boston.com Business your connection to The Boston Globe

Aaron Feuerstein's labor of love

A throwback to a patrician era fights an uphill battle to regain control of company his grandfather founded

LAWRENCE -- If you're not on his team, Aaron M. Feuerstein wants you out of the way.

"Ah, go to hell!" snaps Feuerstein at the honking driver he's just cut off on the approach to the textile business he made famous, Malden Mills Industries Inc. Then he resumes a somber lecture on the danger cheap foreign fabrics pose for the company's 1,200 workers.

Inside, a young employee offers him a grave "good luck" and Feuerstein turns upbeat. "It's a tough place when business is bad, but it's a lot of fun when it's good," he tells the man. "We'll persevere and win in the end."

Feuerstein, the company's blunt-spoken 77-year-old chairman now battling to regain control of the fabric maker, knows something about perseverance. A throwback to an age of patrician capitalism, he drew worldwide renown for his generosity to workers after a major fire in 1995. But he rebuilt too extensively, a gamble that left Malden Mills vulnerable to a downturn in sales of its trademark Polartec fleece and forced it into bankruptcy in late 2001.

Creditors have arranged to strip Feuerstein of his chief executive's title, though they haven't kicked him out of his sunny office filled with paperwork, books, and a large print of the mill as it looked a century ago. To get his company back, he has to raise at least $92 million. It's a draining task for Feuerstein as he hobbles around the mill on a hip worn out from running. Friends say he can't bear to lose the firm his grandfather founded in 1906. Though he remains sharp-witted, even some of his allies worry about his pace and, should he succeed, whether he will again try to operate Malden Mills as a closely held business in which he answers only to himself.

"He's not capable of running it day to day, not at his age," said David J. Ferrari, a close friend who is chief executive of Argus Management Corp. and has been a member of the Malden Mills board of directors for 20 years. "This has grown from a small to a major company, and I think Aaron's way of running a company is to be everything to everybody."

Clark Miller, a sometime adviser to Feuerstein and once his lending officer at the Bank of Boston, fears he might make financial mistakes alone at the helm.

"It's inevitable if you have nobody at your level to say, `you have it all wrong,' " Miller said. Feuerstein said he agrees and intends to bring in new senior leaders.

Yet Feuerstein's driving presence and his reputation as a jobsaver have become Malden Mills's best assets. Politicians from both parties line up to be associated with the company and its chairman, the rare businessman with a heart who refused to lay off his largely immigrant force of mill workers following the devastating fire. Feuerstein's connections won Malden Mills valuable military contracts to supply troops in Afghanistan with Polartec garments and won some leverage with creditors. The political capital also helped him gain $20 million in financial guarantees from the US Export-Import Bank last month.

He plans to seek another $15 million from the agency, which he says would seal other financing he's arranged for his buyback. Although lead creditor General Electric Co. says it is too soon to address Feuerstein's fear that new managers might shift production overseas, he's convinced many in Washington that unless he wins back the company, mill jobs will evaporate.

"If Aaron Feuerstein was John Doe, this buyback wouldn't be happening," said David Orlofsky, a consultant with the turnaround firm Kroll, Zolfo, Cooper brought in to manage Malden Mill's operations during the bankruptcy proceeding. Orlofsky says he's been involved with nine other bankrupt companies and seen few other equity owners remain in place. Considering Feuerstein's original position, "I've never seen anyone get this far," Orlofsky said.

A behind-the-scenes start

Aaron Feuerstein joined the family business in 1947 after graduating from the Boston Latin School and Yeshiva University in New York. He mostly took over from his father, Samuel, in the mid-1950s and preferred to stay behind the scenes, even declining to wear a name tag at trade shows.

But inside the business, he fought for control. In 1981, a lender forced Malden Mills into bankruptcy because of slow sales of the fake fur that was a staple product, and family members including Feuerstein's older brother Moses tried to force him out as president.

One person close to Aaron Feuerstein said one reason for the rift was that his effort to develop Polartec was seen as a high-risk strategy. Al Kraunelis, currently Malden Mills director of industrial and community relations, says another issue was a demand by Moses to split in half the company's profitable flock division, which was ultimately rejected.

"I had the majority at the beginning and at the end, and there was an unfortunate attack on me in the middle," is all Aaron Feuerstein will say about the episode. He adds that, today, the family is on good terms. (A representative of Moses Feuerstein referred questions to his son Henry, who did not return messages.)

Polartec saved Malden Mills. Initially known as Polarfleece, the lightweight polyester pile fabric became a hit with outdoor clothing companies such as The North Face and Patagonia. It was developed by Malden Mills's cloth division, once the smallest part of its business, which some insiders had wanted to close as other textile manufacturers moved to states with lower wages.

Instead, managers convinced Feuerstein the fabric could be branded with its own name, like Intel computer chips, and command a high price. They were right. By 1995, Polartec accounted for half of Malden Mills's sales of $425 million; that Christmas season retailers reported they were selling "fleece anything."

A nighttime blaze on Dec. 11, 1995, ended the momentum. One of the worst in state history, it destroyed three buildings, seriously burned more than 20 workers, and cast doubt on the future of the whole company, which by then had grown to 3,200 employees. Investigators said the blaze probably was caused when nylon flocking fiber was accidentally ignited by an electrical spark.

Advisers urged Feuerstein to rebuild slowly and to quit the upholstery work. He brushed them off and paid wages to all 1,400 displaced workers in Lawrence for 90 days after the fire and extended their health benefits, at a cost of $25 million. By the end of 1996, all but 400 were back and a new factory was opened the following year. Feuerstein says his actions after the fire made good business sense by keeping skilled labor on hand. Others remember altruism on display the morning after the fire. "He said, I'm not throwing 3,000 people out of work two weeks before Christmas," remembers Cesar F. Aguilar, Malden Mills executive vice president.

