Was Aaron Feuerstein Wrong?

By David W. Gill

The story of Aaron Feuerstein is now old news but it was so spectacular in the late ‘90s that it quickly made it into dozens of business ethics textbooks and anthologies. Short version: Malden Mills, a textile company (best known for Polartec) in Lawrence, Massachusetts, was destroyed by a terrible fire in December 1995. Owner/CEO Aaron Feuerstein decided to continue paying the salaries of all of his workforce until he could finish rebuilding the factory. He rebuilt the factory as a more pleasant, sunny, healthy workplace at considerable extra cost to himself and the company.

Since I recently moved to the Boston area I decided to drive out to Lawrence and have a look for myself. The sign now just says “Polartec” but I had a chance to speak with Maria, a 19-year veteran hired by Malden Mills in 1993. Yes, she told me, she did get to know Aaron Feuerstein personally. Everyone at the plant knew him. He managed in a very caring, personal way, wandering around the factory and greeting his workers. She was not surprised when he decided not to cast his workers off onto their unemployment insurance and personal resources when the fire happened a couple years after she started.

Feuerstein could have cashed in his fire insurance payment and retired in luxury to Florida. He could have moved his business to a cheaper labor market outside the United States as most textile companies had done. No one would have blamed him for taking either of those options. But Feuerstein said it just wouldn’t be right not to care for the men and women who had been his loyal workers. He had no doubt that he was doing the right thing, even if it wasn’t the thing most financial advisors would urge.

In the immediate aftermath of the re-opening of Malden Mills product sales and employee productivity soared by some 40 percent. But the company carried substantial increased debt because of the high costs of re-building a state-of-the-art facility. The volatility of the textile industry hurt the company. Three warmer than usual winters in the late ‘90s depressed sales of cold weather fabric garments. The result was that Malden Mills declared bankruptcy in November 2001 and Feuerstein was replaced as CEO. The reorganized company declared bankruptcy again in 2007 and was sold to a group that now operates the company under the name Polartec.

Did Feuerstein’s Ethical Idealism Cause Malden Mills’s Business Failure?

It was very tempting to turn Feuerstein into an Olympian hero in the aftermath of the 1995 fire and factory rebuild. Here was a true “mensch” among business leaders, a CEO/owner who cared about his people, not just his net worth and personal interests. And it seemed that enhanced sales and productivity were the reward for his ethical virtue.

More recently it has been tempting to blame his ethical idealism for blinding him to business realities: His high ideals really have no place in the hard practical realism of business competition, some say.

But neither of these interpretations of the Malden Mills story is satisfying or convincing. First of all, remember that this was Aaron Feuerstein’s private company. He was not the agent of a set of shareholders. He had every right to do what he wanted, for his own reasons. I’m sure that if we asked him today he would still believe he did the right thing, the only thing. It satisfied him and his goals and values. It was a success.

Then, too, Maria and hundreds of other workers at the Lawrence factory still have their jobs and customers are still happily buying Polartec products. The business shrunk from its peak but it still exists. It is not based in China or completely closed down as it might have been. For over a hundred years, Malden Mills and other textile businesses have undergone wild swings of the market. Malden Mills had even been bankrupt once before, in1981. Looks like success today to me.

To the “Market Fundamentalists” who argue that no company should ever pay a penny above the going rate for labor off the street, I suggest that companies such as Southwest Airlines, Costco, and In-N-Out Burger tell a much different story with their high wages, progressive management policies, and industry-leading employee retention, satisfaction, and productivity rates. The increased effort and productivity by Feuerstein’s employees after the plant re-opened is evidence of a successful wage and employee-care strategy.

But markets are often volatile, rarely predictable. For a business to have enduring success it needs more than a happy, loyal workforce and good ethics: it needs a product desired by customers and available at affordable prices. Buggy whips made by happy employees for ethical bosses will not save a business when buggies disappear. Snow shovels made by happy employees for ethical bosses will not make for a sustainable business if global warming ends our winter snows. This is what drove Malden Mills bankrupt: not its ethics or employee care but shifts in market conditions, competitive pricing, and the like.

