The Exceptional CEO

August 30, 2007 8:00 AM

The Mensch of Malden Mills There's supposedly an exception to every rule. If CEO greed is a rule, the exception is Aaron Feuerstein. When his Malden Mills burned to the ground in December, 1995, he took a $300,000,000 insurance payment and used much of it to pay his 3,000 workers ther wages and benefits while he began to rebuild the factory. [more inside]
posted by Kirth Gerson (54 comments total)

This generosity won him national praise and numerous ethics awards. “I think it was a wise business decision, but that isn't why I did it. I did it because it was the right thing to do,” said Feuerstein.

The new factory was powered by a "highly efficient" cogeneration system. Malden Mills owned the patent and trademark for Polar Fleece, a fabric popular with clothing manufacturers like Patagonia and The North Face. It can be made entirely from used plastic bottles.

Feuerstein had to borrow $150,000,000 to complete the rebuilding, and that debt became the cause of a sad outcome. Continually vowing to restore the company to its former glory, Feuerstein was first forced out of operational control, then of the presidency. After one bankruptcy, his offer to buy back the company was rejected. The workforce shrank to less than 1,000. Federal earmark funds were not enough. More bankruptcies followed, the workers' pension plan collapsed, and Polar Fleece is now made elsewhere.

Feuerstein says he would do it again
posted by Kirth Gerson at 8:06 AM on August 30, 2007

Thank you for your patience. Formatting in Notepad apparently does not reliably transfer to the posting window.
posted by Kirth Gerson at 8:07 AM on August 30, 2007

Whoah! Worth the wait!
posted by gomichild at 8:08 AM on August 30, 2007

Wow, didn't see that one coming. Good post.
posted by Mach5 at 8:08 AM on August 30, 2007

I know about the first part of that story, the burning and paying of the employees on his own, (I worked at a outdoor store and got those kinda trade pubs) and always thought was hella cool.

but I didnt know about that second part.

man that sucks
posted by ShawnString at 8:09 AM on August 30, 2007

this happened in my backyard pretty much. i was horrified and then proud as it unfolded. now, it's kinda the exception that proves the rule is right, unfortunately. he bet on ethics and responsibility. he lost. now he's a cautionary tale for robber barons to point to and say, "told you so!"

shit
posted by es_de_bah at 8:09 AM on August 30, 2007

Wow, good for him.

Pretty much serves as an exemplar of how capitalism punishes people for doing the right thing.
posted by Pope Guilty at 8:13 AM on August 30, 2007

it's kinda the exception that proves the rule is right, unfortunately. he bet on ethics and responsibility. he lost. now he's a cautionary tale for robber barons to point to and say, "told you so!"

Malden Mills, now owned by GE Capital, creation of another native son of Massachusetts, Jack Welch.

I think the lesson here is totally clear.
posted by geos at 8:17 AM on August 30, 2007

An exception to EVERY rule?

I can't wait for the "businesses exist to make money PERIOD" meme to die.
posted by DU at 8:19 AM on August 30, 2007

Thanks for the post, Aaron Feuerstein is now on my list of wonderful people in this world. He sits at number 2 right behind Mr. Rogers.
posted by hexxed at 8:24 AM on August 30, 2007

I can't wait for the "businesses exist to make money PERIOD" meme to die.

But then how will we justify our gross injustices? Without a good excuse businesses will feel pressure to pay better wages, utilize sustainable methodologies and technology, and improve their communities!

If we can't pay a few people 90% of the revenues, how will the megayacht industry survive!?
posted by polyhedron at 8:28 AM on August 30, 2007

Well, that's...really depressing...
posted by kittens for breakfast at 8:29 AM on August 30, 2007

I can't wait for the "businesses exist to make money PERIOD" meme to die.

It can't, not as long as capitalism lives. Businesses which sacrifice profitability for other considerations will be less profitable than businesses which don't, will not be able to expand and grow as well, and will eventually be swallowed up by the larger, more successful businesses- the profit-centered one.

It's like wishing for baseball teams to focus on fair play and other Boy Scout values instead of on scoring runs. Sure, they might be nice guys, but when the franchise hasn't won a game all year...
posted by Pope Guilty at 8:29 AM on August 30, 2007

Actually, GE Capital only owned the debt. Malden Mills' assets are now owned by Polartec LLC.
posted by Kirth Gerson at 8:31 AM on August 30, 2007

It can't, not as long as capitalism lives. Businesses which sacrifice profitability for other considerations will be less profitable than businesses which don't...

