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UVA-E-0128 Against the Current: Malden Mills Inc. (D)
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UVA-E-0128
AGAINST THE CURRENT: MALDEN MILLS INC. (D) The Fire “It looked like Rome burning,” said Lois Feuerstein. Winds of 45 miles an hour whipped the flames from one Malden Mills factory building to the next in what had been called the worst fire in Massachusetts in the century. By morning, all that remained of the buildings that formed the heart of company was a lone brick tower, a smoldering five-story totem banked by heattwisted girders, and blackened rubble. Along with the buildings, the lives of 3,100 employees also lay in ruin. The fire could not have occurred at a more devastating time: Two weeks before Christmas more than 1,400 employees—75% of the Malden Mills work force—were suddenly out of work. Thirty-three employees were injured on the night of the fire, eight critically. The cause of the fire remained unknown, though one popular theory was a massive boiler explosion that disabled the building’s sprinkler system.1 The morning after the fire, Aaron Feuerstein issued a statement saying, “With God’s help, we will overcome the events of the past 12 hours and will continue to be a vital force in New England.” He then gave all 1,400 workers a paycheck, a $275 Christmas bonus, and a $20 coupon for food at a local supermarket. Three days later, on December 14, 1995, employees gathered in the gym of Central Catholic High School to learn the fate of their jobs and of the cities of Methuen and Lawrence, Massachusetts. Feuerstein walked to the podium and stated: I will get right to my announcement…For the next 30 days—and it might be more—all of our employees will be paid their full salaries. But over and above the money, the most important thing that Malden Mills can do for our workers is to get you back to work. By January 2, we will restart operations, and within 90 days, we will be fully operational.2 Mitchell Owens, “A Mill Comes Back to Life, and a Community with it,” New York Times, 26 December 1996, C1. 2 Steven Wulf, “The Glow from a Fire,” Time (8 January 1996):,49. 1
This case was prepared by Orson W. Watson under the supervision of Patricia H. Werhane, Ruffin Professor of Ethics, Darden School of Business Administration, University of Virginia. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Support for this project was supplied by funding from the Batten Center for Entrepreneurial Leadership at the Darden School, University of Virginia. This case was compiled from documents from published sources for the sole purpose of generating classroom discussion. Copyright © 1997 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
[email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. ◊
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Several newspapers compared the audience’s response to the one received by George Bailey at the end of the movie, It’s a Wonderful Life. Feuerstein later said, “Maybe I’m a nut, but honestly, that thought never crossed my mind. My commitment is to Massachusetts and New England. It’s where I live, where I play, where I worship. Malden Mills will be rebuilt right here.”3
Public Response Aaron Feuerstein’s largesse in the wake of the Malden Mills fire became the holiday story of 1995. Even before Feuerstein’s rebuilding announcement, Massachusetts Governor William Weld declared that the destruction of the mill was a state emergency. A Boston bank, a newspaper, and a customer in South Dakota made donations to the displaced workers. A local diner remained open late to serve free coffee and food to relief crews; a plastic pickle jar stuffed with bills on the counter invited contributions with the words, “For our friends and customers who work at Malden Mills.” Feuerstein became a national hero. His work force adored him; Almost every newspaper, TV station, and business magazine in the United States sang his praises. During the following year, Feuerstein received numerous awards: Philanthropist of the Year, the Lincoln Award for Ethics and Excellence in Business, and the Jewish Ethics in Everyday Life Award. President Bill Clinton invited him to the State of the Union address, and columnists, unions, and religious leaders across the United States declared him a saint. Feuerstein used all these occasions to restate his personal business philosophy: “Let the modern day CEO not brag about his stock options … but of the social responsibility and charity [he has] shown to workers and their community.”4 The publicity that Feuerstein and Malden Mills received as a result of his rebuilding announcement could not have been purchased at any cost. Despite the public accolades, however, the road to rebuilding Malden Mills was a tough one on which Feuerstein would face many battles.