Good Ethics Is a Success Factor, not a Guarantee

Carrying big debt at Malden Mills was significantly related to Feuerstein’s choice to invest so heavily in his employees and his rebuilt facilities and this made the company more vulnerable. Part of Southwest Airlines’ and In-N-Out Burgers’ success is related to their preference to keep big cash reserves and avoid debt (though as mentioned, this does not stop them from industry-leading wages). But the radical reduction of textile prices because of international labor markets makes any survival of American textile manufacturing something of a miracle. This market situation, not his kind heart, is what ended Feuerstein’s run as a textile industry leader.

If we do have a quality product or service for which there is a decent market, then good ethics and good treatment of employees is without doubt a value added to the business that will contribute to the bottom line. Well-treated employees show up happier and more dedicated to company success. They steal less and work harder. Customers who receive what was promised to them and who are treated with respect will return more frequently for more business and recommend more friends to patronize the business. Anyone who needs a study to prove these common sense observations about the impact of good ethics on good business is beyond help.

David W. Gill was co-founder of IBTE and author of Benchmark Ethics, a regular article in the first 32 issues of Ethix. After eight years of writing, speaking, teaching, and consulting in the Bay Area of California, he joined the faculty of Gordon-Conwell Theological Center (South Hampton, Mass.) in 2010, where he is also director of the Mockler Center for Faith and Ethics in the Workplace.

25 thoughts on “Was Aaron Feuerstein Wrong?”

  1. He was still alive when you wrote that in 2013 (he was quoted in the news when the new owners announced in 2015 that they would close the Massachusetts location) and as far as Wikipedia knows he is still alive now at 95.
    I don’t believe the company was ever publicly traded,there were private investor groups that came in at the bankruptcy and in later sales.

  2. Discussion 1
    1. Was Feuerstein guided by morals or ethics?
    I believe he was guided by both. Intrinsically every human being knows right from wrong, but whether we choose to do the right thing is a matter of choice. Mr. Feuerstein could have kept the insurance money and retire, and he would have been completely justified. But he went beyond mere ethics. He did not retire but rebuild the company and paid his employees their salary months after the company was destroyed. He did not treat his people as means to an end. He felt he had civic responsibilities to the community as well. The immediate community was emotionally shock by this turn of event. I believe the community would have been economically devasted if Mr. Feuerstein did not take immediate action to restore employees and community confidence. Employees would not have been able to pay their mortgages and provide for their families. Business, especially (Mom and Pop shops) directly providing services to Maiden Mills employees would probably would have gone out of business. Because of his action the company could go public soon and be financially stable. A prime example of this is when the future Hall of Famer basketball player Lebron James left Cleveland Ohio to come to the Miami Heat and eventually to the Los Angeles, Lakers. He left because he felt the owner was not doing everything in his power to help him win a championship in Cleveland. There was a lack of trust in ownership, so he left. Because of his star power he attracted a lot of revenue for the owner. Team tickets were up, hotels, restaurants business skyrocketed. When he left organization suffered. If the owner had followed a simple rule of not treating him as a mere profit-making tool, there could have been a good possibility he would have stayed,
    2. Do you think he could have made the decision if Maiden were a public traded company?
    Probably not unless he was the majority owner of the company. Stockholders are the owners of publicly own companies. Morals and Ethics usually line up for what is best for the stockholders as well as the stakeholders. Others would be involved in the decision making, Mr. Feuerstein would not be along in making critical decision for publicly owned companies. Ethic and morals would apply but in a different dimension. I believe decision makers would have to consider Mr. Feuerstein viewpoints in a public own environment. I believe Mr. Feuerstein could persuade decision makers toward his views on matters of People should be treated with dignity and respect even when they are no longer needed. And the view to choose what is best for the majority, is not always the best decision, these views and others are intrinsic.

    3. Why do you think he has critics for his decision?
    Corporate leaders who do what is ethically right and what is morally right is not the most popular decision because it contradict others. It is natural for leaders to be envious of those who do what is right and rationalize themselves for not doing for what is wrong. In this clip there where two companies displaying and two different leadership styles. Enron leadership displayed greed, unethical and no morals in their decision-making process. Employees were treaty as profit making objects and not as human beings. They deceived the stockholders and stakeholders by misrepresenting financial statements to make themselves appear more profitable than what they really were. They stole from the company. This wrongfully acts cost stockholders, and stakeholder their livelihood. There is a saying in our country “No Good Deed Goes Unpunished”. This is our mentality when it comes to doing what is right, this is the norm. Mr. Feuerstein was guided by morals and ethical standards; he did the right thing and saved his employees their dignity and self-respect. In the long run Mr. Feuerstein benefitted, in the short term and long-term Enron failed. Critics have always criticized those who think outside the box, that includes moral decision as well. Sometimes doing the morally right thing comes with a cost. It is not easy swimming upstream.

