1999 Managing Change Optimas Award Profile Malden Mills Industries Inc.

On the evening of December 11, 1995, Bill Perez left Malden Mills after a seemingly normal day. Five minutes after walking into his home, his brother called: There was an explosion at the mills, he said. Several buildings were on fire. Seconds later, the phone rang again. Security personnel at the Lawrence, Massachusetts-based company confirmed the horrible news. “It was pretty bad, so I immediately drove down to the mills,” says Perez, manager of industrial relations. “When I got there, I was devastated by the smoke and flames. I just got there as [fire fighters and ambulance drivers] were evacuating all the burn victims.”

Perez says approximately 300 employees were working when the fire broke out around 7:50 p.m. As it turned out, 22 workers were rushed to several local hospitals. Meanwhile, he and then HR acting-director Alan P. Kraunelis—also at the scene—could think of only one thing: Get the personnel files. Their first concern was to contact the families of injured employees, Perez says.

Violating several orders to evacuate, the two men entered the human resources offices. Fortunately, HR’s offices weren’t located in the three buildings that burned down. Perez recalls that bitter cold evening. The wind was howling at 50 miles per hour. Armed with flashlights and cell phones, the HR duo retrieved the files. Upon locating the injured workers, they notified all of the families. “We had pretty good control of that evening,” he says.

Quick instincts. Unwavering conscience. Risk and faith. That’s what Perez and Kraunelis demonstrated that night—traits only to be further exemplified by CEO Aaron Feuerstein and the Lawrence community immediately thereafter. For some companies, such a tragedy would devastate a workforce and community—but the fire at Malden Mills became a catalyst for change. Founded in 1906 by Feuerstein’s grandfather, the $300 million-a-year manufacturing company is best known for its high-quality surface-finished fabrics, Polarfleece® and Polartec®.

Within the last three years, the story of Malden Mills has focused on Aaron Feuerstein, and how he eschewed the option of taking the insurance money and running overseas. Instead, the third-generation owner opted to pay 1,400 displaced employees for three months, extend their health benefits for nine months and rebuild the plant—all at a personal cost of $15 million. He has since received worldwide praise for his do-right deeds.

What many don’t hear about, however, are the incredible efforts of Malden’s HR team: How it galvanized Malden’s corporate and community resources at critical junctures since Massachusetts’ largest fire. For its achievements, Malden Mills has received the Workforce Magazine Optimas Award for Managing Change. Says Feuerstein: “The tremendous amount of change in the past few years makes me once again recognize HR’s strength and courage. At Malden Mills, we have self-confidence to change without fear.”

First juncture: the fire.
As a family-owned business, the spirit of family resonates as a corporate value, says Kathy Skala, current HR director. The fire, she says, was a great loss not only to the Feuersteins, but to the 3,000 (now 2,500) employees and the people of Lawrence—a mill town 25 miles north of Boston on the Spickett River. Reported structural losses included 750,000 square feet of manufacturing and office space in three buildings. The Flock Division (serving upholstery) was gone; the Woven Division lost much of its finishing operation; and the Knit Division, which makes Polartec(R), lost its dyeing operation and most of its finishing.

Nevertheless, Feuerstein’s vow to rebuild Malden sounded the trumpet. On the day after the fire, Feuerstein made his unexpected announcement to pay his employees’ salaries and benefits. Workers wept as he declared his commitment. Meanwhile, HR shifted into high gear with a Crisis Team—the foundation of which was actually laid before the fire. It was composed of Feuerstein, the COO, CFO, HR and representatives from each department. The team, says Perez, met daily to discuss the status of those injured, to assess the immediate needs of Malden employees, to set up a communications and workers’ training center, to call upon community resources—and even to collect Christmas presents for the children of Malden’s corporate family.

A series of operational moves also were enacted to keep production going. Dyeing and printing were farmed out to other textile companies in Massachusetts and the South. Equipment, designated for the company’s German operations in Goerlitz, was brought to the States.

With 1,400 employees temporarily displaced, HR reached out to the people of Lawrence for help. Between Skala, Kraunelis and Perez—all longtime Malden employees—there were more than 50 years of cumulative experience and extensive community ties. “Nothing happens in this city that we don’t know about,” Kraunelis says. He and Perez located a vacant mall and negotiated space for a workers’ center that would become a place for employees to be updated on the company’s rebuilding efforts, pick up their unemployment checks and, most importantly, to receive job training.

The local Chamber of Commerce, says Skala, collected $320,000 for an employee assistance fund, out of which employees were issued food vouchers. And with the promise of federal and state dollars pouring in for training of dislocated workers, HR created a plan to address such needs. Training included English as a second language, GED and basic computer literacy.

As workers waited for the new state-of-the-art mill to be completed in September 1996, they learned the computer skills that would be required to run the new machines. In less than a year, more than 600 employees completed courses at the communications center or at outside training facilities. Malden’s center has received praise from former Secretary of Labor Robert Reich as a national role model for employee training and development.

