The case of the Malden Mills fire poses many important questions related to ethics. At first look, a CEO paying his employees continually after his mill burned down seems to be the model for ethical behavior. However, when one looks deeper into the case and asks questions it is not so obvious. The first question that needs to be answered is what the factual circumstances of the case are. Malden Mills was a factory located in Lawrence, Massachusetts that specialized in making a high tech fleece called Polartec.
The company was relatively successful in its industry until the factory was destroyed by a fire in 1995. After the fire, the company’s CEO Aaron Feuerstein declared that he would continue to pay his employees their normal wages for at least one month. In the end he paid the employees for longer than that and spent around 15 million dollars paying the employees while the new mill was being built. Feuerstein built the new mill for a cost of 400 million. He gambled that the money from the insurance company and expanded Polartec business would cover this cost.
However, Malden Mills only received 300 million from the insurance company and the Polartec sales did not rise as Feuerstein had projected. The company was forced to claim bankruptcy in 2001 and Feuerstein lost control of the company to GE Capital in 2003. A second important issue related to this case is what the ethical issues are. In the case of Malden Mills, the main ethical dilemma was whether to keep paying the company’s employees or have a massive layoff. This dilemma was a mix of personal and business problems.
Part of the problem was personal because the company was located in a small town where a majority of the residents worked at the mill. Because most of the people in the town worked there, the company had the feeling of a family business and the workers truly felt like family to Feuerstein. The family atmosphere made it a tough decision for Feuerstein when it came to making a decision after the fire. He knew that keeping his employees on the payroll could lead to a bad outcome for the business, but he felt like he owed it to his workers to keep them employed. The other part of the problem for Feuerstein was business related.
Rebuilding the company after the fire was going to be a difficult proposition and that would only be made more difficult if Malden Mills had to keep paying its workers. In the end, Feuerstein had to decide if it was worth risking the future of his company to make sure that the workers he saw as family were paid as he tried to rebuild Malden Mills. In order to see why the case developed as it is, it is important to take a look at who the primary stakeholders and decisions makers were in the case. Once these people have been identified, one must look at their ethical perspective and see why they would make the decision that they did.
In this case, there are three main stakeholders. They are Feuerstein, The Board of Directors and the Employees. Of these stakeholders, Feuerstein is the only one who is faced with an ethical dilemma in the case that affects the other stakeholders. Feuerstein was a devout Orthodox jew, and this helped form his ethical perspective. He believed that people would be judged on more than just how successful they were. He believed that people would be judged on how well they treated others and that he personally would be judged on the good that he brought to the world and not the money that his company made.
One can see how his beliefs could lead him to make a decision that would be best for the good of his employees and not necessarily as good for the other stakeholders. Throughout the case, there are a couple of ethical standards being applied. The two standards are virtue ethics and Utilitarianism. Feuerstein applies virtue ethics when he decides that he wants to do what is good and right for his employees. This fits in with the virtuous idea of character traits that represent a good and meaningful life, which is what Feuerstein is trying to accomplish.
Feuerstein is not only trying to be good to his employees, he is trying to do what could end up being best for all of the stakeholders. Feuerstein was applying the idea of Utilitarianism by trying to accomplish the best outcome for all parties when he gambled that a larger plant would be good for the company. Of these two ethical standards, Feuerstein’s first priority was virtue ethics and second priority was Utilitarianism. The final ethical choice that was decided on by Feuerstein was to keep paying his workers while the mill was closed and to try and build a bigger factory so his workers might have a better future.
Feuerstein made this decision because he truly believed that his first responsibility as CEO was to go good by his workers even if that meant a possibility of failure. This approach was very popular with the workers and in the community, which relied on money from the mill to thrive. The author of this case has a couple questions of her own. One of the questions was whether or not is was bad luck that the Polartec business went downhill because of a warm winter or if it was a mistake to build such a larger plant in the first place. The answer to this question is both.
In retrospect it was a mistake to build a large factory that could not survive a drop and business, but without that warm winter it is possible that the Polartec business could continue to grow and that the larger factory would have been a good idea. Another question that the author poses is whether or not Feuerstein’s generosity to his employees after the fire ultimately led to the bankruptcy of the company. In this case, the answer seems to be no. The 15 million dollars that was paid to the employees is small compared to the 100 million dollar gap between the cost of the new factory and the insurance payment received.
The gamble to build a larger factory is what really caused problems for the company because it was never able to cover the cost of the plant when the Polartec business went downhill. In the end, Feuerstein will be remembered by most people as a virtuous man who put his employees before making a profit. The question still remains if he really made the best choices for his employees. Other choices may have kept the plant from bankruptcy and given the employees more secure future. Feuerstein did what he believed was right and ultimately it did not work out for Malden Mills.