Business ethics case of malden mills

Introduction

On December 11, 1995 a fire burned most of Malden Mills to the ground and put 3,000 people out of work. Most of the 3,000 thought they were out of work permanently. A few employees were with the CEO in the parking lot during the fire and heard him say “This is not the end. ” With these words began a saga that has made Aaron Feuerstein a legend among American leaders and a hero to his employees, (Boulay, Art). Central Facts about the case

In the 1980’s Malden Mills had gone bankrupt when the market for the fake fur, (which they produced), dried up. Conversely, Mill’s continued its production of upholstery fabric and developed a new fleece product, Poalartec, and made a very successful recovery, (DeGeorge, Richard). Aaron Feuerstein was the third generation owner and CEO of Malden Mills in Lawrence, Mass. Even though the massive fire in 1995 nearly destroyed the whole place, Feuerstein continued to pay all of his workers their full wages, refusing to lay any of them off, and was determined to rebuild.

He felt he owed it to his employees since they had always done their greatest for him and for the mill and for this, he became a case study in how to treat employees, (DeGeorge, Richard T). In 2001, the tables turned and Polartec’s popularity declined, Malden Mills was forced into Chapter 11 bankruptcy-court protection. By 2003, the company had emerged from bankruptcy with the company lenders in control and a debt of $180 million dollars. By 2004, Feuerstein was still trying to raise enough credit to buy back control of the company, (DeGeorge, Richard T. . The filing was necessitated by the cost of servicing bank debt. A number of factors contributed, including a sluggish retail market, the high costs associated with rebuilding and the closure of the company’s upholstery division after a significant market share loss as a result of the fire. Malden Mills, a privately-held company, worked with its lenders and strategic advisors and determined that a Chapter 11 filing was the best way to reorganize the company for continuing operations and for building on its unique position as a brand innovator.

Through Chapter 11, Malden Mills is fully operational and conducting business as usual. Gorlitz Fleece GmbH, a wholly owned subsidiary of Malden, based in Gorlitz, Germany, will continue operations unaffected by the U. S. filing. Customers worldwide will continue to receive product, without interruption, from both facilities. The U. S. Customer Service Center in Lawrence, MA and the European Customer Service Center in Maastricht, The Netherlands, will also continue to operate as usual and serve customers’ needs. Malden Mills is in an enviable position in the marketplace,” said Feuerstein, “and with this infusion of capital, we will continue to grow the business and retain our preeminent status in the industry. Our customers, employees, and vendors will all be the beneficiaries of this reorganization plan which allows us to focus on our very positive outlook for the future”, (All business) Ethical Responsibilities Deontological moral systems are characterized by a focus upon adherence to independent moral rules or duties.

To make the correct moral choices, we have to understand what our moral duties are and what correct rules exist to regulate those duties. When we follow our duty, we are behaving morally. When we fail to follow our duty, we are behaving immorally. Typically in any deontological system, our duties, rules, and obligations are determined by God. Being moral is thus a matter of obeying God, (Cline, Austin). The key questions which deontological ethical systems ask include:

  • What is my moral duty?
  • What are my moral obligations?
  • How do I weigh one moral duty against another?

As the current owner of a business controlled for many decades by his family, Feuerstein said he made this decision—an important business decision—based upon the religious and cultural legacy of his family, (Narva, Richard). Undoubtedly he consulted his board of directors and possibly his key advisors. But as a member of a family that has done business in Lawrence, Mass. since the earliest years of this century he decided to maintain a precious legacy, the covenant between his family’s business and the community in which it has dwelled, created jobs, and pumped economic ealth for so many years. Malden Mills is the juxtaposition, of family values and competitive economic strength in a global economy, (Narva, Richard). What distinguishes Aaron Feuerstein and other leaders like him is courage. Feuerstein has the valor to stand by his convictions and take the appropriate actions. If Feuerstein showed courage by committing his wealth and good name in rebuilding Malden Mills—he only has done what leaders through the centuries have done. He lead the way, blazed the trail, so that his followers could do the impossible, (Boulay. Art).

