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The Malden Mills Case

Introduction

The Malden Mills case is a popular one embarking on the involvement of good work ethic, humanity and the basic rights of people helping people through the bad times. “The ethics dilemma derives from the perceived conflict between the traditional corporate objective of profit maximization and the overall desire for increased social welfare. Although ethically responsible business practices are generally desired, opinions about what these practices are and how they should be encouraged are diverse. The complexity of the current business environment complicates the development and implementation of resolutions to ethical issues facing industry” (Klien, 1991). However, Aaron Feuerstein, through his ethical decision making following a major fire at his main mill facility made a historical decision which was termed humanitarian, ethical as well profitable in the long run for the company. The case of Malden Mills depicts that even though the situation may be desperate and no solution can be profitable but to abandon the situation and the project, it is still possible to salvage from the remains, of a fire in the case of Malden Mills, and build a new and better business, not just for long term profitability, but to support the people and the stakeholders involved. The case of Malden Mills has presented Aaron Feuerstein as a prime example of how non-traditional ethical decision making on the part of the senior management can bring about positive changes for the company through innovation and dedication.

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Case Facts and Assumption

The Malden Mills and factory suffered major infrastructure, equipment and financial in 1995 when a major portion of the factory complex burst to the ground, injuring 33 people in the fire while rendering 1000 of the 2800 workforce unable to work. In the days following the fire, Feuerstein made some basic humanitarian yet revolutionary decisions to compensate the victims of the fire, and help the workforce by helping the company reestablish itself. Instead of laying off the workers and relocating to the south where operations could have been more profitable and easy to build, Feuerstein decided to keep on the employees while ensuring their pay as full time remuneration until the factory could restart and commence production again. In his decision Feuerstein decided to support his workers and their families through the difficult time by sharing his own wealth and propensity he gained from the business with his employees in the form of salaries and benefits, in turn garnering their support and loyalty to redevelop and reestablish the destroyed mill and factory to run again in a highly profitable manner. The efforts of Feuerstein paid of when only one month after the fire, the burnt down plant started to report production of 200,000 yards a week as opposed to the 130,000 yards a week that it did before the fire. After 21 months of the fire, the factory and the mill reopened to a high level of profits from productions.

Major Issue in the Case

The main issue in the case of Malden Mills and factory as the aftermath of the devastating fire which was faced by Aaron Feuerstein was to reestablish and restart the company, literally from the ashes, by making the burnt down section of mills and the factory functional again after reconstruction and development. The goodwill, the financial position as well as the reputation of the company in the market was at stake and in order to protect the company from crashing as a result of the devastating fire it was an urgent issue to have the mill and the factory up and running in the shortest amongst of time possible. The remnants of the fire and its effects had to be cleared away while infrastructure of the mill had to be rebuilt, along with the furnishing of the mill and the induction of new machinery and plant in the factory to replace the ones which had been lost in the fire. Similarly, the issue faced by Feuerstein after the fire was to have access to resources that could help the company rebuilt itself while provide better returns in the future to cover for the losses in the current and next few months.

Sub-Issues in the Case

The sub-issues that were present in the case of Malden Mills pertained to managing the post-fire scenario in an ethical manner, making business decision which were in the favor of the company as well as the stakeholders, providing support to the employees and the workers, planning for redevelopment and ensuring a motivated and loyal workforce for the company after its reestablishment and rebuilding of the burnt done infrastructure to commence operations at a fast pace. This was aimed at upholding the reputation of the company in the market as well as to support future operations of the company for growth and profitability despite the let down of the fire.

Analysis and Evaluation

Stakeholders of Malden Mills

The definition provides that stakeholders can be a “person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization’s actions, objectives, and policies” (‘Stakeholder: Definition’, 2009). Essentially the stakeholders of the business are those people who have some stake in the business, an investment of an interest which affects their gain. The usual stakeholders of the business include the creditors of the company, the customers of the company, the board of directors, the employees and the management as well as the shareholders, if present, along with the community where the business operates. In the case of Malden Mills, the stakeholders of the company at the time of the fire included the owner of the company which was Aaron Feuerstein, whose stake in the company was the company itself, the revenues that he earned off it, and the future success of the company. The other stakeholders of the company included the investors and the creditors of the company who had made investments in the business for routine payback in the form of retained earnings from profit and provided loans and credit for day to day operations of the business. The customers are also amongst the stakeholders of the Malden Mills as they had ordered yarn and similar products from the Mills, and in some cases paid for their purchases in advance, which were now lost due to the fire. Aside from this, the management and the employees of the company were also the stakeholders of the company. The management was responsible for running the business in a profitable and progressive manner for future growth and their contributions to the company were their stake. The employees of the company also had their stake in the Malden Mills in the form of their effort and work pout together to run the company, and the livelihood that they earned from working at the company to support themselves and their families. Aside from this, the employees of the company also had put their careers as a stake in the company by working in the Malden Mills.

Strengths, Weaknesses (Challenges), Threats and Opportunities

One of the main strengths of the company was in the leader or the owner of the Malden Mills who aside from being an ethical man, was also a shrewd businessman who believed in helping others through tough times so they could help him through his. This is the same theory which he admitted to applying to his business as well both before and after the incident of the fire. Before the fire, the communication and the relationship between the employees and Feuerstein was very strong and Feuerstein sought to pay his workers better and well above the industry average for their efforts. Ulmer conducted a research based analysis on the Malden Mills case, and his “analysis demonstrates the importance of establishing strong communication channels and positive value positions with stakeholders well before crises erupt” (Ulmer, 2001). The presence of strong communication and ethical commitment was also the strength of the company as “strong commitment to stakeholders, an immediate and unequivocal commitment to rebuild, and crisis as an opportunity for renewal.” (Seeger and Ulmer, 2002)

The threats that were imposed as a result of the fire pertained to cancelled orders and lost customers for which the shipments could not be provided due to fire loss. Another threat facing the company was the possibility of the company failing in the market as a result of no production and the resultant loss of reputation.

