The man who said no to $300 million

The Economy

September 16, 1996|By Jay Hancock

LABOR SECRETARY Robert B. Reich stood in Massachusetts last February and became perhaps the 10,000th person to proclaim Aaron Feuerstein an American paragon and an example for bleeding-heart tycoons everywhere.

"This is what every CEO in America ought to be doing," Reich said, adding that Feuerstein's is a "Frank Capra story."

But there's more to the story than has made it into most news accounts.

Feuerstein, you don't need to be reminded, spent more than $15 million paying the full wages of 3,100 idle textile workers early this year while his factory, Malden Mills, was rebuilt.

The Lawrence, Mass., plant, one of New England's few remaining textile manufacturers, had burned down right before Christmas.

Feuerstein, 70, was lionized for deciding to rebuild when he could have taken $300 million in insurance money and run.

What's more, he paid all employees for three months even though most weren't working.

Massachusetts Gov. William F. Weld called him an American hero. ABC anchor Peter Jennings called him Person of the Week. Cardinal Bernard Law said Feuerstein was an agent of God.

Newspapers and magazines everywhere weighed in with stories on how Feuerstein's shining example cast the rest of greedy, downsizing corporate America in a harsh and unflattering light.

"In the last analysis, each individual must ruggedly figure out what is correct, right and just to do. All I did was the right thing," Feuerstein told the Providence Journal Bulletin.

"I feel that I am a symbol of the movement against downsizing and layoffs that will ultimately produce an answer" to Americans' economic anxiety, he told the New York Times.

The country could eventually obtain an answer to downsizing. But it may not be what Feuerstein thinks it is.

That's because he and his company are unique in more ways than just generosity.

Feuerstein is essentially a sole proprietor. He has no public shareholders.

How many $400 million companies have no public shareholders to answer to?

Malden Mills has a virtual monopoly with its most important product.

Its Polartec and Polarfleece fabrics, beloved of the woodsy and the woodsy wannabes, control 90 percent of the booming "outdoor fleece" market, according to trade analysts.

The fabrics' sales have been growing by double-digit percentages annually.

Even when the factory was out of commission and L. L. Bean, Patagonia, Land's End and the rest of Feuerstein's customers theoretically could have switched to competitors, they didn't.

They couldn't find any whose products measured up.

How many businesses have that kind of leverage?

Every CEO in America can't do what Feuerstein is doing because hardly any CEO has his exceptionally fortunate situation.

Suppose Bethlehem Steel Chairman Hank Barnette gets visited by ghosts next Christmas Eve and decides, in a wonderful gesture of human kindness, to rehire a thousand steel workers at Sparrows Point.

The mill doesn't need the workers, Barnette will say, but "it's the right thing to do."

This is what will happen: Widows, pension funds, mutual funds and other Beth Steel shareholders will quickly sue Barnette for fiduciary malfeasance. Barnette's bankers will call Beth Steel's loans.

Nucor, USX and other competitors will quickly cut into Beth Steel's market share as it raises prices to pay for the extra workers.

There are few places in corporate America anymore for noblesse oblige. Corporate America isn't Henry Ford, John D. Rockefeller and Aaron Feuerstein these days. It's you, me and Joe Sixpack.

We own big business, through our pension funds and 401(k) plans. We pay big money to professional managers to make sure our stock returns are as high as possible. We fire them when returns lag. Such dispersed, faceless financial aspiration leaves little room for Feuerstein-like altruism.

And even Malden Mills isn't immune to the forces of the market.

Little reported is the fact that the company has licensed the manufacture of Polartec at a German plant that eventually will employ 450 people, robbing Massachusetts of potential jobs so Malden Mills can cut shipping costs and avoid European tariffs.

Feuerstein's managers and even his wife worried that his generosity was too impetuous and might cripple the company.

"Here is Aaron, as a national spokesman for worker loyalty, trying to save jobs, and what if he loses the company?" she told the Times' Louis Uchitelle. "That would be a terrible thing."

Frank Capra wouldn't tell that story.

Pub Date: 9/16/96

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