Clearly, what began as a traumatic event rallied the company and community—if not others worldwide. HR even received calls from out-of-state employers offering jobs to Malden’s displaced workers. Their reputation as skilled and committed employees had brought forth myriad offers. Of the 1,400 displaced employees, more than 90 percent of them have returned to work.

When asked what lessons she drew from the fire, Skala recommends these HR tips:

• Be active in the community and maintain relationships.
• Participate in the Chamber of Commerce.
• Know the leaders in local cities and towns.
• Have a crisis plan in place and know who’s in charge.
• Know from whom you can seek help.
• Have creativity in the management group.

“[Malden’s] story is all about relationships. They were literally the fiber of our rebuilding efforts,” says Skala. The new facility became fully operational, as scheduled, in September. Employees went back on the line, and what was initially referred to as the Crisis Team evolved into the Recovery Team. It was to lay the basis for HR’s next phase of corporate change.

Closing the upholstery division.
Kraunelis says he’s sensitive about the word downsizing. He doesn’t want anybody to underestimate the business decision Feuerstein made in February 1998—26 months after the fire. In years past, the Flock Division, which served the upholstery market, had been profitable. But as Malden’s Polartec® products took off, the division dragged despite continual investment and research.

Moreover, since the Flock Division was destroyed in the fire, Malden lost the overseas upholstery market. At that point, Feuerstein had to close down the division. It was another blow to Malden because the 300 workers were among the company’s most senior employees. Many had been employed at Malden between 10 and 30 years.

HR initially tried to absorb the displaced workers into the Polartec® business. Still committed to its employees, management did everything it could to keep them on the job. Workers were brought in by seniority. But what Feuerstein and others couldn’t predict was the financial impact of El Nino and the Asian crisis on the Polartec® market. With a milder winter in some parts of the United States and an economic crisis overseas, Malden’s usual Polartec® market took a dive.

“So our people had to be laid off,” he says. Fortunately, the workers’ center that had been established right after the fire was still operational. The 400 employees were given career guidance and job training. In fact, Perez and Kraunelis—at the time of this interview—were expecting to attend ceremonies for 14 workers who obtained their GEDs. Education, he explains, is a major achievement for Malden’s melting pot of immigrant workers.

The layoffs began in March and were completed by August. Of the 400 laid-off employees, most have picked up other jobs, Kraunelis says. Approximately 150 are still unemployed. On the positive side, Malden recently brought back four workers—one of whom had been employed by the firm for 37 years. As the Polartec® market expands, HR hopes to call back as many former employees as possible. “I’d love to bring them all back,” he says.

Consolidating resources: another painful layoff.
As director of industrial relations, one of Kraunelis’ major responsibilities is to negotiate labor contracts. Many of Malden’s employees are represented by UNITE—the Union of Needletrades, Industrial and Textile Employees. Among them are 300 employees who worked in Bridgeton, Maine—a satellite knitting mill serving the Polartec® division.

Kraunelis says the mill had been plagued with internal problems, particularly its strained labor-management relations. Malden Mills faced another grim crossroad. “Business was so far down, we had to close the plant and transfer the knitting division to [the new facility in] Lawrence,” he says.

Kraunelis was thus joined by Feuerstein, Perez and the company president in August to make the announcement to shut down the plant. Needless to say, the workers at the Bridgeton Knitting Mill were shocked. Despite the fire in Lawrence, despite the closing of the upholstery division, they had been reassured their plant wouldn’t close. But business imperatives eventually proved otherwise. However, HR and Malden Mills management again promised not to abandon their cherished employees. “In the worst of times, you have to tell people the truth. If you try to snooker them, they can look at your face and eyes—and know whether you’re telling them the truth or not.”

Kraunelis soon met with the union and started hammering out a settlement package. All of the employees were given a severance package of one week per year of service. It also included a month of benefits, holiday pay, a lifetime discount in the company store—and retirement benefits adjustments. In addition, the workers were offered the option of moving to Lawrence, but most decided to remain in Bridgeton—the majority having picked up other jobs. Kraunelis says that Malden plans to open a training center like the one in Lawrence to assist the displaced workers.

In the face of these major dislocations—the fire, the division closing, the consolidation—Malden Mills’ corporate values have remained intact, says Skala. In a speech given to a local HR group, she said: “[Malden Mills] began as a place where senior executives had their offices in the same buildings and on the same floor as the manufacturing equipment, where managers had to yield to fork trucks as they went to meetings. This was the way the Feuerstein family wanted the mill to work. The family members didn’t want their managers to ever forget what their work was truly about.”

For 93 years, change has been ever-constant. But Malden’s employer-employee loyalty has driven the company’s life span. Indeed, the relationships here aren’t only warm ‘n’ fuzzy like Polartec. They’re as solid as a brick.