Circular logic. Being "less profitable" is only bad if that's the only metric you are applying.
posted by DU at 8:35 AM on August 30, 2007

We used this as a case study in my business ethics class. I think the moral of the story is "You tried your best and you failed miserably. The lesson is 'never try'".
posted by blue_beetle at 8:36 AM on August 30, 2007 [1 favorite]

Pope Guilty, that's a little myopic. Business today focuses on profitability in short term versus long term profit and sustainability. Henry Ford was on the right track with the idea that all his employees should be able to afford a Ford vehicle - short term gains in productivity often do not translate to long term profitability.

Paying your employees better, improving the community, and practicing sustainable methodologies have delayed but generally positive impact on business. They may not get immediate results and that's the problem -- corporate myopia in the name of profits.

Also, most grossly overpaid executives aren't likely to give a rats ass about their overworked, underpaid employees. If you could have a $10 million bonus, or 1000 of your employees could get a $10k bonus, which would you choose?
posted by polyhedron at 8:45 AM on August 30, 2007

Too sad.

I've always hated working for companies that constantly refer to their workers as family even though it's obvious they couldn't care less if you lived or died. Feuerstein's Malden Mills had to be one of the very few companies where that kind of rhetoric would be appropriate.

Bless his heart. I hope that, if he doesn't get his just reward in the next life, his magnaminity has at least brought him great happiness in this one.
posted by Jess the Mess at 8:49 AM on August 30, 2007

Being "less profitable" is only bad if that's the only metric you are applying.

Unless the metric you're applying is, you know, "Staying in business, and continuing to provide your employees with a livelihood." And then being less profitable has a direct impact on your employees bottom lines and continuing employment.

Profit is not bad. It's what allows you to eat, wear clothes, have a place to live, and use the internet.

That said, this guy is fantastic, and the world would certainly be a better place were more decisions made with workers in mind - polyhedron hits the nail on the head. What makes businesses bad is the people who run them.

It's just so unfortunate that guys like this, all too often, get punished for making the right decision.
posted by god hates math at 8:51 AM on August 30, 2007 [1 favorite]

Circular logic. Being "less profitable" is only bad if that's the only metric you are applying.

To be less profitable is, over time, to fall behind. Companies that are less profitable can continue to compete for awhile, but eventually they're going to fall behind far enough that they get bought out. Shareholders want profits, not shiny feelings.

polyhedron, the focus on short term profitability is the inevitable result of the system, not some kind of mutation of it. Companies that don't profit don't stay in business. Ford could afford to be pay his workers generously, but when he implemented that policy, he was pretty much the only game in town, outside of a few tiny firms that don't deserve the label of "competitors". Competition necessarily entails a race to the bottom.
posted by Pope Guilty at 8:55 AM on August 30, 2007 [1 favorite]

That said, this guy is fantastic, and the world would certainly be a better place were more decisions made with workers in mind - polyhedron hits the nail on the head. What makes businesses bad is the people who run them.

shit, people must really suck then.

what makes businesses bad is a system that rewards bad behavior. the sad thing is that most business people are good, or at least no worse than anyone else. but if you are rewarded for impoverishing whole towns and punished for not doing this...
posted by geos at 9:20 AM on August 30, 2007

To be less profitable is, over time, to fall behind. ... Shareholders want profits

The same circular logic, repeated.

Ask yourself this: Would it be OK for individuals to run their lives as though the only relevant metric were financial gain? "If I don't do it that way, my neighbors will make more money than me!" The horror.

Profit is not bad.

Never said it was. And, unlike you, I also didn't make a false dichotomy between "profits uber alles" on the one hand and "going out of business" on the other.
posted by DU at 9:21 AM on August 30, 2007

Competition necessarily entails a race to the bottom.

Also, even by your circular logic this makes no sense. If the only company with customers is the one with the lowest price, there would be only one company in each industry. Back here in reality, different companies try to compete on different features, only one of which is price. (Not to mention the fact that, say, paying employees well is not the opposite of low prices on the shelf.)
posted by DU at 9:24 AM on August 30, 2007

I know we talk about people getting "punished" or "rewarded", but those words are misleading. They're emotional, judgemental words attached to what is a process based on the strict, rational logic of profit-margins. The loans, the debt were not sentient beings devoted to his destruction, and I highly doubt those who helped vote to remove him from power were seething with hatred of his do-gooder ways. Do we hold culpable the consumers who did not spend enough on Polartec to make up for the debts to rebuild the factory and the company?

