At a conference at Harvard Business School, Paul O’ Neill led an open and very candid discussion about his time as Secretary of the Treasury under the Bush administration and CEO of Alcoa. Before joining the government, Mr O’ Neill had made his reputation by being tough on safety during his time at the world’s third largest aluminum producer.
During the hour long session chaired by Professor Ananth Raman, Mr. O’ Neill began by asking the group of senior managers and executives present “How many of you know the daily loss rate in your company?” A few hands went up.
Reducing accidents at Alcoa
According to the former CEO of Alcoa, companies across the world say that people are the most important but don’t know if they get hurt. This was the case when he arrived at Alcoa. Having made a considerable number of visits to stakeholders of the company, he decided that as the new CEO, the safety of the employees would be the number one objective of the corporation.
At the time, the company lost 1.86 days per hundred from preventable accidents. This was lower than the average in the USA of 5% but Mr. O’ Neill decided that this should be reduced to zero and that all accidents should be reported directly to him. The principal was a simple but effective one; you cannot budget for accidents in a company because you are implicitly accepting that your employees will get hurt.
New policies were brought in to increase safety measures as soon as risk was identified and the CEO even went so far as giving out his home phone number so that anyone could call him if they felt worker were being put at risk. Of course, accidents were never completely irradiated within Alcoa though they have been reduced to 0.2% today.
According to Mr. O Neill, the most important element of the cultural process was saying that accidents should not happen. If you think they are in inevitable part of the job, you will never get close to reducing the number. His mission from there was to ensure that eveyone in Alcoa owned the concept that no one should not be hurt while working for the company.
“This cannot be cheer led or forced.” emphasised Mr. O’Neill. Here the health industry has a lot to learn with a 7% day loss ratio.
Analyzing what people actually do in a company
“Too often we have used financial data to determine what we need to do and we forget the important things that should be done.” stated Mr O’ Neill.
However, as CEO of the world’s third largest Aluminium producer, he was no flaky idealist. He emphasised the need to spend time looking at data to understand some of the waste procedures within the company. One example was the amount of people employed just to check expense claims. “Most people are honest so why do we need to check their expenses?” The company duly brought in company credit cards and a warning that anyone who abused the system would be fired on the spot. Alcoa saved $30 million dollars a year and with a few rare exceptions, employees respected the system.
Indeed, the ethos that ran throughout the company was that by trusting people you could unlock the extra 20% of creativity that they had within them. When controls are too tight, this is lost. It was this principle that allowed Alcoa to close its accounting books within 2 and a half days rather than the month that it had previously taken. Mr. O’ Neill would later introduce the same system to the US Treasury which had required a full 5 months up until then to complete its accounts.
“A leader should be prepared to ask child like questions to understand why something cannot be done.” he said.
3 basic rules for leadership
“Leaders must articulate aspirational goals for an organizational.” concluded Secretary O’ Neill.
From his experience he believes that there are three rules for leadership. In fact, all leaders should create the conditions in which each and every employee in a company should be able to say ‘Yes’ to the 3 following questions:
- Am I treated with dignity and respect by everyone I encounter at whatever level?
- Am I given everything that I need so that I can make a contribution that gives meaning to my life?
- Am I recognised everyday for what I do by someone I respect in the organization?
It is the job of the leader of a company to create theses conditions and to work relentlessly to see that they are respected throughout the entire company. Higher education has an important role in preparing future leaders for this task.