravado.
“It would have been the first time in history that a company had used a corporate check for bribery,” Martin notes, chuckling. “The government came to me right before the trial and said, ‘If you’ll plead to this …’ We told them to go fuck themselves. It was a great experience, because it toughens you up.”
The case was Martin Grass’s introduction to business in the ’90s. Since then, his industry has undergone massive consolidation as pharmacy profits have been squeezed like a toothpaste tube by managed care systems and again by pharmaceutical companies—even as drug sales have risen over 50 percent and the number of prescriptions has gone up by over 25 percent. The ethos of the pharmacy business is grow or die.
Out in Indianapolis, Martin’s brother Roger learned that the hard way. His small Reliable chain grew to 333 stores through takeovers, but it eventually died: The stores were not in great locations, and the deal collapsed under the weight of its own debt after a recapitalization. In 1993, the company declared bankruptcy. Some of its stores ended up being bought by Rite Aid. “I grew up out there in Indiana,” Roger recalls. “And I started to appreciate what it must have been like for my dad to have the $3 billion company and every week having these kids come in and say, ‘Hey, give me more! Gimme gimme gimme. When are you leaving? You know, you worked your ass off for all these years, but get out of here now!’
“I also started understanding what it was like to be a father. I realized my life, my wife, my kids, all these things were more important to me, and all the other stuff was crap. All of this money, what did it lead us to? What did all this money do? What do we have to show for it? … You have this fractured, decimated family that has a lot of money.”
Even though Alex wasn’t speaking to Roger during this time, Martin was—he would occasionally fly out to see his brother for a day without letting their father know. Interestingly, Roger’s wife, Laurie, had remained in touch with Alex Grass and would sometimes take the children to visit their grandfather. Alex would ask her how Roger was, and Roger would ask about Alex, but they never spoke. When the two finally reconciled, it was primarily because Laurie had worked so hard to remain the tether between them.
In April 1994, Rite Aid Corporation made an announcement that surprised no one. In the coming year, Martin Grass was going to be elevated to chief executive officer of the company, and his father would remain as chairman of the board.
Yet in February 1995, the company made a different announcement: Martin was now CEO and chairman of the board. Alex Grass was left only as chairman of the board’s executive committee. The change, dismissed as unimportant at the time, clearly is important.
When asked, Martin initially shrugs it off as insignificant. “When my dad said, ’I’m going to give up being CEO,’ in essence he was saying, ‘I’m retired from the business,’” he explains. “There was never a lot of thought about precisely what this title meant. The next year rolled around, and he gave some thought to it and decided he would be chairman of the executive committee and I’d be chairman and CEO.… That was pretty much according to his wishes and desires and the plan. …He wasn’t pushed aside.”
Roger recalls the situation much differently: “Martin and I are talking, and he says, ‘Well, buddy, the moment of truth has come.… I’m knocking dad out of the box. It’s going down tomorrow.’ Martin did go to Leonard Stern and other board members individually and say, ‘The company is in chaos—he needs to go.’”
Alex Grass was on his way back from Israel when Martin was telling Roger that the board was going to insist the company founder give up being chairman. Alex found out from Martin only just before the meeting.
“Okay, maybe he needed to go,” Roger says. “My objection was, why don’t you look him in the eye if you want him to leave the company? Be a man. Don’t weasel around it … and also, okay, he’s a pain in the ass. But he’s your father.How can you not let your dad be chairman of the board? You’ll kill him. C’mon, it’s the end of his career. You’ll do this to your father, who made you rich? It boggles my mind.”
Confronted with Roger’s colorful play-by-play, Martin concedes that Alex was told without warning just before the board met. He insists, however, that it was a board decision he had nothing to do with. But he does admit he and his father had disagreed about what his “retirement” would really mean.
“I don’t think this was an issue of titles, to be really honest,” Martin says. “He thought in his heart that there were some things he had been doing forever that he could keep a hand in, primarily things he was interested in—like pricing, especially the retail pricing in non-pharmaceuticals. That was his inclination, to keep his hand in the business that way. The board concluded it would make an easier transition [if he didn’t].”
There was also a matter of ancillary specialty companies that Rite Aid was selling off to focus on its core business, and that Alex was buying himself. He did not purchase Encore Books or Concord Custom Cleaners when Rite Aid sold them that year. But he had taken Super Rite private and then public again at a handsome profit. “When it went public at much higher value, it made the board look stupid,” Roger observes. “Boards are reluctant to let that happen.” And Alex was in the process of trying to buy, among other divisions, the company’s New Jersey-based blood-banking business, Sera-Tec Biologicals, for $70 million.
