Paul O’Neill shares his name with the five-time baseball All-Star who won five World Series and was an American League Batting Champion with a .359 average. This is where any similarity ends, as you would never confuse the 6’ 4”, 200-pound right fielder with the slightly built, bookish intellectual who changed one of the nation’s best-known companies. Paul O’Neill was the Deputy Director of the US Office of Management and Budget and later served as Treasury Secretary to George HW Bush. However, his most enduring legacy was as Alcoa’s CEO from 1987–1999. During his reign, the company’s market value increased from $3 million in 1986 to $27.53 billion in 2000, while net income increased from $200 million to $1.484 billion.

What’s remarkable is how O’Neill achieved success by employing a singular strategy that was innovative and ahead of its time almost 30 years ago. Unlike Steve Jobs, Jack Welch, Jeff Bezos, John Chambers and other visionary CEOs, O’Neill championed safety as a core value and competency and a driver of greater productivity, increased profits, and competitive advantage. Today these principles are deeply embedded in many successful organizations.

When O’Neill assumed leadership of Alcoa, it was struggling. Product quality had deteriorated, unwise product expansions had taken a toll on profitability, competitive forces had eroded market share, and the company’s stock price and capitalization were on a downward slide.

O’Neill stunned investors when he shared his plan for turning around the organization. Instead of making the typical jargon-filled CEO presentation about boosting profits, reducing costs, and reversing the company’s poor performance, O’Neill went off-script. Instead, he shared a simple vision to make Alcoa the safest company in America – with a goal of zero injuries. Silence engulfed the room. Where was the talk about efficiencies, regaining the competitive advantage and leading the charge back to profitability?

After what seemed like an eternity, one investor asked about inventories and revenue projections. O’Neill held his ground and responded, “If you want to understand how Alcoa is doing, you need to look at the workplace safety figures. If we bring our injury rates down, it won’t be because of cheerleading or the nonsense you hear from other CEOs. It will be because the individuals at this company have agreed to become part of something important: Devoting themselves to creating a habit of excellence. Safety will be an indicator that we’re making progress in changing our habits across the entire organization. That is how we should be judged.” With that, several Wall Street brokers hurried from the room to call their clients and advise that they sell their Alcoa holdings. Later, one of those brokers admitted, “It was the worst piece of advice I gave in my entire career.”

Within a year, Alcoa’s profits reached a record high. By the time O’Neill retired, net income was five times higher, and the stock value increased 500%. During the same time, Alcoa became one of the safest companies in the world. His safety plan transformed a record where almost every Alcoa plant had at least one accident a week to some facilities going years without a single employee losing a workday. Alcoa’s work injury rate fell to one-­‐twentieth the U.S. average.

A profit machine based on safety

How did O’Neill make one of the largest, stodgiest, and most potentially dangerous companies into a profit machine based on safety? The key was focusing on one thing that everybody – unions and executives – could agree was important. That singular focus would connect people at all levels of the organization.

His message was simple, “Everyone deserves to leave work as safely as they arrive, right? You shouldn’t be scared that feeding your family is going to kill you. We’re going to focus on changing everyone’s safety habits.” The message resonated in an environment where employees are working with metals that are 1500 degrees.

Critical success factors

In my risk management practice, I’ve met with hundreds of management teams that have struggled to reduce workforce injuries. The Alcoa case study paints a vivid picture of what it takes to make safety initiatives succeed:

Commitment from the top. Safety was O’Neill’s number one priority. He aligned his policies with his goal. On his first day, he told Alcoa’s executives they weren’t going to talk people into buying more aluminum and they couldn’t raise prices. The only way to improve the company’s fortunes was to lower costs, and that required the full cooperation of Alcoa employees. Employee cooperation would have to be earned by proving Alcoa cared about them. There was no room for bluffing or insincerity.  O’Neill made it clear that any executive who didn’t make worker safety a personal priority – above profit – would be fired.

Alignment between words and actions. O’Neill’s actions were aligned with his words. He fired the president of Alcoa Fujikura Ltd. for failing to report three accidents where workers were exposed to carbon monoxide and butane gas. In a memo circulated throughout the company, O’Neill wrote, “Some of you may think my decision is an unduly harsh response for a lapse in communication. I felt obliged to make it because of the effect of these matters on our values and the possible misrepresentations that there can be tradeoffs in these areas.

A positive relationship between staff and management. The commitment to worker safety and the consistent alignment between leaders’ words and actions built a new level of trust between management and employees. Research consistently shows a correlation between the quality of the employee/management relationship and workers’ comp injuries, morale, productivity, and quality.

