How Paul O’Neill and Alcoa Proved Wall Street Wrong
When CEOs address investors, stock analysts, board members, and even their own executives and employees, they tend to talk about profit margins or other buzzwords relevant to the company’s bottom line. In 1987, however, the newly appointed CEO of Aluminum of America (Alcoa), Paul O’Neill, took an unconventional stance and used his introductory address to Wall Street to discuss what mattered to him most: safety.
Paul O’Neill certainly discussed his strategy to increase profits, but he did so by discussing employee safety. When questions were asked regarding productivity or earnings per share, he redirected the conversation back to safety. For Mr. O’Neill, his first and foremost priority was to make Alcoa the safest company to work for and reduce workplace incidents to zero. Investors thought he was crazy because they didn’t understand how a CEO could maintain a profitable business by valuing safety above all else.
Six months into his tenure as CEO, an Alcoa worker was killed in Arizona while performing maintenance work on a piece of equipment. Within 14 hours of the incident, Mr. O’Neill ordered all of the plant’s executives into an emergency meeting where they watched and analyzed a video of the incident to learn how it occurred and more importantly, to figure out how it could be avoided in the future. Instead of blaming the plant supervisor, O’Neill recognized that he and all of the other executives of Alcoa were responsible for this man’s death since it was a failure of leadership that lead to this tragic incident.
A week later, Mr. O’Neill introduced some drastic changes at Alcoa. All of the safety railings were repainted bright yellow and new safety policies were written, shared and discussed with all employees. Moreover, O’Neill addressed all of the onsite workers and encouraged them to make suggestions for proactive safety maintenance.
He engaged each ground worker, gave them all his home phone number and told them to call him directly if their managers failed to follow up with their safety suggestions.
Not only did Mr. O’Neill encourage his upper management to think more broadly about safety, he encouraged those onsite workers who were most exposed to risks to participate in workplace safety and in doing so, created an open dialogue between upper management and onsite workers. He established accountability within upper management and produced a best-in-class safety culture at Alcoa.
The openness Paul O’Neill created between management and workers went far beyond safety. Since workers were encouraged to make safety improvement suggestions to upper management, they began to feel comfortable making suggestions for how production could be improved as well. For instance, in an Alcoa plant that manufactured aluminum siding for houses, one ground employee made a suggestion that ended up doubling the plant’s profits. The employee realized that if all of the painting machines were grouped closer together, workers could switch out pigments faster making it easier to switch pigment colors in response to changes in customer demand. The employee had this idea for years but didn’t feel comfortable coming forward until his CEO created open communication between workers and upper management.
By creating a safe and open work environment where workers felt valued, employees began to come forward with revolutionary ideas that not only made Alcoa a safer place to work, but also improved the company’s productivity. By demonstrating relentless safety leadership and forcing his executives to not only care about the safety of their employees but about the value of their opinions, Mr. O’Neill managed to build a world class safety culture at Alcoa and improve the company’s bottom line. During his 13 years at Alcoa, lost workdays dropped from 1.86 to 0.23 and the company’s market value grew 816% from $3 billion in 1986 to $27 billion in 2000.
In response to O’Neill’s 1987 introductory address, some investors immediately got on their phones and advised their clients to stop investing in Alcoa. One investor present discussed how he thought the Alcoa board had hired some ‘crazy hippy’ and that Mr. O’Neill was going to ‘kill the company’. The investor said “I ordered [my clients] to sell their stock immediately, before everyone else in the room started calling their clients and telling them the same thing. It was literally the worst piece of advice I gave in my entire career.” Many others have the same view: that safety is an aspect of business which takes away from company profits, not something that is typically value added. Mr. O’Neill proved Wall Street wrong and demonstrated that by choosing to invest in a culture of safe operations and continuous improvement while encouraging an open environment between upper management and ground workers, a company can not only reduce their incident rate, but can drastically increase profits as well.
Don’t be like the narrow sighted, profit focused investors who were unable to see the business value of safety and missed out on a major opportunity. Take the time to invest in a good safety culture and encourage openness between workers and upper management, and see what creative ideas your employees have to protect and improve your business!