Putting people before profits: Classic PR case study, but without the fairytale ending

In class this week, we discussed a case study that PR experts have lauded as “excellence” in employee relations. It involves a CEO who put the welfare of his employees ahead of his own bottom line. He did so in the most trying of circumstances, and his leadership landed him in the textbooks.

Fire at Malden Mills, 1995 (firenuggets.com)

In late 1995, a fire at Malden Mills put 3,000 union jobs at risk. The timing couldn’t have been worse. The 90-year-old manufacturer in Lawrence, Mass., has seen its revenues triple and employment double since emerging from bankruptcy in 1982. It’s popular Polartec and Polarfleece fabrics were one reason. A loyal and productive workforce was the other.

In a time when offshore manufacturing became standard procedure in American business, Malden Mills’ CEO Aaron Feuerstein opted to stay put and to rebuild his factory on the very site where his family had made textiles for 90 years.

But what would the employees do in the meantime?

The fire came just two weeks before Christmas, affecting employees both financially and emotionally. So just 2 days after the blaze, Feuerstein announced plans to pay his employees their full wages for 30 days. He would eventually extend that offer to 90 days for the paychecks, 180 days for benefits. Total cost to Malden Mills: $25 million.

Business madness? Many thought so. But in an interview with CBS News/60 Minutes, Feuerstein disagreed: “I think it was a wise business decision, but that isn’t why I did it. I did it because it was the right thing to do.”

It took years, but Malden rebuilt in Lawrence and eventually hired back all the displaced workers. The workforce repaid Fueurstein with cooperation and productivity. According to the report in the Center & Jackson text, commitment to employees drove significant bottom-line outcomes.

  • Business grew 40% from pre-fire levels.
  • Customer and employee retention reached 95%.
  • Off-quality products dropped from 6-7% pre-fire to just 2%.
  • Production increased from 130,000 to 200,000 yds. per week.

A business fairy tale? It would seem so. Unfortunately, the case doesn’t end here. Feuerstein found himself back in bankruptcy court, saddled with $140 million in debt, much of it tied to the rebuild. The company hired a new president in 2004 as part of the Chapter 11 reorganization. It wasn’t enough.

In 2007, Malden Mills made its 3rd trip to bankruptcy court, this time emerging as a company named for its flagship brand, “Polartec.” It’s still in Lawrence, but employs around 1,000 people worldwide, versus the 3,000 who once worked at the New England mill. Aaron Feuerstein is out of the picture. (Confession: I only spent about an hour searching for updates on this story. If you know more about the post-2007 Malden Mills, please chime in on the comments.)

Did Aaron Fueurstein do the right thing in 1995? Or did he let his high moral principles cloud his business judgment? Putting people before profits certainly seems the ethical thing to do, but is it the prudent thing?

After his decision, Feuerstein became a legend in both business and PR circles — a textbook case in excellence theory. But in the end, he leveraged the business into bankruptcy. No one will question Feuerstein’s good intentions, but there’s no line on the balance sheet for “loyalty” or “ethics.”

The business of business is messy. Always has been. But we don’t often talk about the ugly side of it in our PR casebooks. Instead, we select cases that exemplify symmetrical communication, ethics and trust. And we celebrate them.

When students leave my classroom, few will work for principled managers like Aaron Feuerstein, the man they called the “Mensch of Malden Mills.” If there’s a silver lining to this story, it’s that Polartec remains a great product with a loyal customer base, including me. None of that may have occurred had Feuerstein not saved the day on Dec. 13, 1995.

Sadly, Malden Mills didn’t turn out as such a classic case in employee relations. To me, it’s a depressing reality of business world that makes “maximizing shareholder value” its top priority.

Have a nice weekend! :-)

Here’s part of the “60 Minutes” interview someone posted to YouTube.

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9 Responses to Putting people before profits: Classic PR case study, but without the fairytale ending

  1. Jackie Lloyd says:

    One of the more interesting lessons in ethics class was the one that covered conflicting roles. It seems that Mr. Feuerstein’s role as a good human being won out over his role as a business manager.