Clear accountability. Anytime a worker was injured, the unit president had to report it to O’Neill within 24 hours and present a plan to ensure the injury never happened again. That meant that vice presidents had to be in constant communication with floor managers, and floor managers needed to get workers to raise warnings as soon as they saw a problem. Workers learned to keep a list of suggestions nearby so that when the vice presidents asked for a plan, there was an idea box already full of possible solutions. Any employee at any level had a channel for getting their ideas in front of the highest levels of leadership.

A shared goal that’s meaningful to all stakeholders. Once united around a shared commitment to eliminate workplace injuries, the company started changing with startling speed. Rules that unions had spent decades opposing – such as measuring the productivity of individual workers – were suddenly embraced because such measurements helped everyone figure out when the manufacturing process was out of whack and posing a safety risk. Policies that managers had long resisted – such as giving workers autonomy to shut down a production line when the pace became overwhelming were now welcomed because that was the best way to stop injuries.

A pathway to change

At Alcoa, improved safety wasn’t the only positive outcome. The initiative was a pathway to create an atmosphere open to change. It started a chain reaction that changed other habits across the organization. The culture of safety also laid a foundation for a highly engaged workforce that collaborated effectively with management. This resulted in wide-ranging downstream implications that improved business performance in four areas:

Operational. The key to protecting Alcoa employees was understanding why injuries happened. So O’Neill brought in safety professionals to analyze how the manufacturing process was going wrong and to educate workers about quality control and efficient work processes, making it easier to do everything right. Through this process became the safest and most streamlined aluminum company in existence.

People. As the new safety culture took hold, morale improved, productivity and quality skyrocketed and costs decreased. For example, if molten metal was injuring workers when it splashed, the pouring system was redesigned. In addition to protecting workers, it saved money because fewer raw materials were being lost in spills. If a machine kept breaking down, it was replaced, which meant there was less risk of a broken gear snagging an employee’s arm. It also meant higher quality products because, as Alcoa discovered, equipment problems were a chief cause of subpar aluminum.

Strategic. Improved product quality and lower costs improved the company’s competitive position.

Financial. Reduced cost burden, enhanced productivity and quality, and a stronger competitive position increased bottom-line profitability and shareholder value.

The link between safety culture and performance

These results are not unique to Alcoa. The Wharton School’s research on Risk Maturity

shows that the more committed a business is to managing risk, the better the bottom line. It reconfirms an earlier study showing the correlation between enhanced risk management practices and improved financial performance, profitability, organizational resilience after a loss, and return on equity, among several other key performance indicators.

It is also important to note that focusing on safety doesn’t just drive results for companies with higher-risk operations or a history of high workplace injuries. In my work clients, it has proven equally effective when management perceives they are obtaining good results from the functioning safety program and not realizing how much further the program can be improved to achieve previously unrealized profit.

Culture is key. O’Neill could never have achieved the results he did without changing the culture. Culture and strategy are inextricably connected. Any organization that disconnects the two is putting its success at risk.

What story do your workplace safety figures and culture tell?

Stephen Paulin

Workers Compensation Practice Leader & Cyber Risk Specialist

Steve has over 35 years of experience helping businesses reach their profit goals by improving risk management outcomes that optimize the insurance program’s financial efficiency to produce better business performance. Using his strategic, long-term approach, exacting research and diagnostic process, Steve delivers measurable results to help organizations capture more profit while being safer with increased productivity.

He has extensive experience working with publicly held entities and organizations with national and international operations. He brings this expertise to his privately held clients and specializes in structuring innovative workers’ compensation large deductible placements and captive insurance formations, and holistic cyber risk programs

While highly proficient in his knowledge of all business insurance policies, Steve has the distinction of honing his cyber risk expertise over the past 20 years to become highly regarded for his insight and solutions to this quickly expanding and evolving area of risk. During this time, Steve has been advising clients on implementing his holistic cybersecurity best practices and insurance protection approach. Ultimately, his clients are viewed by cyber insurers as preferred risks, thereby obtaining programs with better terms and conditions and appropriate limits of coverage at the most cost-effective premium.

Steve is a prolific writer on many insurance-related topics. He has authored and contributed his thought leadership to Business Insurance, Insurance Journal and California Workers’ Compensation Enquirer, among others. He is a Certified Insurance Counselor (CIC). A graduate of the USC Marshall School of Business, Steve continues his involvement with the university as a member of Marshall Partners, an Emeritus Member of the USC Alumni Association Board of Governors and active in the Swim With Mike Foundation. Steve is a 28-year Vistage member, serves on the Association for Corporate Growth Orange County Board of Directors, and is an active community volunteer. He is a founding member of The Lott IMPACT Foundation®, which annually presents The Ronnie Lott IMPACT Trophy to the college football defensive IMPACT player of the year. IMPACT is an acronym for Integrity, Maturity, Performance, Academics, Community, and Tenacity.

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You can reach Steve at: SPaulin@orionrisk.com.