I'm no Adam Smith. I'm not a fan of a strict capitalist system. But it's ridiculous to act as if The Evil Randian Forces were conspiring to do this guy in. His decision to rebuild the factory was a laudable one. But it ended up being a decidedly bad business choice that probably couldn't have even been supported in a non-capitalist system. What do you do--have government subsidies for "goodness"? Who decides what's good? And doesn't that introduce its own road to corruption? Put aside your knee-jerk reaction and ask yourself what could have possibly been done to make this outcome any different.
posted by schroedinger at 9:28 AM on August 30, 2007 [1 favorite]

Put aside your knee-jerk reaction and ask yourself what could have possibly been done to make this outcome any different.

Well, for one, his creditors could have recognized that this company was going through a great hardship while trying to do the right thing and cut him a break.
posted by Jess the Mess at 9:33 AM on August 30, 2007

Awesome post. This and the one above it about the clowns and the KKK. Two great posts in a row. I live for this shit, seriously I do.
posted by msali at 9:44 AM on August 30, 2007

shit, people must really suck then.

Yeah, I think that's pretty much true.

Everyone use to say that I was a pessamist. I just think I'm a realist!
posted by god hates math at 9:45 AM on August 30, 2007

The entrepreneur of post-industrial America, playing God with other people's money. The robber barons of old at least left something tangible in their wake- a coal mine, a railroad, banks. This man leaves nothing. He creates nothing. He builds nothing. He runs nothing. And in his wake lies nothing but a blizzard of paper to cover the pain. Oh, if he said, "I know how to run your business better than you," that would be something worth talking about. But he's not saying that. He's saying, "I'm gonna kill you because at this particular moment in time, you're worth more dead than alive." – Andrew Jorgenson

and

You invested in a business and this business is dead. Let's have the intelligence, let's have the decency to sign the death certificate, collect the insurance, and invest in something with a future. "Ah, but we can't," goes the prayer. "We can't because we have responsibility, a responsibility to our employees, to our community. What will happen to them?" I got two words for that: Who cares? Care about them? Why? They didn't care about you. - Lawrence Garfield

would seem to be appropriate quotes for the arguments developing here.

Great post, good story.
posted by never used baby shoes at 9:58 AM on August 30, 2007

But it's ridiculous to act as if The Evil Randian Forces were conspiring to do this guy in...

Oh, well - that's not what I'm trying to do. When I say "punished," I meant it very behavioralist way - as a direct result of him doing something "right," something "bad" happened to him (there was causation, but not malice).

What I really mean is that it's sad that, in this case, that him having the best interest of his workers led to such an unfortunate outcome. He gambled that he was making the right decision, and he lost. Which, as has been mentioned, is a disincentive for other business owners to act in the same way.

Maybe he should have acted more traditionally - it's possible that the long-term health of the factory would have been better. But maybe not.

I meant used, of course. With a D.
posted by god hates math at 9:59 AM on August 30, 2007

DU,

different companies compete on different features, true. So in this case, the "feature" that this company was pushing (the thing that distinguished them from other companies in the same industry) was the magnanimous actions of the CEO.

The only way to NOT negatively impact profitability would be to either:

1. raise prices to offset the costs of said manganimity, hoping that comsumers will pay more for more ethically produced products

2. hope the cost is offset by higher productivity from workers

Obviously, neither of these happened, at least not in sufficient amount to offset the cost of doing this for the workers.

Thus, bankruptcy.
posted by I like to eat meat at 10:03 AM on August 30, 2007

god hates math: Everyone use to say that I was a pessamist. I just think I'm a realist!

god hates spelling, too...

This isn't a morality tale: good businesses fail, through no real fault of their own. It wasn't his decision to pay his workers that was faulty; it's just that the fire, and the rebuilding that would have been necessarily, contributed to the company's downfall. Had he not paid the workers during the rebuilding... then what? Sure, the argument would be the insurance payment would cover the full rebuilding, so there wouldn't have been that additional debt to service, but if the company wasn't able to stay profitable after the fire I don't think the $20m debt was necessarily the only culprit. They might still have failed, as apparently the loss of market share while they were unproductive was as much a cause as the servicing of the debt to continue the rebuilding when he didn't use all $300m to complete the new factory.