    I assume Malden Mills wasn’t a publicly traded company, or shareholders would’ve been seething. But since it was a family-owned business and Feuerstein was going to be the one taking the financial hit for his goodwill, it makes for a nice story.

    I tip my hat to you, Aaron Feuerstein.

  2. Bill Sledzik says:

    Jackie,

    Most of the business case studies on Malden Mills talk of Mr. Feuerstein’s courage and his commitment. No one can question that, nor should they.

    But you are right in saying it would be a much tougher decision for a publicly traded company. So in addition to the lesson about conflicting roles, there’s other lesson about conflicting loyalty. It might have been much harder for Mr. Feuerstein to justify his loyalty to employees had some large institutional investors (or worse, venture capitalists) been standing behind him on that stage in 1995.

    But that may also explain why we see so few of our business executives acting on principle. The world would be a better place with more Aaron Feuersteins.

  3. I don’t think the decision would have even been put forth by a publicly traded company (maybe I’m jaded).

    He did what he felt was right, and many will always think very highly of him. I hope he never questions whether he did the right thing. The world would indeed be a better place with more business leaders who act on principle.

  4. Daniel Miller says:

    I fail to see the correlation between a decision made in 1995 and the bankruptcy filings in 2004. The bankruptcy being tied to the rebuild of the facility requires more documentation or evidence in this posting as a number of other variables could have caused Polartec’s failure to turn a profit.
    One item that occurs in leadership excellence is the time that leaders assume their roles and the type of situations the leader excels at. Mr. Feuerstein could have been the perfect leader to handle a crisis like the fire, but was unable to recognize the implications of the World Wide Web and its e-commerce offerings; thus leading to its downfall in the market.
    I agree wholeheartedly with your statement the business of business is messy.

  5. The real question is CAN a company in today’s economy do what Malden Mills did?

  6. Lomanstien says:

    I did business with Malden Mills; purchasing Polartec from them for my product. I purchased directly from Malden Mills. They came after me with a lawsuit claiming I was using the name Polartec in my product but didn’t pay them $10,000 to use the name, even though I was buying the product directly from them! They weren’t so nice to deal with, and look what happened. Foolish business decision to continue paying employees without cashflow. It finally brought the whole company down for good by paying out all that money without selling anything. Bad news for the employees. Should be a case study for foolishness. Aaron Feuerstein did not know how to run a company in trouble and he did not know how to make hard business decisions. Had, Malden Mills would still be in business – in another country. It was also ruled by the union and couldn’t compete. Arron Feuerstein should have been a rabbi.

    • Jake Smith says:

      Re- Lomanstien, So Aaron Feuerstein is foolish and cant run the company all because you didn’t want to pay the Polartec licensing agreement with Malden Mills?

  7. MoralHeroes says:

    Often in business, employees are left out of the profit calculations, and only included in the expense records.

    Aaron saw his employees as profit. He knew that because of them, he could make a profit, and he knew that without this highly skilled workforce, he would lose. So “leveraging the company” to save the community was really a chance he took to help the people who helped him, to save his investments of time and resources into employees and to continue providing a quality working experience for the community.

    No one would have faulted him if he took the money and spent it on himself. Instead he spent it on the company AND did so successfully. Sure he isn’t the president, and no longer calls the shots. But Malden Mills lives on quite profitably in Polartech, the employees continue to work and use their skills, and the community is alive and well. None of these would have been possible if Aaron didn’t “leverage” the company.

    Profits isn’t the only things companies create… and Aaron knew that full well. Thanks for featuring him.

    Because of the great deed you listed here he is also featured as hero of the week over at MoralHeroes.org

    http://moralheroes.org/aaron-feuerstein

    Because of the great deed you listed here he is also featured as hero of the week over at MoralHeroes.org

    http://moralheroes.org/aaron-feuerstein

  8. Teresa Edwards says:

    The sad thing about this is that the “messy” business of business will continue to thrive, without anyone paying much attention to it. However, a man like Mr. Feuerstein, with ethics and values, will forever be labeled as foolish for putting people before money…

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