“The board was frosted about dad buying other businesses,” Roger explains. “Martin used that as a way to wedge the old man out of chairman of the board. Yet [Martin] was participating as a silent partner on those deals.” Alex Grass confirms that Martin has an ownership position in Sera-Tec. Martin says he does not, but that part of the company has been put into trust for his children. He also says the issue wasn’t Alex’s ownership of the business: “The concern was, he was going to be actively involved in the business.”
When asked what he was thinking at the time about how these actions would play out with his father, Martin tries to take a step back from the situation. “What was going through my head when this was happening,” he says, “was that this probably would never have been an issue in a typical corporation if it wasn’t a son taking over. In 99 percent of corporations, the person who is CEO becomes chairman. I was caught in the middle a little bit. If I hadn’t been a son, they would have said, ‘You’re the chairman and CEO’ maybe when it was originally announced.”
But didn’t you think your father would be pissed off?
“I don’t know if he was pissed,” he replies with a shrug. “I don’t think he was jumping up and down and happy about it. We don’t talk about it. It strained our relationship a little bit.”
How is your relationship today, three years later?
“It stays strained,” he says.
“My dad is in his 70s,” Roger tells me. “I said to Martin, ‘You don’t want to look down at the coffin and say, I dumped on this guy.’ … My father can definitely be Joseph Stalin, and I didn’t talk to him for seven years. But I think my father has been terrific lately, and I don’t think Martin’s behavior has been as good. … If you’re Bill Clinton and you’ve just been elected president of the United States, you don’t get up and say, ‘What a piece of shit George Bush is.’”
After our initial interview, Roger does unburden himself to his father, in a searing, deeply apologetic four-page, single-spaced letter. The missive (which he shared with me) not only recounts his version of the Project Keystone saga but betrays some closely held brotherly secrets from the distant past—the kind of stuff one only shares with a parent when trying to knock a sibling out of the box.
When I ask Alex Grass to comment on all this newly exposed family business, he declares, “I don’t want to discuss any of that,” and then he just stares me down. But ultimately, he can’t help himself. While he will not directly discuss what Martin or the board did, he cannot leave unchallenged the dangling notion that the broad repositioning Rite Aid undertook in the year of his retirement represented changes made against his wishes, almost as a remedy to his last years in power. Instead Alex mails me a copy of Rite Aid’s 1995 annual report, his last as chairman of the board. On the pages where the major changes are laid out in a “Letter to Stockholders ”—the changes that have been the foundation of his son’s P.R. as CEO—Alex has written in red ink, “I played an integral role in the introduction of all the initiatives referred to in paragraphs 1-2-3-4.” Above the section discussing the company’s buyout of the 224-unit Michigan-based Perry Drug Store chain—its single largest acquisition at that time—he has written, “I spent a lot of time on this. The CEO … was an old friend of mine.” His written comments are consistent with ones he made in passing to me about the precipitous rise in the company’s stock price since his departure, suggesting it was partially attributable to the bullish market.
I mention this to Martin during a follow-up interview. The next day he calls, concerned that “anyone is making statements that this was the bull market or about all the things that were in place before I took over and I just acted as a steward.” He suggests I call one of the Wall Street analysts who cover the company. I ask for their names and numbers, but decide not to call because I don’t want to even pretend I can settle this battle. Several days later, I get a call from the office of Eric Bosshard of Midwest Research, the most frequently quoted analyst covering the company, asking if I want to speak with him about Martin Grass.
Two weeks later, Martin calls me to ask how the article is going. Although we have covered a dizzying variety of personal and professional subjects in our interviews, the only question he has is whether I will be contacting those analysts about the status of the company under his leadership as opposed to that of his father.
He is sanguine about his family situation. “I don’t know that we’ve had any more problems than any other family,” he says. “Everybody gets along fairly well today. Everybody is on speaking terms. There’s no family litigation.”
Now that he has his father’s job, he sees himself being judged solely by how the business does, not by how the family does. What is incomprehensible to him is letting such personal strains damage the economic future of the family business. “What I’ve never understood,” he says, “are these families that blow it all over money and control. I mean, what did those people work so hard for?”
[Photo Credit: JJBers via Wikimedia Commons]
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