Hypothetically, if some of that insurance money went to pay for the maintaining and storage of valuable assets in the form of factory equipment while the new facilities were built, we'd say it was an absolutely necessary expense and good business practice to boot- replacing all that equipment after the facilities were complete could require a large loan, etc, etc. But this guy pays for the maintaining of valuable human assets, and we act as if somehow he's made a horrible business decision, or that this is a Randian tale of why you should never, ever, help anyone?

Bollocks! People are a valuable asset too.
posted by hincandenza at 10:10 AM on August 30, 2007

i like to eat meat: different companies compete on different features, true. So in this case, the "feature" that this company was pushing (the thing that distinguished them from other companies in the same industry) was the magnanimous actions of the CEO.

Reductio ad absurdum time on my part, I guess. i.l.t.e.m., are things like "safe working environments" or "paying your employees instead of using slave labor" also examples of magnanimous actions offered as a "feature"? Maybe the real reason Malden Mills failed is because they didn't outsource all their labor to an impoverished nation full of people willing to work for pennies on the dollar. I do believe that bankruptcy was the dire prediction by some when slavery was abolished- surely the economy could not function without cheap slave labor! Clearly, that happened exactly as predicted. Q.E.D.
posted by hincandenza at 10:13 AM on August 30, 2007 [2 favorites]

uhhh, safe working environments and paying your employees are required by law. So all companies must offer them. Thus, they are all on a level playing field.

Illogical comparison.

Look at fair trade coffee, for an example of the more "ethical" origins of a product being the sole distinguishing feature of a product vs. its competitors. In that case, customers voted with their wallets and it was successful.

In Malden Mills and Polar Fleece's case, customers were apparently not willing to pay a premium for "fair trade" equivalent polar fleece.
posted by I like to eat meat at 10:19 AM on August 30, 2007

I can't wait for the "businesses exist to make money PERIOD" meme to die.

I'm not sure that's properly labelled a meme, as I don't think businesses can operate any other way. I agree that the amorality of business can be quite troubling, and social concerns should absolutely have much more weight in contemporary corporate culture, but businesses really do exist to make money--it's what keeps them in existence. Even if you start a business to do something you really love, that has value to others, it must make money to continue to exist. (Now, how much must it make? Certainly expectations have become rather unhealthy in the past couple of decades.)

It's worth noting that, even though Mr. Feuerstein did very much the moral, compassionate right thing, over half of his employees ended up losing their jobs anyway, just a few years later. As a feeling person, I wholeheartedly applaud his choices. But as a thinking person, I have to wonder if a little compromise might have enabled him to lay off fewer workers in the long term, and also to have continued running his company as he had in the past, to the long-term benefit of all involved.

What really infuriates me is when the idea that "businesses exist to make profit" leaves the business world and corrupts other important institutions (like higher education, where I currently work under a business-minded administration who can't seem to understand that a university should not actually make a profit, because it doesn't make a product). The exporting and dominance of the "business paradigm" is far more destructive than merely within the world of business--take, for instance, our "CEO" president.
posted by LooseFilter at 10:21 AM on August 30, 2007 [4 favorites]

also, as for your earlier argument:

This does not mean that human assets are NEVER worth maintaining. It just means that in this particular case, perhaps the cost of keeping those assets outweight the benefits.

A software company may pay millions to keep a brilliant, difficult to replace developer on the team, and come out ahead. This does not necessarily mean that the same expenditure would be justified on an easily replaced janitor.

Not all human assets can be judged on a blanket basis from a business standpoint. In this case, it was empirically demonstrated that he made a bad business decision to keep them in this way.
posted by I like to eat meat at 10:24 AM on August 30, 2007

god hates spelling, too...

That was funny there, what you did - you took my username, and turned it into a burn because I made a typo. DAMN!@

Yeah. I have limited spelling ability, combined with big-ass sausage fingers that hinder accurate typing. I rely on Firefox to spell-check my missives. Unless I miss that little red line.

I AM A HUMAN I MAKE MISTAKES.

posted by god hates math at 10:30 AM on August 30, 2007

Good point, LooseFilter.