  3. Mr. Fuerstein is a very ethical businessman! His ethical business practice builds its branding and has been embedded in customers for years, and won’t be exceeded by any commercial branding. Those ethical business leaders will keep this spirit for seeking a better business approach that benefits the whole global community!

  4. Sandra McDonald

    I feel like Aaron Feuerstein was a very smart, wise, generous man, and most off all a non selfish boss. More Owners and Business can learn a lot from Aaron regardless of the outcome he tried to keep employees satisfied and showing them Appreciation did improve productivity just wish the actual product was successful then we never would’ve ever doubt Aaron’s way of thinking on his decisions.

  5. I believe, he did as his heart desired. I also believe, that if it were me, would have let my employees know of the situation he was undergoing. To let them receive their unemployment, so he could do what he needed to restart the business. Also, he could have kept names and numbers to all employees; and let them know that when the business is rebuilt, that they are welcome, and encouraged to rejoin his business.

  6. Would that Mr. Feuerstein were running Israel today. He’s a true Shayner Yid and an Mensch, a man than whom there is no better.

  7. I just came across this article. I was employed by Malden Mills until 1996. I had the privilege of sitting today with Aaron Feuerstein at lunch. At 90 years old he still feels strongly about his responsibility to take care of his employees. He talked about that today. In the morning 20 plus years I worked there he demonstrated that over and over.

  8. Because I heard on NPR of Aaron Feuerstein’s ethical decisions in the mid-1990s, I am this morning, 20 years later, shopping for a Polartec product. I was saddened, but not surprised, to learn that he no longer owns/heads the company–that it has become a cash cow for an investment firm–and that some manufacturing has gone offshore to Asia. Still, in hopes of supporting U.S. manufacturing and innovation, I will purchase a Patagonia Synchilla(TM) vest for my husband.

  9. Even though it happened years ago it still warms my heart, rarely do you hear of such a buisness doing that extravigant,of a gift , i dont believe ive even heard of anything like this acuring at all, what a caring man, the world needs more kindness than greed.

  10. I found this article to be very interesting. During the 16th and 17th hundreths this were an accustomed of the land owners in France, England, and some other countries. I am quite pleased to read that someone actually practiced it in the 20th centuries. i find Mr. Feuerstein a very wise businessman, and posessed quite the wits.

    No, Mr. Feuerstein was not wrong for practing the business knowledge that he practiced. Truth be told, he were quite the businessman. Giving thought to if he would not have wanted to move, begin a new business, which would have costed him more to begin over with by, the time it would have taken to search for, check reference and historyof, paperwork, and the whole process of hiring, new employees. By continueing running his business as it were going before the fire maintained it’s study flow of progress forward. He would have to have employeed new employees if he had gotten rid of the one he already had, and it is never said that he closed his business down, so why would one fire all it’s employee if he/she still has it’s business? foolish.

    Mr. Feuerstein, showed good business practice and a true businessman. No, there’s nothing wrong with Mr. Feuerstein having and keeping his business, and knowing how to run it successful and prosper. He were a business with business sense, and moral; and there’s nothing wrong with it.

    Clara Credit
    Student ID #13116507

  11. I was delighted to hear the gentleman was/is still alive and I too hope he stays that way, Tom. I just wish we could clone him!

  12. I came across this article while looking for something else. I was with Mr. AF when he arrived in the parking lot that night while the fire was raging, the helicopters were overhead and ambulances crowded the parking lots. The decision to rebuild and treat his employees like family was decided long before the fire. It was and is, who he is. In fact, there was really no decision to be made. You can debate if it made sense financially but when all was chaos he stood up. I started in 1991 and the fire was 1995 and I will be at the Polartec plant tomorrow Jan. 2015. You don’t have to ask me if he made the right decision. Good health to you Mr. AF

  13. Kathleen King wrote Aaron died an honorable man.
    Aaron Feuerstein is alive and well.
    His wife recently died in 2013.

