Monday Morning Coffee 5.22.23

The spring housing market is heating up. The Mortgage Bankers Association reported purchase mortgage applications rose 5% compared to the week before. Even refinancing applications spiked 10% from the prior week.

This is happening even as the National Association of Realtors reports that almost seven out of ten metros saw home prices rise the first three months of the year after roughly half a year of moderate price declines.

A new Zillow study supports this, reporting home values climbed 1% from March to April, as buyer demand for limited inventory is re-igniting the sellers’ market. Higher rents are also bringing more buyers onto the scene.

“A genuine leader is not a searcher for consensus but a molder of consensus.” ~ Martin Luther King Jr.

By most accounts, Paul O’Neill’s first speech as the new CEO of Alcoa was a complete failure.

The speech was given in a hotel ballroom not far from Wall Street, and it was meant for the investors and analysts who did business just a few blocks away. The last few years the aluminum manufacturing giant had performed poorly. Investors were nervous, and many had arrived at the hotel expecting the usual grand turnaround vision of how this new leader was going reduce overhead, improve profits and, most importantly to them, raise the stock price.

But that’s not what happened.

“I want to talk to you about worker safety,” O’Neill began.

Almost immediately the attitudes in the room transformed. The energy disappeared. The room was silent.

“Every year, numerous Alcoa workers are injured so badly that they miss a day of work,” O’Neill continued. “I intend to make Alcoa the safest company in America. I intend to go for zero injuries.”

When his initial remarks had finished, most of the audience was still stunned and confused. A few veteran investors and business journalists tried to get the meeting back toward a normal CEO-to-Wall Street address. They raised their hands and asked questions about capital ratios and inventory levels. O’Neill wasn’t willing to entertain any of it.

“I’m not certain you heard me. If you want to understand how Alcoa is doing, you need to look at our workplace safety figures.”

When the meeting was over, the confused attendees cleared out of the room quickly. Within minutes, investors were calling colleagues and clients with sell orders. Journalists were drafting their articles on how the new Alcoa CEO had lost his mind. But as it turned out, O’Neill’s mind was still very much intact—and it was focused not only on the right metrics.

But also, the right fight.

If you took a quick look at Alcoa by the numbers, its safety record was really one of the few things it was doing right. Alcoa had the best safety record in the aluminum industry. At the same time, its financial record was suffering. Alcoa was founded nearly 100 years before O’Neill took the reins, and it enjoyed a virtual monopoly on aluminum production in the United States for the first half of that. But anti-trust regulations, stiffer competition, and an over-supply in the marketplace led to a financial crunch for the giant.

O’Neill’s strategy was based on the belief that Alcoa and all its employees needed a deeper focus on process. They needed to make the production process more efficient (and likely at a lower cost). But O’Neill also realized that few people outside home office accountants would be able to grasp, let alone get motivated by, streamlining the production process. “Part of leadership,” O’Neill once explained, “…is to create a crisis.”

O’Neill saw the safety record as something that would win their minds and their hearts. And it would require a deep look at the production process. You can’t improve safety without understanding every step in the process—understanding each risk—and then eliminating it. But understanding the process doesn’t motivate people.

Safety could.

So, O’Neill picked a fight.

He picked a fight with the idea that something inside the company was injuring and even killing their employees. O’Neill picked a fight with the notion that industrial manufacturing came with an “acceptable” amount of risk. O’Neill wanted to fight the idea that any risk—any injury—was acceptable.

He got to work recruiting others to join him in that fight. His speech at the shareholder meeting was the first of many declarations of war against whatever was harming Alcoa employees. And it was strategically chosen. It sent the message to employees that shareholder returns weren’t his priority—employees were.

O’Neill’s commitment to leading the fight for safety would get tested early and often. About six months into his tenure, O’Neill was awoken in the middle of the night by a telephone call from a plant manager in Arizona. Earlier, a machine had stopped working when a piece of aluminum scrap had jammed a hinge on one of the machine’s large mechanical arms. A new employee offered to fix it. The man had only worked at the company for a few weeks—he joined because Alcoa offered free healthcare, and he and his wife recently found out they were pregnant. To try and fix the jam, he’d jumped over a safety wall and walked across the machine until he’d reached the jam and removed it. However, when he cleared the jam, the machine sprung back into action. The six-foot-long arm swung back across its arc quickly, striking the man in the head and crushing his skull.

He died instantly from the impact.

By the end of the day, O’Neill had assembled a meeting with the plant’s executives. “We killed this man,” he told them. He was unwavering. “It’s my failure of leadership. I caused his death. And it’s the failure of all of you in the chain of command.” In that moment, it was clear to everyone in the room…and to everyone who would later hear about the tragedy and O’Neill’s response. Unlike other industrial plants and unlike their own past. Accidents were unacceptable.

Accidents were the enemy.

In that meeting, O’Neill and the executives went through every detail of the accident. They watched video footage again and again. They recreated the stages of the accident through diagrams. Eventually, they compiled a list of dozens of mistakes made by multiple parties. Two managers had seen the man jump the safety wall but didn’t stop him. That was a failure of management. As was the man’s lack of knowledge that he should find a manager before attempting a repair. That was a failure of training. The machine should have had an automatic shut-down procedure if it sensed a human was inside. That was a failure of engineering.

As a result of that incident, major changes were made and made quickly. All of the safety railings at every plant were repainted bright yellow. New policies and procedures were created. And perhaps most surprisingly, O’Neill sent a companywide message to all workers asking them to call him directly, even at home, to suggest new safety practices. Especially if managers weren’t listening or implementing their ideas.

The next big test would come midway through O’Neill’s tenure. Alcoa was making progress on their fight, but accidents still happened. At a plant in Mexico, a carbon monoxide leak went undetected as it poisoned one hundred and fifty employees. Each one had to be treated at an emergency clinic though thankfully, no one was killed. The senior executive in charge of the plant had installed ventilators to remove the fumes and prevent future events. But he’d never reported the incident. In their individual fights to keep the accident rate at zero, a lone executive had decided to keep the accident a secret.

It wasn’t until a shareholder meeting that O’Neill even heard of the incident. A Benedictine nun from the area near the plant raised the issue. The nun’s order had heard about the tragedy in their community and purchased fifty shares of Alcoa for the express purpose of traveling to that meeting and forcing the issue. O’Neill sent a team down to Mexico to investigate. They gathered all the facts and concluded that the executive had most likely intentionally covered up the incident.

Two days later, he was fired.

It wasn’t an overnight transformation, but Paul O’Neill’s internal fight against accidents—his fight for worker safety gradually changed the systems and the culture. Since prioritizing worker safety meant studying the production process, the improvements made also made the plants run more efficiently. Since monitoring and responding to accidents meant constantly communicating safety numbers and ideas for increasing safety, eventually executives began sharing other data and other ideas more rapidly as well.

O’Neill’s fight for safety didn’t just turn around accident rates—it made the whole company better. When O’Neill left Alcoa in 2000, the company’s income was five times higher than when he’d started. And its market value had increased from $3 billion to over $27 billion. It was a nearly impossible turnaround.

And it would have been impossible had O’Neill not chosen the right tactic to motivate senior executives, union representatives, and individual workers alike. “Increase efficiency” isn’t a rallying cry that moves anyone. Safety—protecting each other from the threat of accidents—moved nearly everyone (disgraced Mexican plant executives notwithstanding).

O’Neill picked the right fight. And that fight saved lives—and saved Alcoa. ~ by David Burkus

Cindy Glynn
Coldwell Banker American Home
479-586-6262
agentcindyg@gmail.com

Monday Morning Coffee 5.22.23