CUrporate Social Responsibility to the w but bot from a b low-w focus Listen to
ID: 365125 • Letter: C
Question
CUrporate Social Responsibility to the w but bot from a b low-w focus Listen to the Chapter Audio on mythinkinglab.com of the n Polartec L.L. Bea CASE 12.1Explore the Concept on mythinkinglab.com Competing Visions at Malden Mills these an tragic fire that struck Malden Mills in 1995 and made its owner, Aaron Feuerstein, an American folk hero was the beginning of a struggle that eventually pitted Mr. Feuerstein against He sav the might of GE Capital over competing visions of how to run the company the firm, After three of the Malden Mills' eight buildings in Lawrence, Massachusetts, burned to ground on the night of December 11, Aaron Feuerstein, the patriarch of this family-owned announced that wages and benefits for the 3,100 affected workers would be continued and that the facilities would be rebuilt on the same site. This heartfelt concern for the company's workers and the community won Mr. Feuerstein widespread acclaim as an exemplar of corporate that at social responsibility. Many business people wondered why he would not use the $300 million in insurance to move overseas to a low-wage country as his competitors were doing-or simply take the money and retire. Instead, the rebuilding of the plants required an additional $100 million investment. For his compassionate response, Mr. Feuerstein received numerous awards, invitations to speak, and honorary degrees at a time when Americans were disturbed by massive layoffs ordered by highly paid CEOs. President Bill Clinton invited him to a conference on corporate social responsibility and mentioned him in his 1996 State of the Union address. time However, heavy debt from the rebuilding forced Malden Mills into bankruptcy in November 2001, and when the company emerged from bankruptcy in October 2003, it was owned and operated by its former creditors, led by investment giant GE Capital. Aaron Feuerstein held the largely ceremonial posts of president and nonexecutive chairman and retained a 5 percent stake but majority ownership and operational control of the company was in the hands of the investors who had come to the company's aid. Now, Mr. Feuerstein wanted to repurchase the company that his grandfather founded in 1906 in order to keep the much-needed jobs in Lawrence. The plan of the current owners, though, was to keep control and cut costs by sending operations to Asia. TheExplanation / Answer
This is an interesting case of worker loyalty b/s the organization's overall health and outlook. I will give you my key pointers, based on which you can build and frame your own view.
Both Aaron Feuerstein and Jack Welch were top bosses with completely different management styles, as is evident from the case. Aaron decided to rebuild the burnt textile factory and wanted to continue paying his workers while the factories were being rebuilt, instead of re-investing it in a lower wage country or instead of taking it and retiring. Was this a wise decision? To answer this, we should not link the concept of paying workers during the disaster and the decision regarding moving the factory to Asia, where wages are lower. It is important to understand that just because an organization has a set up in a low cost market, it is going to be a market leader. This is a common misconception which is prevalent in the market. Quality, and not cost, is what drives people in today's digital world. Quality is something which is achieved through your people, and not through money alone.
Textile industry is an industry where the worker plays an important role. It is an industry where quality is of utmost importance to the customer, and if a worker truly feels attached to the company, there is no limit to the returns he can fetch the company. However, if the organization was already performing poorly in the current location, then there is no excuse for Aaron to continue operations in the current location. In that case, he should have made a decision to shift. Since the factory was already doing well in its current location, there was no real need to move away to another location despite lower costs, as long as quality was maintained. This ensures higher worker loyalty, and ultimately, superior customer satisfaction.
So, yes, the decision to pay workers above market standards is justified provided the work they do is quality work, which was the case here. It is a great practice if people are compensated for their work only on the basis of merit, and not simply by benchmarking against other competitors and limiting the scope of true talent. Hence, in my view, Aaron did the right thing by trying to retain his best workers during their hardest times!