In hindsight, it was too much. By 1997 Feuerstein had abandoned the flock-rebuilding effort, a needless project that helped drive rebuilding costs to $450 million overall. The difference between that and a $300 million insurance payout became the debt that forced Feuerstein into bankruptcy protection in 2001, coupled with a warm winter that hurt sales. Layoffs and divestitures shrank the work force as well. Several senior executives he brought in to help lasted just a few years, one leaving on disability. Feuerstein says they couldn't handle the pressure in the time just before the bankruptcy. "It's unbelievable that at my age, I'm the only guy who didn't get sick during the period," he says now.

Still Feuerstein's response to the fire made him a national hero, the living image of a humble and huggable figure in running shoes who served as the perfect foil to such slashing business executives as "Chainsaw Al" Dunlap who gloried in cutting costs through mass layoffs. The peak came when Feuerstein was an invited guest at President Clinton's State of the Union address in early 1996.

Feuerstein at first resisted the attention. Employees say they had to push him in front of the TV cameras that surrounded the plant on the chilly morning of Dec. 12. Merrimack Valley Chamber of Commerce president Joseph J. Bevilacqua remembers that a few weeks later Feuerstein tried to duck 100 media personnel who'd gathered to watch him accept $300,000 donated for fire victims.

"I thought, you gotta be kidding me," said Bevilacqua, who said others cornered Feuerstein and persuaded him to say a few words on the street next to his car. Only gradually did he grow comfortable in the public eye and agree to accept more speaking invitations. "Now he goes on and on," says his wife, Louise.

A quest to regain control

Today, Feuerstein splits his attention between financing tasks and the mill's business. He lives in a plush but modest condominium in the Brookline neighborhood where he grew up, in the heart of his Orthodox Jewish community. He sneers at what he considers the excess consumption of large houses and boasts about the secondhand engine that's gotten his dark green 1997 Cadillac beyond 158,000 miles.

At his desk, Feuerstein looks up phone numbers on a PDA and dials a dozen calls on his speakerphone, discussing sales strategy and the progress his son Daniel has made lobbying politicians in Washington for the extra Export-Import financing. "It looks like we're going to win this thing," he says at one point, clenching his fist.

The main event of the day is a noontime meeting with four senior lieutenants to discuss the progress of such new products as "Hardface," a toughened version of Polartec. Another question was whether to hire back a person who once made more than $100,000 at Malden Mills but was laid off in a retrenchment. A new quality-related position might open up that would pay $70,000 a year, but manufacturing director Phil Murrell worried the job candidate might be problematic. "No matter what reason you let someone go for, there's a bitterness when they come back in," said Murrell, speaking in a Georgia accent.

Feuerstein dismisses the idea as "a Southern tradition" he won't put up with. "These people shouldn't be discriminated against," he says. Someone floats the idea of hiring the candidate as a temporary consultant, but Feuerstein says that would be too expensive. Besides, he says, if things don't work out "I can fire him."

As it turns out, Feuerstein doesn't even have the power to hire him. The turnaround team from Kroll, Zolfo wouldn't approve the spending. After the meeting breaks up, Feuerstein sets out a lunch of coffee, plain yogurt, and rice crackers on his desk, and rails about the consultants who are crawling all over the mill. The turnaround team reaps big fees, he complains, and forced several mid-level executives and consultants off the Malden Mills payroll, including both his sons. Following that round of cuts, Kroll, Zolfo's chief manager for Malden Mills, Frank Budetti, stepped down from his post for health reasons, including heart surgery.

While Feuerstein's quest to regain control of the family firm strikes some as quixotic, few expect him to give up. He has strong collateral in the mill buildings that were restored for $130 million. Jeffrey Wolfer, president of Kennedy Funding in Hackensack, N.J., said he was willing to extend Feuerstein up to $50 million, but that Feuerstein balked at the $500,000 "kill fee" he would have to pay if other financing didn't come through. "I'd still like to make him the loan," Wolfer says. Until he comes up with the money, Feuerstein's influence will continue to wane. When the company emerges from bankruptcy he will officially lose the title of chief executive, though he will remain chairman of the seven-member board of directors. He will continue to receive his annual salary of $475,000 but will own just 5 percent of the company.

He would remain as company president, but the responsibilities -- helping with union, military, government, and community relations -- are largely ceremonial. He also can block creditors from selling the company to an outsider for the next several years. He insists life will go on if he fails to buy back control. "I won't commit suicide," he says. "My wife thinks I'd be better off anyway" without the strain.

But Feuerstein rarely contemplates surrender. When he looks to the future, his thoughts more often turn to the next generation of family leadership. There, as everywhere, the company's precarious condition has created obstacles. His older son, Daniel, has been out of the business for more than a decade; his younger one, Raphael, was laid off by the creditors. (Feuerstein's daughter, Joyce, isn't involved in the company). If something happened to him, Feuerstein had expected longtime board member and close advisor Richard Langerman might take over temporarily. But the Boston attorney died in July at age 61, leaving Feuerstein with no obvious successor.

"I'm going to keep going until I'm 120, just like Moses," Feuerstein says, then turns serious and mutters that he should bring in new managers. Even he realizes he can't hang on forever, though he steadfastly refuses to say how long he is willing to stay around.

"I don't know," he says. "I don't want to answer."

Ross Kerber can be reached at kerber@globe.com.

SEARCH GLOBE ARCHIVES
 
Globe Archives Today (free)
Yesterday (free)
Past 30 days
Last 12 months