Deontological moral systems typically stress the reasons why certain actions are performed. Simply following the correct moral rules is often not sufficient; instead, we have to have the correct motivations. Nevertheless, a correct motivation alone is never a justification for an action in a deontological moral system and cannot be used as a basis for describing an action as morally correct. It is also not enough to simply believe that something is the correct duty to follow. Duties and obligations must be determined objectively and absolutely, not subjectively.

There is no room in deontological systems of skewed feelings; on the contrary, most adherents condemn subjectivism and relativism in all their forms, (Cline, Austin). The moral of the Malden Mills story is that Mr. Feuerstein, his key managers and advisors, are engaged in the leadership and management of what might be called a “heritage company. ” In heritage companies (which are most often family businesses) the owner-managers awake each day and think back two generations and forward two generations before their first cup of coffee.

They are often curiously, quick-tempered, powerful and committed individuals who come in all ages, from all ethnic groups and races and in both genders. But their ethnic, cultural and gender differences are less important than their common desire to have both healthy families and profitable businesses. Their commitments are to legacies, offspring, tradition and community. They do not fit nicely into the American myth of the entrepreneur as lone wolf and successor icon to the pioneers of the American frontier. But they do dominate many markets and industries, hold our communities together and, ith tenacity, manage to pass on both their legacy of values and heritage and assets to the next generation more often than one would believe possible, (Narva, Richard). Analysis and Evaluation Communication is key at Malden Mills. The most important communication is not what you say but what you do. The first major test of Feuerstein’s convictions as a leader came during the bankruptcy. Many CEO’s and Leaders might conclude that a bankrupt textile mill in a 300 year old mill town in 1981 was the end of the road. Not Aaron Feuerstein.

He spent millions to develop a new product and re-opened the mill in Massachusetts with all the high paid workers (by global standards). His firm created Polartec and Polarfleece, revolutionary new products. As a result “Aaron Feuerstein came out of the bankruptcy stronger than he went in”, (Boulay, Art). The fire was the second test, and again Feuerstein vowed to stay in business. These two actions were the most powerful communications he could have made to his workers that he had the courage of his convictions.

He was willing to put his money, reputation and business on the line to move the company forward in an ever changing business climate and ever present risk. When the management gurus write books, articles and speeches about leadership and organization development they always talk about the need to balance the needs of all stakeholders: employees, customers, stockholders, vendors, community and so on. It is not unreasonable to invest millions in your employees, but today most workers see that the stockholder is the only stakeholder that counts, (Boulay, Art). Feuerstein did not throw his money away.

It was not generosity. It was a well reasoned and sound leadership decision to devote millions in Malden Mills’ most critical asset, its workers. The contrast between this CEO and the currently celebrated CEOs making 30, 60 or 100 million dollars a year by eliminating jobs and moving plants is simply astounding. Nearly every company that closed a plant in recent years to boost stock prices has a vision statement with words like …we value and respect our employees as our most important asset? How many of the laid off employees do you suppose believe that? To a leader that has the conviction of his beliefs, words like alue and respect must be backed up with hard decisions and actions. The real test of leadership is maintaining those convictions during change and turmoil. The men and women are truly profiles in courage. And in 1995 they are typically heroes who labor with substantially less public exposure than either the politicians who claim to represent them or the MBA genius who grace the covers of business magazines. Corporations should stop battling about the budget for a moment and ask some owners of Heritage Companies how to protect both jobs and families now and in the future.

