SOM

Leadership,Governance,andAccountability
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GSM441A² Fall 2010

Professor Susan Hass

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Assignment #3
Malden Mills
Mariela Formas
 Memorandum

Date: November 16th, 2010

To: Aaron Feuerstein, CEO Malden Mills

From: Patti Fitzpatrick, Chief of Polartec Manufacturing - Malden Mills

Subject: Polartec Manufacturing Rebuilding Decision

Malden Mills is at a critical point where decisions need to be made strategically regarding the
rebuilding processes, balancing our current budget, and the type of infrastructure that is needed to
reinforce our competitive advantage.

The Polartec Rebuilding

Rebuilding the Polartec division under the same labor intensity manufacturing processes we had
before the fire, will only help the company and the stakeholders (including the workers and the
community) in the very short term.
Given the fierce competition we have had to confront due to our competitors· use of cheaper labor
abroad, it makes no sense to invest in the same high and expensive labor intensity processes. That
will only leave the company weak in the face of our competitors in the long run.This will put both
revenues and margins for the company at risk, in addition to the probability of ending in massive
layoffs and risk of takeover.
Thus, rebuilding under the same technology is neither economically viable nor socially-
responsible. These two premises need to come together in order to achieve the ultimate purpose
of the company: generating value for the stakeholders, as well as for the community.

The Opportunity
We have the opportunity to beat competition with both quality and competitive prices. Our
skilled labor, combined with high technology,is completely able to deliver high quality products at
lower cost. Adding to that,our ´close to the marketsµ approach will make a combination difficult to
achieve for competitors. That will enhance growth and expansion, giving more job opportunities
than ever before and improving our community as a result.
In addition, Malden Mills needs to reach production levels faster enough to keep customers. This
faster growth will be only achieved with automation. Moving the Maine facilities to Lawrence will
actually help to reduce costs as well as increase efficiency to reach previous production levelseven

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faster. This will reduce time in the process and allow us to reach the former production levels fast
enough to not risk the loss of our customers.

The Budget
Insurance coverage is also not guaranteed, even though it will be $300 million. Taking into account
that just for rebuilding the Polartec division more than $200 million is needed, it is a must to
reduce cost. Once again, automation and reallocation is the right decision to make in order to not
risk the control of Malden Mills.

Workers Morale and Loyalty

The automation and reallocation process should be viewed as a corporate improvement plan with
the vision of the company as part of that. Incorporating more technology and good industrial
engineering will improve the firm's overall strategic position. This will allow faster growth, resulting
in new jobs that would be given to many of the people that are displaced by technology.

This will not harm the morale of the workforce at all. These employees understand that this is not
a scheme created to hurt them, but simply a change in employment status and work ideals due to
the need to rebuild and reestablish the competitiveness of the company, which will ultimately result
in restoring their source of work as well.

Having a vision for the company helps to show that the downsizing is credible, and this will help to
reinforce much of the trust that employees have in senior management, specially in you as CEO
and head of this company.

It will allow employees and the community to see you as a competent leader, and they will see that
the firm is going to be revitalized and the competitive advantage renewed. Employees also will
have a stronger sense of empowerment, direction, and meaning when theywill have a stronger
vision for the company.

Conclusion
I truly believe in your vision and the huge investment that Malden Mills has put in its workforce.
Because of this, I feel strongly that to be successful in this venture, it is a must to align our strategy
to be economically viable and socially responsible. We need to focus on the long run, and on what
is the best decision to make for the company as a whole. This includes stakeholders, workers and
the community.

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Preparation Questions:
1.c Was it a good business decision to rebuild Malden Mills after the fire?
First they should wait until the insurance confirms the coverage. Then borrow as well as
reduce cost to modernized and include automation that bring a strong competitive
advantage.
2.c Assess Aaron Feuerstein·s actions during the rebuilding, including his treatment of the
company·s stakeholders. Would you have made different choices? Why or why not?
I would to support the workers, but I would also assess the stakeholders as a whole, and
would be best in the long run. In other words, scarify the company for the workers make
no sense, at the those workers will loose their jobs anyway if the company is not able to
compete in the market or remain control over creditors.
3.c Do you agree with Labor Secretary Robert Reich that ´[what Feuerstein has done] is what
every CEO in America should be doingµ?
4.c No, I didn·t. As the reading ´The Virtue Matrixµ stated being socially responsibly at any
cost will ultimately having structural barriers. I believe that CEO should encourage them
self to be as bold and innovative in enriching society as they are in enriching their
shareholders.
5.c What factors contributed to Malden Mills· financial distress? Was bankruptcy avoidable?

6.c Review Exhibit 6. What do you think the estimates are based on?
7.c Consider the financial projections presented in Exhibits 7 and 8. Do they seem realistic?
Do they raise any concerns?

'c What are the main arguments you are trying to counter?
'c In a business being socially responsibly needs to go together with being economically
viable. If not the company would disappear with any chance to be socially responsibly.
'c 4hat is, what are the reasons and rationalizations you need to address?
'c What is at stake for the key parties, including Feuerstein?
'c What arguments or levers can you use to influence Feuerstein? What is he likely to say in
response to your arguments, and 4HEN how will you respond?

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