Not that I'm completely defending operating a university as a profit-maximizing business, but how does a university not make a product? It sells a service, like any other service business.

I think the problem isn't operating a university as a profit-maximizing business, it's trying to do so for short term profits only. If a university were to continually slash costs to maximize immediate bottom-line profits, its quality would decline, people would find out, and its long-term profits would decrease.
posted by I like to eat meat at 10:30 AM on August 30, 2007

Who cares? Care about them? Why? They didn't care about you. - Lawrence Garfield

In this case, Garfield is wrong; they did care about Feuerstein and his company even before the fire, because he'd made it a good place to work and had kept it in the old mill town after just about all the other textile companies in the state had left.

He gambled that he was making the right decision, and he lost.

I think if you asked him, Feuerstein would deny having lost. Clearly, doing what he saw as the right thing was more important than walking away with a huge pile of money. In other words, the money was not what he used to judge success or failure. His efforts did not have the outcome he desired, and he no doubt is sad about that. Would you choose being a craven success over being a noble failure? He's a hero in the Merrimack Valley.

Put aside your knee-jerk reaction and ask yourself what could have possibly been done to make this outcome any different.

The debt-holders could have let him buy his company back. Did they realize more money in the end than they would have if they'd done that? I don't know. He was not in any control of the company during its final descent. He might well have been able to pull it out. The company was doing well before the fire, and had new markets even after.

Maybe the lesson should be: Make sure you have plenty of insurance. The employee benefits and wages largesse cost only about $25 million; the loan was for over 120.

uhhh, safe working environments and paying your employees are required by law. So all companies must offer them. Thus, they are all on a level playing field.

Oddly enough, many of the places that those other textile companies wound up do not subscribe to those laws, and are not on your level field.
posted by Kirth Gerson at 10:31 AM on August 30, 2007

In short, I think Loosefilter has said everything I've wanted to say, more clearly, in fewer comments, and with fewer spelling errors.

So yeah. There's that.
posted by god hates math at 10:33 AM on August 30, 2007

i like to eat meat: uhhh, safe working environments and paying your employees are required by law. So all companies must offer them. Thus, they are all on a level playing field.

Except they weren't always required by law. I'm not saying that paying your employees during a factory rebuilding should be required by law, but rather to point out that things that are now required by law were once "features", and you could as easily say that "following the law" is itself a feature that not every company offers. Your amoral argument seems to suggest that not following the law would be the logical course of action for any smart company, since it would better enable them to make a profit, for its own sake.

I'm really responding to original false dichotomy, implying that there was no way for Malden Mills to succeed. You neglect to mention point 3, which is "Do the right thing, and know that your profit margins can be used to fund that magnanimy over a longer period of time". I'm simply saying that the CEO's actions were not necessarily the deal breaker you make it out to be. Those more familiar with the balance books and financial state of the company as it failed might note that declining market share and the closing of a was a culprit, which might have happened even if he hadn't paid the workers

Not all human assets can be judged on a blanket basis from a business standpoint. In this case, it was empirically demonstrated that he made a bad business decision to keep them in this way.

Well, the end result was the failure of the company, but can we really state that it was his action to pay the employees that was the reason it failed? Might it have been, I don't know... the fire that destroyed their existing plant and required a zero-profit period while rebuilding occurred? From the "bankruptcy" link:

The filing was necessitated by the cost of servicing bank debt. A number of factors contributed, including a sluggish retail market, the high costs associated with rebuilding and the closure of the company's upholstery division after a significant market share loss as a result of the fire.

From that link and the "more bankruptcies" link, it sounds as if a number of factors contributed to the failure of the company- which as far as I can tell is a still-operating plant, just not one owned by Malden Mills.

On preview:
First, no hard feelings god hates math- just having a little fun. :)

Kirth Gerson:
Maybe the lesson should be: Make sure you have plenty of insurance. The employee benefits and wages largesse cost only about $25 million; the loan was for over 120.

That pretty much cinches it; the $25m largesse ensured employee loyalty (which I suspect proved valuable during the hard times ahead, when those employees would think "We're not going to abandon Malden Mills, when they didn't abandon us!") and company good will and P.R., and doesn't sound remotely like the straw that broke the camel's back.