Insurance Coverage In addition to announcing he would rebuild the damaged facility, Feuerstein also took the December 14 opportunity to announce that Malden Mills was “completely and amply insured.” Malden Mills had purchased Highly Protected Risk Coverage through Commerce and Industry Insurance Company. Total damage was estimated at $400 million, of which Feuerstein was initially counting on $302 million in insurance coverage. By the end of 1996, Feuerstein had received only $78 million in insurance payments. The insurers had been slow to make payments, demanding more and more documentation and refusing to pay in full until the cause of the fire was determined. One reason for the insurance company’s insistence on “cause determination” 3 4
Wulf, 49. Julie Amparano, “Taking Good Care of Workers Pays off,” The Arizona Republic, 23 January 1997, E1.
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was that the type of coverage Malden Mills carried excluded boiler and machinery damage (one of the potential causes of the fire). It would, however, cover the damage caused by the fire resulting from an explosion.5 If the insurance companies determined that the cause of the fire was machinery-related, they could refuse to cover the cost of the new state-of-the-art replacement machinery that Malden had ordered. In addition, factories were insured for their replacement cost, and if Feuerstein had chosen not to replace the burned out Malden Mills facility, he may have had to settle for the depreciated value of the lost buildings and machinery. An insurance payoff was usually much larger when it was taken as a contribution toward a state-of-the-art manufacturing facility.6
Aftermath In the year following the fire, Feuerstein tried to do it all: rebuild his upholstery business, expand Polartec® and the Woven divisions, find new markets, get everyone back to work, promote the Malden Mills name, and be true to his word and soaring national reputation. But these broad objectives were replaced by the more pressing details concerning insurance payments, growing bank debt, lagging production schedules, and new tax and construction costs. Malden Mills was rebuilding quickly, but this only caused the accelerating onset of crises. In September 1996, Malden Mills had $45 million in new machinery on rush order and nowhere to put it. For three months, Feuerstein kept his payroll promise to his 2,400 employees at a cost of $1.5 million per week. By January 1997, all but 400 workers from the Flock division were back to work. The Flock division, which was the low-end upholstery business that accounted for nearly half the mill’s sales before the fire, remained closed, and its completion was delayed for at least 12 months. As a consolation, Malden Mills set up a job-training site for the displaced workers. Despite problems, Feuerstein’s workers remained devoted to him. He personally told the 400 workers from the Flock division they would not have jobs to which to return: I’ll tell you. I’m depressed about the fact that you guys have such a rough road ahead of you in the future … You people can go home and cry because you have good reason to cry. But it’s not going to help you. You have to get on with your lives.7 He promised Malden Mills’ help, which included three months of medical insurance, a workers’ center staffed by the mill, and priority callback. An unemployed, 63-year-old worker said, “It’s not his fault there was a fire … I have to give him thanks for what he did do.”
Gavin Souter, “Textile Mill Covered for Fire Devastation,” Business Insurance (18 December 1995): 1. Thomas Teal, “Not a Fool, not a Saint,” Fortune (11 November 1996): 201. 7 Bruce Butterfield, “Triumph Carries a Painful Price,” Boston Globe, 11 September 1996, A1. 5 6
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Feuerstein was not as successful with his management staff. The months of grueling work to rebuild the mill brought to the surface wide business and personal differences between Feuerstein (whose management style had become increasingly authoritarian) and his management staff, several of whom resigned after bitter, albeit brief, disputes. Buoyed by insurance payments as well as donations, relief funds, grants from individuals and government agencies, and federal tax credits, Feuerstein rebuilt swiftly. He chose an architecture style that would complement the history of the surviving buildings and underscore the company’s determination to continue its benevolent role in the area. The rebuilding and restoration of Malden Mills earned Feuerstein the 1996 Honor Award from the National Trust for Historic Preservation, which cited his “affirmation of both history and community.”8 Demand for Polartec continued to grow and even outstrip the mills’ capacity. Commitment to Polartec was high among consumers. Feuerstein received more than 10,000 letters from people who were moved by the events at Malden Mills. One woman in the Midwest wrote that she had bought three Polartec coats as a gesture of solidarity. In 1997, Malden Mills introduced a new line known as Boundary, a combination of Polartec knit and woven fabric. According to Annmarie P. Furey, head of design and new products for a Vermont manufacturer of winter accessories called Turtle Fur®, “Malden is, without question, the best research and design company in this field. Their fabrics are state of the art.”9 In 1997, Furey’s comments were widely echoed among a majority of outdoor apparel makers.
8 9
Owens, C1. Bruce D. Butterfield, “Fleecing the Market,” Boston Globe, 2 February 1997, F1.