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The challenges that were faced by the company were to keep the workforce loyal and committed to the company despite the loss of their jobs for the temporary period and the reestablishment of the business as a functional operation in a short period of time. The mill and the factory needed to be rebuilt and refurnished in order to make them functional. Moreover, the company also needed to maintain the current positive reputation and good in the market as well despite the incident of the fire while contributing to the positive returns on the stake of the identified stakeholders. The prospective lay off of the employees due to the fire also presented a gloomy front as it meant unemployment on a massive scale in the region.

The opportunities that were available to the company as a result of the fire were to relocate to another region and commence operations which were more cost-effective instead of redeveloping the old mill and factory. The company could start afresh with new staff and markets by abandoning the devastation of the fire.

Economic, Legal, Ethical and Philanthropic Responsibilities

The economic responsibilities of the company in this case were to maintain a positive macroeconomic environment in the region while contributing to the development and the growth of the region. The macroeconomic issues that threatened the company were increased unemployment, increased poverty, low standards of living in the community and the lack of economic growth. The legal responsibilities of the company pertained to providing support and compensation to the victims of the fire, both who were injured or killed as a result of it. On the other hand, the legal responsibility of the company also included providing returns to the stakeholders of the company in terms of their stake involved. The ethical and the Philanthropic responsibility of the company in this case was to be accountable to the harm caused the workers and the employees of the company due to the fire and to provide them with moral, financial as well as medical support to get through the crisis stage while not adding to their problems through layoffs of job cuts.

Management of the Issue(s) by the Company

The company managed the issues highlighted for the crisis stage as well as those which occurred post crisis in a remarkable manner. In order to safeguard the reputation and the goodwill of the company, the decision was made to rebuild the mill and the factory in an innovative manner while employing the workforce to contribute to its development. For the three months following the incident, salaries and benefits were provided to the employees and workers despite the fact that they were not working. This meant that the company gave out a 1.5 million dollar payout in the form of salaries and benefits to support its employees during the time of the crisis.

Recommendations

Recommendation for the Case

The case was dealt with in a highly ethical and mutually beneficial manner whereby the company managed the stakes of the stakeholders as well proving them with financial security as well as prospective growth in terms of their returns on their investments. As a result by way of recommendation, it is stated that the company which is a powerful entity on its own should be responsible for its actions as well as its stakeholders, and as a result the company should provide financial as well as career support to the employees of the company, while the customers and the creditors have to be compensated by paying them their dues. Similarly, in order to maintain economic favorability in the region and avoid large scale unemployment, the company should retain its employees until they can commence work again.

Response to ‘Should the company have acted as they did’

While in the short run, the company faced massive outflows in terms of the expenses of rebuilding and loss of materials and product to the fire, as well as the 1.5 million dollar payouts that it made to its employees. Despite this, it can be commented that the company should have made the decision that it did make pertaining to the management of the injured, harmed and the workless employees that we’re unable to earn their living for a few months after the incident. The support for the actions of the company is justified as the company managed to aim for and achieve long term profitability, while the philanthropic action made the current workers and employees of the company more loyal who were willing to work harder and make the company more profitable in the years following the fire incident.

What Action Should the Company Take Now?

If the company was faced the same situation in the current environment, the company would have two choices pertaining to how it would resolve the crisis. One of them would be to abandon the site and commence the business over by developing a new mill and a factory to replace the old ones. In order to support development and bring down the costs, the company could lay off the workers that were disabled while providing them their medical compensation while only the minimum staff could be retained, laying off the staff which is not requires due to the lack of jobs. However, this option is not suitable entirely as even though the company might save funds by laying-off workers that are not needed at the moment, efforts would be required both medical as well as financial to hire new workers once the factory is up and running. This would mean additional expenses of the company in the long run. Moreover the overall company reputation and loyalty of the remaining workers towards the company would be negatively effected.

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The second option available to the company is to act as it did before by compensating the injured and the disabled while providing job security to the employees. The company could employ those workers willing to work by employing them in the redevelopment of the mill and the factory while salaries for the coming months could be provided to the employees, regardless of their current work status. This would enable the company to get back on their feet in a short amount of time as the workers would be committed and loyal to the company, while being motivated to restart the operations with renewed force and dedication. The company could as a result see higher productivity from the workers in the coming months along with better response from the local community. Moreover, the reputation and goodwill of the company would be positively affected, and the other stakeholders like business partners, creditors, and customers would also have trust in the organization after the way it treats its employees. As a result this is a much better and suitable option.

References

“Stakeholder: Definition”, 2009. Web.

De George, R.T., Business Ethics, 6th ed., Prentice Hall, 2006

Klein, L.S., 1991, “Ethical Decision Making in a Business Environment”, Review of Business, Vol. 13, 1991. Web.

Seeger, M., Ulmer, R., “A post-crisis discourse of renewal: the cases of Malden Mills and Cole Hardwoods”, Journal of Applied Communication Research, 2002, Vol. 30, Issue 2 , 126-142. Web.

Ulmer, R.R., “Effective Crisis Management through Established Stakeholder Relationships Malden Mills as a Case Study”, Management Communication Quarterly, 2001, Vol. 14, No. 4, 590-615. Web.

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