ORGANIZATIONAL EXERCISE: MALDEN MILLS
Aaron Feuerstein was hailed as a savior when, after a devastating fire in his factory in the
depressed area of Lawrence, Massachusetts, in 1995, he continued to pay his workers while his
factory was being rebuilt. Now Feuerstein’s actions are being questioned. Had he done the right
thing in paying his workers even though insurance settlements after the fire were not
guaranteed and had not amounted to what he originally thought he would receive? In order to
update the factory, Feuerstein spent millions over what he was insured for. Several managers
had questioned the scale of the rebuilding; some even thought it was not good practice to
rebuild a mill in the Northeast when other textile mills had moved to cheaper labor climates.
Feuerstein had overridden these objections, insisting he had an obligation to his workers and to
the community to rebuild the operations after the fire.
Malden Mills was founded in 1906 by Henry Feuerstein. After the 1940s many large fabric manufacturers
in New England moved south to take advantage of lower labor costs and proximity to cotton growers.
Because of this industry shift mill space became cheaper and more available in New England. Aaron
Feuerstein, President and grandson of founder Henry, felt it best to keep the mill in New England. At this
time Malden Mills began to have its yarns converted to fabric in small outlying plants in Vermont, Maine
and New Hampshire, and then dyed, printed and finished these fabrics in its central mill in Lawrence.
Although the mill managed to stay alive, it experienced some rough times, including a declaration of
bankruptcy in 1981 when its primary product, fur, abruptly went out of fashion. Feuerstein family
members called for Aaron to step down as President, which he resisted. He claimed he had a new
solution which entailed drastically restructuring the mill to focus on two new products: Polartec and
Polarfleece. Despite warnings from his bankers, Feuerstein persisted, and Polartec became a resounding
success, generating sales. of $200 million in 1995.
Malden Mills remained the largest textile mill in New England. In other areas in the US companies like
Levi Strauss had at the beginning of the 1990s moved their manufacturing operations overseas to cut
costs. Wage differentials between American and Mexican or Bangladeshi workers were huge. For
example American workers would earn $6.75 per hour versus $1 for Mexicans and 22 cents for
Bangladeshi workers. During the early 1990s imports from China and Vietnam increased significantly
while US employment and production declined. The fire of 1995 all but gutted the Malden Mills
buildings. Twenty-four workers were injured, thirteen seriously. Despite his managers’ skepticism and
their suggestion that only the profitable part of the mill be rebuilt, Feuerstein decided to rebuild the
entire factory. He also agreed to pay 3,100 Malden Mills employees full pay and benefits for 90 days. He
resisted suggestions that new machinery be introduced to reduce manufacturing costs. The insurance
money for the rebuilding was slow to materialize and was less than expected. Malden Mills was forced to
borrow significant sums to meet cash flow needs. At this time Feuerstein was hailed as a hero and stories
of his generosity to employees and his commitment to Lawrence filled the newspapers. There were
guest appearances with President Clinton and he was featured on many major news networks. He
received a variety of awards and was named the ‘CEO with a difference.’ While all was rosy on the
publicity front, relationships between Malden Mills and its other stakeholders were less positive. Buyers
were dissatisfied with the quality of certain goods and Feuerstein had to make great efforts to maintain
their support. The amount of rebuilding undertaken to restore all parts of Malden Mills, including the
less profitable parts, also exhausted the organization’s resources. By 2001 Feuerstein’s rebuilding
strategy was unable to support itself. Malden Mills had huge loans, had settled a few legal suits out of
court, some from injured employees, that cost it several million dollars, and eventually closed a loss-
making division after spending $50 million trying to rebuild it. At the same time price competition from
other brands continued to increase.
Five years after the fire, in November 2001, Malden Mills filed for Chapter 11 bankruptcy for the second
time. Feuerstein was relieved of control of the company by Malden Mills creditors.
Questions:
1 What new realities was Malden Mills facing during the 1990s?
2 What new realities did the outbreak of the fire bring?
3 What strategy did Aaron Feuerstein use to deal with the new realities and what was his rationale?
4 Do you think he exercised effective leadership? If so, why or why not?
