Business Ethics

Ethical Hero or Failed Businessman

Malden Mills is a textile company, popularly known for Polartec, in Massachusetts, owned by CEO Aaron Feuerstein. The manufacturing facility in Lawrence was destroyed by a fire in 1995. Aaron Feuerstein, however, paid salaries of workers in the facility after the terrible incident, until a new factory was built at the same location. The factory was rebuilt as a much newer, grand building. It cost Aaron considerable amount of money to rebuild the factory. He took on huge debts to rebuild the factory. Although the productivity of employees soared high immediately after Aaron rebuilt the factory, the subsequent three warm winters caused the company to go bankrupt, with Aaron struggling to pay the debts.
The key question here is if Aaron blinded himself to the realities and practicalities in the business world then and went ahead with the huge decision to rebuild a factory and continue paying salaries to his workforce. Did his decision cause more harm to the communities in the long run? Did he endanger the future of Malden Mills by taking such a huge risk? These are all some valid questions that go through my mind as I read through the case.
The stakeholders involved are Aaron Feuerstein, his company shareholders and board members, the factory workers from Lawrence and the customers of Malden Mills. Malden Mills is Aaron Feuerstein’s private company. He was not the company shareholders’ agent. I believe that he had the right to take any decision that he wanted. To him, his ethics and values were much more important than monetary benefits. Therefore, he continued paying benefits to his workers and rebuilt a new factory in the same location to serve the communities in Lawrence by offering them employment. He felt that his forefathers had left a great legacy behind by setting up Malden Mills in Lawrence and he had every right to make the decision to keep contributing to that legacy at any cost. The company shareholders have a right to know what Aaron planned for the firm and take actions accordingly.
Customers of Malden Mills had the right to demand compensation from Aaron if they were under contract during the fire mishap. But the case does not talk about it. At the bare minimum, the duty of the firm is to compensate the families of the victims who had been injured during the fire. Workers who had qualified for benefits from the firms were required to be provided with their due benefits. Aaron, however, went much beyond his basic duties as the owner of the firm by not just continuing to pay the workers their salaries, but also by rebuilding the factory so that the employees could continue earning their livelihoods. In fact, the soaring productivity and effort by Malden Mill’s employees immediately after the factory was rebuilt, is enough to prove the superior employee care strategy that was undertaken by Aaron.
As regards to the ethical challenge that Aaron brought the firm to bankruptcy, I would say that it cannot be blamed on Aaron’s decision to rebuild the factory into a newer, grander facility. This is because the subsequent three winters were warm, competitors indulged in competitive pricing and therefore, the market conditions were not in favor of Malden Mills. This was the reason behind the bankruptcy of the firm and not Aaron’s concern for his employees’ care and ethical idealism.
The ethical choice that was selected in this scenario was the decision to continue supporting the working communities in Lawrence, Massachusetts, even after the terrible fire accident. The other choice available to Aaron Feuerstein was to abandon the Malden Mills business, shut down the factory after the fire and secure the fire insurance payment to live a life of luxury. The choice that Aaron selected made him the Ethical Hero, according to me. The Malden Mills firm exists to this day and survived a near bankruptcy situation in 1981 when several other firms disappeared into oblivion.
One of the questions posed by the author of the case is “What was Aaron’s failure?” I would say that Aaron’s failure did not lie in wanting to continue the legacy of Malden Mills in Lawrence by rebuilding the facility but lied in his desire to spend extravagantly to replace old equipment with brand new equipment and his desire to build a grander, much more expensive building than the one consumed by fire. This decision of Aaron accumulated huge debts that could not be paid back. Aaron failed to anticipate the wide gap between his fire insurance payment and the costs to rebuild a brand new, grand facility.
Another question posed by the author is “Aaron said he did not do it for the publicity, but because he was firmly convinced it was the right thing to do. But in hindsight, was it the right thing to do?” The “it” refers to Aaron’s decision to continue paying salaries to Lawrence’s workers even after the fire. Malden Mills is Aaron’s private company, owned by his family, passed onto him generation after generation. He had the right to continue paying salaries to workers. In addition to wanting to preserve the legacy of serving the Lawrence worker community and families, Aaron was also confident about the business flourishing in the near future since Polartec sales increased by 50% that year. Employee productivity and effort soared high after the factory was rebuilt. Aaron also won financial support through donations as the news of salary payment to his workers after the fire, spread across media. For the above reasons, I believe that it was the right thing to do.