They should start with Aaron Feuerstein. , (Narva, Richard). Final Analysis (Recommendation) The story of Malden Mills and Aaron Feuerstein is the story of leadership. Business proceeds in cycles and the most recent cycle is one in which extremely highly paid CEOs are celebrated for cutting costs, downsizing, moving plant to venues of cheap labor and delivering maximum worth to stockholders. Leadership would appear to be synonymous with profit maker. Day-to-day decisions and actions communicate volumes about actual positions on key issues, e. g. talking about productivity and performance but keeping an old friend on the payroll who is notoriously ineffective, or talking about cost control while the company picks up the lease on the executive’s new Mercedes or BMW, (Boulay, Art). Aaron Feuerstein spent millions keeping all 3,000 employees on the payroll with full benefits for 3 months. Why? What did he get for his money? Is he a fool? Did he have some dark motive? Here is Aaron Feuerstein’s answer: “‘the fundamental difference is that I consider our workers an asset, not an expense. Indeed, he believes his job goes beyond just making money for shareholders, even though the only shareholders of Malden Mills are Feuerstein and his family. ‘I have a responsibility to the worker, both blue-collar and white-collar,’ Feuerstein added, his voice taking an edge of steely conviction. ‘I have an equal responsibility to the community. It would have been unconscionable to put 3,000 people on the streets and deliver a death blow to the cities of Lawrence and Methuen. Maybe on paper our company is worth less to Wall Street, but I can tell you it’s worth more.

We’re doing fine”, (Boulay, Art). There are no real recommendations for Malden Mills. From an ethical, philanthropic and economic perspective Aaron Feuerstein, went over and beyond the call of duty. Conclusion The message from Malden Mills is that Aaron Feuerstein did what any rational person might do given time to reflect and with their priorities in perspective. A lesson to many firms, large and small, is to reconsider the priorities of their company. Rethink the values they communicate and how they communicate them to employees, customers, stockholders and their community, (Boulay, Art).

What sets Aaron Feuerstein apart from the CEOs of AT&T (44,000 layoffs), IBM (over 100,000 layoffs) is that he is a leader. He has a conviction that employees are his most critical asset and lives by it. How many corporate CEOs in the downsize-crazed companies today could ask their employees to double production in a few weeks, (Boulay, Art)? Perhaps the most significant thing to understand about deontological moral systems is that their moral principles are completely separated from any consequences which following those principles might have, (Cline, Austin).

Mr. Feuerstein received broad media attention in 1995, when a fire destroyed the Malden Mills plant in Lawrence two weeks before Christmas. Rather than using the $300 million insurance settlement to reestablish the factory overseas, he invested an additional estimated $150 million into rebuilding the factory in the same location. His decisions cost the company millions. While the move went against common business practices, Feuerstein says that he couldn’t justify in his own mind doing anything else, (Heroes of Professional Ethics). Aaron Feuerstein embodies the best of corporate leaders who are willing to risk their own finances for the benefit of other stakeholders,” said Professor Paul Fiorelli, Director of the Cintas Institute for Business Ethics at Xavier University, (Xavier University).

Works Cited:

  1. All business. Malden Mills Files Bankruptsy.
  2. Retrieved September 3, 2009, from http://www. allbusiness. com/retail-trade/miscellaneous-retail-miscellaneous/4457125-1. html Boulay, Art. Malden Mills. A Study in Leadership.
  3. Retrieved September 3, 2009, from http://www. opi-inc. com/malden. htm Cline, Auston. About. com. Deontology and Ethics.
  4. Retrieved September 3, 2009, from http://atheism. about. com/od/ethicalsystems/a/Deontological. htm DeGeorge, Richard T. Business Ethics, 6th Ed 2006 Heroes of Professional Ehtics
  5. Retrieved September 3, 2009, from http://www. heroesofethics. com/speakers. html Kuro5hin. There’s Trouble at The Mill.
  6. Retrieved September 2, 2009, from http://www. kuro5hin. org/story/2001/12/19/114231/18 Narva, Richard L. The Real Story of Malden Mills.
  7. Retrieved September 2, 2009, from http://www. familybusiness. unh. edu/usefulinfo/MaldenMills. html Xavier University. News and Events.
  8. Retrieved September 3, 2009, from http://www. xavier. edu/news/news/6528/1/no
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