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Alcoa’s Core Values in Practice

Alcoa’s Core Values in Practice Alcoa began under the name of the Pittsburgh Reduction Company in 1888, changing its name to the Aluminum Company of America ( Alcoa) in 1907. The company was originally founded on a $ 20,000 investment to capitalize on Charles Martin Hall’s invention to smelt bauxite ore into the metal known as aluminum. Within a few years, Alcoa had developed into a model of large- scale vertical integration with control over all the inputs to aluminum production. Since its inception, Alcoa has had a very strong values- based culture. Employees learned early in their careers that every decision they made and everything they did must be aligned with the company’s values. In 1985, Fred Fetterolf, then president, decided the company needed to document the values that all employees must live by: Integrity; Envi-ronment, Health, and Safety; Customer; Accountability; Excellence; People; and Profita-bility. ( In 2012, Alcoa slightly revised its core values— Integrity; Environmental, Health and Safey; Excellence; Respect; and Innovation.) In the 1990s Alcoa’s CEO, Paul O’Neill, communicated his unswerving belief in the importance of health and safety— one of the company’s core values. As is the case with many large organizations, Alcoa had implemented a global ethics and compliance pro-gram, and the focus on health and safety was interwoven through the company’s program. The Alcoa program included all the basic elements specified in the U. S. Federal Sentenc-ing Guidelines and Sarbanes- Oxley Act. Alcoa had an ethics and compliance officer who reported to the company’s CEO and board of directors, a global code of conduct, continu-ous ethics and compliance training for all employees, and a global helpline reporting sys-tem, to name just a few. Overall, the company emphasized that the program’s tools must be understandable by all employees, must support the company’s strong value system, and must be continually reinforced by management. For example, in addition to continuous safety training and education programs, it was the norm at Alcoa to start all business meetings with an identification of exits, the evacua-tion plans in the event of an emergency, and other safety procedures. Although specific safety procedures differed among Alcoa’s various businesses, corporate headquarters re-quired all of its units to meet the same overall goal: zero work- related injuries and ill-nesses. O’Neill took this message outside of Alcoa, as well. In meetings with analysts and other outside parties, he always highlighted Alcoa’s progress in health and safety. O’Neill explained that Alcoa’s emphasis on safety and the reduction of workplace injuries was not based on grandstanding or self- promotion, but rather on a genuine concern for employees. The emphasis on safety had deep meaning to Alcoa’s management team. The compa-ny’s management firmly believed that no employees should be forced to work in an envi-ronment where their safety and the safety of other employees might be jeopardized. Alcoa’s management supported the ethical principle that no employees should leave work in a worse condition than when they arrived. Once the change toward safety at work became “ the way we do things around here” and was embedded in the Alcoa culture, the process used to achieve this culture could be duplicated throughout Alcoa’s value chain. O’Neill’s point was simply that the processes used to achieve success in safety were not grand initia-tives or episodic programs but rather were the result of persistent attention to changing behaviors and could be duplicated throughout the organization. Alcoa’s vision was “ Alcoa Aspires to Be the Best Company in the World.” Being the best at everything, for O’Neill and Alcoa employees, required continuous improvement as everyone strove toward an ideal goal of perfection. In 1996, activist shareholders raised allegations at the annual meeting that health and safety conditions at one of Alcoa’s Mexican facilities had deteriorated. The Catholic Sister who spoke at the meeting concluded by saying that “ the company’s behavior in Mexico was inconsistent with its widely publicized values.” The company promptly launched an investigation, and O’Neill himself personally visited the plant. Although the company learned that many of the issues raised at the annual meeting were unfounded, it also dis-covered that a few injury incidents and the subsequent actions taken by local managers were not reported to corporate headquarters, as required by company policy. Meetings held with local government officials over safety incidents at the facility were also not reported, even though the results of these meetings indicated Alcoa was in compliance with all ap-propriate laws and regulations. Given these facts, O’Neill concluded that although the business unit management’s re-sponse to the safety incidents uncovered in the investigation was adequate, there was “ a breach of the letter and spirit of our communication practices with respect to major inci-dents.” O’Neill further noted “ there was a serious lack of understanding when it came to incident classification, reporting, and recordkeeping of occupational illnesses.” The lack of reporting these safety incidents to others in the company was critical to O’Neill, since oth-ers in the company were denied the opportunity to learn and possibly prevent similar oc-currences at other Alcoa facilities. O’Neill decided that a change of leadership at the facility was necessary, and he fired the facility’s manager. He did so in spite of the manager’s stellar record of increased sales and profitability and high marks for quality and customer satisfaction. In an open letter to the entire company, O’Neill concluded by saying, “ It is imperative that there be no misperceptions about our values. It is equally imperative that we all learn from this. Full compliance with both the letter— and spirit— of our policies is imperative. Anything less is unacceptable.” Over time, Alcoa’s tenacious focus on safety has paid off. In 2012, Alcoa’s lost workday rate was 0.036. ( This number represents the number of injuries and illnesses resulting in one or more days away from work per 100 full- time workers.) In the 12- month period end-ing December 31, 2011, • 47.8 percent of Alcoa’s 242 locations worldwide had zero recordable injuries. • 79.2 percent of Alcoa’s 242 locations worldwide had zero lost workdays. • 99.9 percent of Alcoa employees had zero lost workdays. Alcoa was rapidly closing the gap between its safety record and that of DuPont, which had long been the benchmark for safety among American industrial companies. This achievement was especially significant since Alcoa had completed several substantial ac-quisitions during this time in many countries whose safety regulations had not yet matured to the level of those in the United States. Sources: Quotations by Paul O’Neill are from his July 3, 1996, memo to all Alcoa business unit presidents and subsequently distributed to all Alcoa managers. The new Alcoa values are from an internal company memo from Klaus Kleinfeld, Alcoa’s CEO, to his employees on July 2, 2012, and is used with permission. This case was developed with the assistance of long- time Alcoa employee Perry Minnis, formerly the Global Director of Ethics, Compliance, and Advisory Services at Alcoa before his retirement from the company. Discussion Questions 1. How would you classify Alcoa’s ethical work climate? Which ethical criterion, as shown in Figure 5.1, was used by the company: egoism ( self- centered), benevolence ( concern for others), or principles ( integrity approach)? Or, using Professor Paine’s two distinct ethics approaches, as discussed in this chapter, was Alcoa’s approach more compliance or integrity? 2. What role did top management commitment play in developing the ethical work climate and organizational performance seen at Alcoa? What other ethical safeguards are men-tioned in the case to support the company’s efforts at developing a strong ethical culture? 3. Was O’Neill justified in terminating the manager for his lack of reporting the workplace accidents, even though no serious harm resulted from the workplace incident? 4. Can Alcoa’s “ values in practice” be adopted by other organizations as a universal set of ethical standards leading to ethical employee behavior?
Alcoa’s Core Values in Practice Alcoa began under the name of the Pittsburgh Reduction Company in 1888, changing its name to the Aluminum Company of America ( Alcoa) in 1907. The company was originally founded on a $ 20,000 investment to capitalize on Charles Martin Hall’s invention to smelt bauxite ore into the metal known as aluminum.
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September 5, 2016
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September 7, 2016
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