If Feuerstein made a bad business decision, it sounds like overbuilding on the new factory. However, as Kirth Gerson so rightly puts it: we can't really say that he "lost": the mill is still operating, it's still profitable, no he and his family don't own it but lord knows that Feuerstein has something more valuable than you might ever have: he knows he's done a good thing for people. That and he'll probably never pay for a cup of coffee in Lawrence again. :)
posted by hincandenza at 10:41 AM on August 30, 2007

Those more familiar with the balance books and financial state of the company as it failed might note that declining market share and the closing of the factory for an extended period of time was a culprit, which might have happened even if he hadn't paid the workers.

Karma just ate my keyboard! Sure glad I 'pologized to god hates math in that same post.
posted by hincandenza at 10:43 AM on August 30, 2007

Business today focuses on profitability in short term versus long term profit and sustainability.

I hear this all of the time, and I think it's a lie spread reflexively by well-meaning people who have never in their life valued a business or read a proxy. Most publicly-traded businesses use EVA, or pay bonuses in slow-vesting options-- both of which encourage long-term decision-making.

It's true that less-than-scrupulous managers sometimes manipulate financial statements (while adhering to the law) for short-term gains. But such events (in magnitude sufficient to be material) are rare.

If there was a way to reliably separate (say, with 55% accuracy) businesses managed for the short term from businesses managed for the long term, the analyst could run a long-short portfolio and make a pile of cash.

Discount rates are positive, and it will almost always be true that a dollar today is worth more than a dollar tomorrow, of course, and nothing can change that. But that's not short-term thinking-- I can't imagine how the world would work in any other way, capitalist or otherwise.
posted by Kwantsar at 10:53 AM on August 30, 2007

[I like to eat meat: Not that I'm completely defending operating a university as a profit-maximizing business, but how does a university not make a product? It sells a service, like any other service business.

Not to go into a big derail, but I think a university--or any teacher--offers something more complex than a simple service--a service business will clean your carpets, or drive you to the airport, or etc. You have no long-term relationship with them, they are not invested in you other than what you pay them for--a clearly-defined, limited service. On the other hand, I provide a service--teaching--yes, but when teaching is regarded as merely a service, it is cheapened. I also have complex human interactions and relationships with my students, are invested in them as individuals, and believe that I have important responsibility in helping them to be successful as students, and as developing artists and professionals in their field. My view is a little skewed, because I mostly teach majors in my field, for several years at a stretch through multiple classes, and so know my students well and care if they do well--but I think any good teacher does, no matter how long one's interaction with a student. To me, this is much more complex and significant than only a service.

I think a university offers a process, not a product--not just a place where students are taught facts by people paid to convey them, but a place where students are challenged to learn, to know why they think what they think, to understand the world and themselves a little better, etc. At least, that's what a university used to do. To many now, it's glorified vocational training, unfortunately, which leads me back to my original point.]
posted by LooseFilter at 10:58 AM on August 30, 2007

Not following the law brings many, many additional costs to a business beyond any act of legal cost cutting or profit maximization. Like getting shut down or arrested, for instance.

Breaking the law is NEVER a profit maximizing action in anything except the most immediate term unless you're talking about an illegal business or operating in a country without a strong rule of law.

I don't understand what you're getting at with this line of argument; You said before that businesses can compete on many different features, not just cost, which is why there is not one single company in every industry. My response was directed at that statement.

But for your other points - true, it may have not been paying the workers that did in the company. But, in the general absence of evidence, it is just as possible that that cost may have pushed the business to bankruptcy. $25million of debt could be the difference between staying afloat or going out of business for a company of this size.
posted by I like to eat meat at 11:00 AM on August 30, 2007

Loosefilter, As a recent college grad, I completely agree with how you describe college. But can't the totality of what you described also be seen as part of the service package that a college provides? Just as a doctor's bedside manner, compassion, office conditions, etc. are all part of his value proposition, and what his customer pays for?

I would think that colleges that go down the path of turning into vocational training to cut costs in the immediate term would see a corresponding drop in prestige, student happiness, and perceived quality, which would degrade the value placed on their services package. I would think they would be punished by the market for such a decision in anything but the most immediate term, assuming that the market demand for vocational training has not increased.
posted by I like to eat meat at 11:06 AM on August 30, 2007

Ask yourself this: Would it be OK for individuals to run their lives as though the only relevant metric were financial gain? "If I don't do it that way, my neighbors will make more money than me!" The horror.

