Question

MALDEN MILLS CASE STUDY

During the early evening hours of December 11, 1995, a fire broke out in a textile mill in Lawrence, Massachusetts. By morning, the fire had destroyed most of Malden Mills, the manufacturer of Polartec fabric. The fire seemed a disaster to the company, its employees, its customers, and the surrounding communities.

Malden Mills was a family-owned business, founded in 1906 and run by the founder’s grandson, Aaron Feuerstein. Polartec is a high-quality fabric well known for its use in the outdoor apparel featured by such popular companies as L.L. Bean, Lands’ End, REI, J. Crew, and Eddie Bauer. The disaster promised many headaches for Malden Mills and for the numerous businesses that depend on its products.

The fire also was a disaster for an entire community. The towns surrounding the Malden Mills plant have long been home to textile manufacturing. But the industry effectively died during the middle decades of the twentieth century when outdated factories and increasing labor costs led many companies to abandon the area and relocate, first to the nonunionized South, and later to foreign countries such as Mexico and Taiwan. As happened in many northern manufacturing towns, the loss of major industries, along with their jobs and tax base, began a long period of economic decline from which many have never recovered. Malden Mills was the last major textile manufacturer in town, and with 2,400 employees, it supplied the economic lifeblood for the surrounding communities. With both its payroll and taxes, Malden Mills contributed approximately $100 million a year into the local economy.

As CEO and president, Aaron Feuerstein faced some major decisions. He could have used the fire as an opportunity to follow his local competitors and relocate to a more economically attractive area. He certainly could have found a location with lower taxes and cheaper labor and thus have maximized his earning potential. He could have simply taken the insurance money and decided not to reopen at all. Instead, as the fire was still smoldering, Feuerstein pledged to rebuild his plant at the same location and keep the jobs in the local community. But even more surprising, he promised to continue paying his employees and extend their medical coverage until they could come back to work.

Answer the following questions based on the above case:

1. What is the central problem faced by Aaron Feuerstein?

2. Identify the groups (stakeholders) that will be affected by the company’s response to the central problem?

3. What, if any, duties does Malden Mills have to each stakeholder?

4. What were the possible options Aaron Feuerstein could have considered?
5. Evaluate the options:
   1. Which option will do the most good and the least harm?
   2. What are the economic consequences of each?
   3. What are the legal requirements?
   4. Will everyone’s rights and dignity still be respected?
   5. Which option is the most “fair”?
   6. Which option would you have chosen?
   7. If you had to explain your decision on television, what would you say?

Answer 1

Central problem faced by Aaron Feuerstein is of the fire engulfing his mill as most of the mill was destroyed because of the fire.

The stakeholders which will be affected are the company's employees, customers and surrounding communities. Basically a great number of people who help contribute $100mn a year to the local economy.

Malden Mills has to ensure that they are able to convey appropriately what future steps they take regarding the company.

Aaron Feuerstein could have considered keeping a smaller plant and creating a bigger plant overseas with reduced costs. Or keeping a backoffice in the current location which could handle the local customers and other employees such as lawyers, accountants.

a. The option of rebuilding the plant at the same location will do the most good and the least harm as its employees would be retained, this will increase the loyalty of the workforce. Plus the company won't have to start from scratch and think of a new supply chain, employees and customers in a foreign market.

b. Economic consequences of relocating are finding new employees and passing the regulatory aspects of that area. Of taking the insurance money and not opening could have been no jobs in the local market for those employees and no stability of future cash flow for the owner. Economic consequences of opening the mill could be increased expenditure in the face of major competition from overseas.

c. Legal requirements could have been settling the medical insurance and passing it on to the employees. Manufacturing a sound structure so that there are no other costs and no chances of a fire engulfing the mill when the workers are present.

d Yes, it will be respected as everyone is being kept in the workforce, if they would have been laid off then their rights would not have been respected.

e. Restarting the firm and rebuilding the firm is the most fair option as it will help drive the local economy.

f. Restarting as the entire local economy is dependent on it. People's livelihood would have been forsaken if their jobs would have been taken away.

g. I would say that in order to maintain stability in the local economy and help ensure that jobs are not forsaken, the mill needs to be rebuilt with improved infrastructure and technical efficiencies.