SHORT-SHIRTED IN MAINE

By ADAM ZAGORIN/WATERVILLE

The first time workers at the Hathaway shirt plant in Waterville, Maine, met their boss, Linda Wachner, in August 1994, she introduced herself as "Miss Linda" and showed up wearing a gray sweat suit. Despite the informality, signs of Wachner's clout and wealth were evident, from the Gulfstream jet she arrived in to her heart-shaped, five-carat diamond ring to the coterie of executives who trailed in her wake. It was a retinue befitting the chairman and CEO of Warnaco Group, Inc., Hathaway's parent, primarily a manufacturer of intimate apparel, with sales last year of $916 million.

Wachner was in Waterville to negotiate a labor contract, and when the talks ended, many in Hathaway's overwhelmingly female work force had bonded with her. They listened wide-eyed as the only woman to head a FORTUNE 500 industrial company told them she would save jobs if they agreed to cut costs and boost output. Marvels Debbie Perry, who has spent the past 19 years stitching collar stays at America's oldest shirtmaker: "Miss Linda said she cared about the people who work here, and we believed her."

Perhaps she does, but Miss Linda also cares deeply about the stockholders, among whom she, individually, is the largest. On May 6, Wachner stunned the Hathaway workers by announcing that she plans to get Warnaco out of the men's shirt business and close or sell Hathaway.

Late last week Wachner jetted to Maine again. Following a series of protest rallies by employees and a pledge of support for the work force from Hillary Clinton, she completed a plan to keep the plant open while a group of local investors led by two-time Republican Governor John McKernan Jr. scrambles for financing to buy the place. Given the state of the shirt industry, however, Hathaway may be doomed.

In Waterville (pop. 17,000), where Hathaway was founded 159 years ago--shirts for Union soldiers were made there--many of the 515 employees are bitter. They delivered on their promise to double productivity and now feel that Wachner is throwing them into the sea. Says Neena Querion, shop steward for the local union: "There are no other jobs here for our workers if Hathaway closes. It will devastate our whole community."

The announcement came scarcely a week before President Clinton convened a conference of business leaders at the White House to ask for better treatment for workers. Wachner insists that she's done everything possible to keep the jobs viable. "Had we wanted to leave this business and the workers flat, we could have done that," says the CEO. "But we never had it in our hearts or minds to do anything but the right thing."

In an industry embroiled in global competition, Wachner could not foresee a reasonable return on investment soon. Despite the improvements, Hathaway last year lost $5 million on revenues of $43 million. Many apparel makers have closed U.S. factories and/or shifted manufacturing to low-cost offshore havens. Hathaway, in fact, has a plant in Honduras where workers earn a fraction of the average wage of $7.50 an hour at Waterville.

Wall Street, of course, is far less sentimental about historic New England factories. "Wachner's decision to get out of the men's shirt business was smart and inevitable," says Faye Landes, a clothing analyst at Smith Barney. The news was hailed as continuing evidence of Wachner's devotion to the bottom line and her goal of transforming Warnaco into what she has called the "Coca-Cola of the bra business."

Sales have boomed in Warnaco's brands, which include Warner's and Olga lingerie and Calvin Klein underwear. The stock has soared nearly 200% in the past five years, increasing the value of Wachner's stake to roughly $205 million.

A driven performer, Wachner, 50, rose from a bra-and-girdle buyer at Macy's to head cosmetics giant Max Factor. In 1986 she masterminded a hostile buyout at Warnaco and took the company public in 1991. As a mogul, she helicopters from her Park Avenue headquarters to a mansion in the Hamptons, New York's summer-resort community. As a manager, Wachner once made a FORTUNE roster of "Toughest Bosses" for her low tolerance for underperformers. "You'd better start firing people," the magazine quoted her telling a newly arrived executive, "so they'll understand you're serious."

Wachner's mission to Maine last week struck a more compassionate note. She even pledged that Warnaco would retain an equity stake in Hathaway if necessary to help the local investors swing a deal. Workers applauded the news as their last, best hope. But former Governor McKernan has no experience in apparel and rates his chances of keeping the plant going no better than fifty-fifty. Wachner does have experience. That's why she's getting out.