No, it wouldn't, and this is one of the arguments commonly used against the notion of corporate personhood- that the corporate person does not and cannot behave like a human person. This does not, however, mean that you can prioritise something over profits and remain competitive.

Also, even by your circular logic this makes no sense. If the only company with customers is the one with the lowest price, there would be only one company in each industry. Back here in reality, different companies try to compete on different features, only one of which is price. (Not to mention the fact that, say, paying employees well is not the opposite of low prices on the shelf.)

Some companies can compete for a time without racing to the bottom. They can even prosper for a time. But eventually, absent things like antitrust regulation, the less ruthless companies will be slowly outcompeted and eventually either be bought out or driven out of business. Heck, even CostCo, which I think you're referencing in that parenthetical, is seeing more and more shareholders angry at management and demanding less generosity to the employees.

Well, for one, his creditors could have recognized that this company was going through a great hardship while trying to do the right thing and cut him a break.

Until their shareholders discovered that they're letting debts go unpaid.
posted by Pope Guilty at 11:13 AM on August 30, 2007

Breaking the law is NEVER a profit maximizing action in anything except the most immediate term unless you're talking about an illegal business or operating in a country without a strong rule of law.

Tell that to the auto companies that use cost-benefit analysis to determine whether or not to issue recalls of deadly automobile defects.
posted by Pope Guilty at 11:17 AM on August 30, 2007

What do you do--have government subsidies for "goodness"?
posted by schroedinger at 9:28 AM on August 30

Well, we’ve got it for stupidity, shortsightedness, and bad management (Chrysler bailout, anyone?) so why not goodness?
posted by rtha at 11:41 AM on August 30, 2007

But can't the totality of what you described also be seen as part of the service package that a college provides? Just as a doctor's bedside manner, compassion, office conditions, etc. are all part of his value proposition, and what his customer pays for?

Yes, I think that's a valid way to view it--as far as it goes. What it does not entail is profit: universities don't exist to make money, they exist to provide a process, or service; there are no dividends to investors (in extrinsic, monetary terms, anyway). My sense is that a university should be operated as efficiently as possible, so that it doesn't spend money unnecessarily, but that it spends as needed to provide the finest experience it can for its students. Many administrators disagree with this point of view, especially in my state, and pay themselves as CEOs while cutting instructional services, etc. etc. same song different verse...
posted by LooseFilter at 12:08 PM on August 30, 2007

Speaking of an example of a business about to fail due to short-sighted pursuit of profits vs. long-term investment, just look at the Ford, GM, or Chrysler.

Interesting post, thanks.
posted by maxwelton at 1:20 PM on August 30, 2007

I like to eat meat writes "Not all human assets can be judged on a blanket basis from a business standpoint. In this case, it was empirically demonstrated that he made a bad business decision to keep them in this way."

Considering the state of the US textile industry it's quite possible that it would be impossible to succeed regardless of how he decided.

I like to eat meat writes "Breaking the law is NEVER a profit maximizing action in anything except the most immediate term unless you're talking about an illegal business or operating in a country without a strong rule of law. "

I wish I shared your world view. Real world contrary example: Last year the city of Calgary greatly increased the fine for illegal parking. Why? Companies found it was cheaper to park illegally and just pay the fine than to pay the going rate. Some companies were paying dozens of tickets a month.
posted by Mitheral at 5:28 PM on August 30, 2007

My home town! See? It doesn't completely suck after all!
posted by Scoo at 6:43 PM on August 30, 2007

I like to eat meat writes "Breaking the law is NEVER a profit maximizing action in anything except the most immediate term unless you're talking about an illegal business or operating in a country without a strong rule of law. "

I wish I shared your world view. Real world contrary example: Last year the city of Calgary greatly increased the fine for illegal parking. Why? Companies found it was cheaper to park illegally and just pay the fine than to pay the going rate. Some companies were paying dozens of tickets a month.

And then there's Wal-Mart, which outright fires union organisers and pays the fines.
posted by Pope Guilty at 6:46 PM on August 30, 2007

Speaking of an example of a business about to fail due to short-sighted pursuit of profits vs. long-term investment, just look at the Ford, GM, or Chrysler.

Story I heard was a large part of their problem was due to ballooning retirement/medical plans for their many, many ex-employees.

(Which is not to say that they didn't err in their business plans in recent decades, but still.)
posted by IndigoJones at 5:39 PM on August 31, 2007