  14. I think there was no ethical fault in Feuerstein, if I am not mistaken the next owner carry the all old employees. Many times warming was the reason not his ethics. These days many businesses have started the self services, do you know how many people are unemployed. Before cashiers jobs was always in but now it is cutting down. Home depot have 35 registers, and only 5 people on register helping people. Company is cutting labor and making money. Do you think it is good ethic,no. Once Einstein lab was burned and people were consoling him. He smiled and said, all my mistakes are burned with this lab, I am happy I have my team with me. With my team I can do anything, Feuerstein has good team.

  15. Thanks for responding to my comment. The man (a”h) was a mensch. I know a family member who told me more positive things about him.

  16. You are correct so far as I know; it was privately held UNTIL his decision not to take the insurance money and run.At that point it is my understanding that family and creditors forced him into public trading and eventual bankruptcy so that his patents and trademarks could be sold. He died not long after, an honorable man.

  17. To Kathleen King and John Bishop — There were no shareholders at the time. I think the article said that it had been a privately held company.

  18. I reached this article, which is excellent by the way, because of the recent and all too increasingly lack of ethical behavior on the part of all aspects of business and politics. I remembered this incident clearly but had forgotten the names, hence the research to refresh my recollection. I wish to point out and inquire about two things: if the insurance had been not only for interruption of business but also for property loss, would it have made a significant difference in the overall debt load that resulted in the bankruptcy depriving Mr. Feuerstein of his Chairmanship?

    Second, with respect to the issue of the “agency” status on behalf of shareholders. I recall that in the early development of corporate law in England, this concept was conceived as a correlation to the cestui que trust for third party dealings to enforce what was then thought of as an “ethical” need to ensure that business managers would in fact manage for the benefit of the shareholders. It seems to me that this has now swung way, way too far. Would it not be sensible to legislatively, at a minimum in the realms of bankruptcy and receivership, to revisit this concept and prioritization to balance the needs of employees, community stability, and even environmental concerns with those of maximazing profitability to shareholders?

  19. Maybe it wouldn’t make a difference to your story if the funds to pay the employees did not come from the pockets of the shareholders. I understood that the insurance claim was made for business interruption damages, not property loss. Malden made an aggressive and novel claim that resulted in a settlement that benefitted its employees. If I understand correctly, those funds would have never gone to the shareholders.

  20. James Barclay

    I am a retired R.N. and at one time, it is known, Mr. Feurstein was ill. I was one of his clinical nurses.
    It was very late at night and I went into his room to see what he wanted. While I was there I told him “Thank You”. He told me even he thought what he had most generously and magnificently done was against all business sense, but that he had no choice. Emily Dickinson happens to be my favorite poet and I have memorized, even performed, some of her work. I quoted to him,
    “Madness Is Divinest Sense-
    To A Discerning Eye…”
    He shot back,
    “Much Sense, Madness-
    ‘Tis the Majority -”
    He rolled off the rest with ease and expression. Little did I know she was also one of his favorite poets and that he also memorized her works.
    The rest of the night went very well.
    At least this is how I remember it.

  21. In a time when the word “hero” is too often applied to unworthy individuals, Mr. Feuerstein truly has earned the honor. In a time when the image of the corporate CEO is often deservedly tainted, this man should be remembered for his humanity and willingness to place the welfare of his employees at center front, acknowledging their value to both his own company and to the community at large.

    If only he and his actions were more representative of today’s business culture–it would be a far better world.

  22. The thrust of your article is fine. But I’m now taking In-N-Out off of my “good company list” and putting on the “other” list. At issue is a new burger joint in Boise, Burger Express, a single owner-operated store and not part of any chain. In-N-Out claims that their red and white logo and their yellow line makes it look too similar to their logo and are acting like bullies and threatening to sue them. Shame on them for going after the little guy. In-N-Out doesn’t even have a presence in Idaho.

    See http://www.ktvb.com/home/National-chain-says-local-burger-joint-stole-their-look-126091163.html

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