“The board put a crazy hippie in charge and he’s going to kill the company…”

-Unknown

I read… a lot. One of my favorite business-oriented books is Charles Duhigg’s The Power of Habit. Along with being all about how habits work, in good and bad ways, Duhigg includes a story about the positive organizational change an obscure lawyer cum CEO of a massive global company created unintended culture change using safety as the foot in the door.

This lawyer-slash CEO is in my mind one of the greatest CEOs in history, yet you most likely have never heard of him. If you have heard of him, chances are good you don’t know why I think he was so great.

I intend to change that over the next few episodes. That’s right, we are heading into another multipart series.

The Aluminum Company of America was founded in 1888. You and I know this organization by its more common name, Alcoa. An innovating conglomerate dealing with all phases of aluminum production: global operations include mining and transporting the raw materials, refining the materials by manipulating it in a molten state, and forcing the metal into a myriad of everyday things boats, aluminum foil, cars, wire, and structural pieces of buildings.

Since 1973, when deaths and injuries were mandated to be reported by the newly created Operational Safety and Health Administration (OSHA), on average, two ALCOA employees per week were injured badly enough to see a doctor. Three to five deaths occurred annually. In 1987, ALCOA’s Total Recordable Incident Rate (TRIR) was 1.86, in civilian terms, this equates to ninety-three injuries a year. In the 14 years following, the company had dropped recordable injuries to twelve per year. Between 1987 and 2000 Alcoa, had raised its income by five times the company’s market value increasing from $3BN to over $27BN. What happened during this period that caused these amazing changes in safety, and revenue?

In 1987 O’Neill came into his CEO position hot and heavy with safety as the main thing. During his introduction to Wall Street investors and analysts, O’Neill stunned and scared the lot when he said, “I intend to make Alcoa the safest company in America.” He didn’t talk about Shareholder dividends, or how he was going to expand into new markets, like all other incoming CEO’s do. He spoke to safety. Nobody talks about safety. Some moments later O’Neill gave an overview of the plan, “If you [shareholders] want to understand how ALCOA is doing, you need to look at our workplace safety figures. If we bring our injury rates down, it won’t be because of cheerleading or the nonsense you sometimes hear from other CEOs. It will be because the individuals at this company have agreed to become part of something important: They’ve devoted themselves to creating a habit of excellence. Safety will be an indicator that we’re making progress in changing our habits across the institution. That’s how we should be judged.” Within a year of that speech, and contrary to common belief, Alcoa’s profits hit an all-time high. And incidents, accidents, and deaths were at an all-time low.

“I ran to a pay phone in the lobby and called my twenty-largest clients. ‘The board put a crazy hippie in charge and he’s going to kill the company,’” one attending investor remembers. “I ordered them to sell their stock immediately before everyone else in the room started calling their clients and telling them the same thing.” Shaking his head, “It was literally the worst piece of advice I gave in my entire career.”

The “hippie” the sorrowful Wall Street investor speaks of, wasn’t a hippie at all. Paul H. O’Neill was born on December 4, 1935, in St. Louis Missouri. It was a Wednesday. He met the woman that would become his wife while in Anchorage High School from where they both graduated in 1954. Earning his bachelor’s in economics from California State University, Fresno and shortly after, Paul received his master’s degree in public administration from Indiana University.

Moments before our panicky investor called his Top 20, Paul O’Neill had completed his introductory speech as the new CEO of the Aluminum Company of America, aka, ALCOA. It was October 1987. After graduating from Indiana University in 1960, Paul took a job as a mid-level manager at the Veterans Administration. When President Johnson wanted to implement technology into the governmental offices, Paul O’Neill was recruited as a computer systems analyst at the Office of Management and Budget (OMB). He worked there during the Johnson Administration, and the Nixon era. It was during President Ford’s tenure that Paul was promoted to the role of deputy director. During this period O’Neill began to understand organizational habits. I will return to this shortly. Stay tuned.

In 1977 O’Neill left government service, 17 years served. Moving his family North to Connecticut, Paul took a role at International Paper in New York City. In 1985 he was nominated to president and served the organization well until 1987. It was this year the board of a floundering ALCOA asked to O’Neill to take the reins of the organization as CEO. Critics were saying the workers were not adaptable and the product quality was waning. The safety record for the organization was even poorer, averaging one injury per week causing one or more days of the worker missing work. There is a metric for this called Total Recordable Incident Rate (TRIR). This is the total number of recordable incidents, those where a worker misses a day of work at a minimum, multiply that by 200,000 (total number of average hours worked annually). At this point in time, ALCOA’s TRIR was 1.86. Remember this number, you will be quizzed later.

Paul and his wife liked living in Connecticut. Moving to Pittsburgh, where ALCOA was headquartered, was not very enticing. But instead of turning the board down immediately, Paul asked for some time to think about it, and the board agreed.

Decades prior, during his time at Fresno State, O’Neil had drafted a list of the things he wanted to accomplish during his life. Somewhere near the top, he doesn’t remember where exactly, he wrote, “Make a Difference.” Now, with the ALCOA Board waiting, Paul pondered, “How could he make a difference at ALCOA?”

His answer…. Safety.

Well, I think we have done a good job of introducing Paul O’Neill.  In the coming episodes, we will continue to explore how Paul changed Alcoa and dive deeper into his ideas, reasoning, and real-world observations and how his actions are pertinent within our lives, businesses, and organizations today.

Links to all the quoted resources are in the show notes and in the transcript on my website, Eddiekillian.com

Join me next Tuesday as we continue to travel the path of what is difficult, perilous, and uncertain as we explore introducing A New Order of Things.

I am your host, Eddie Killian. And this concludes Episode 18.

References

Duhigg, C. (2014). The Power of Habit: Why We Do What We Do In Life and Business. New York: Random House trade Paperbacks.

Paul H. O’Neill, S., Graban, M., Segel, K., Webster, G., O’Neill Jr., P. H., & Toussaint, J. (2020). A Playbook for Habitual Excellence: A Leader’s Roadmap from the Life and Work of Paul H. O’Neill, Sr. Independently Published.

Paul O’Neill Legacy. (n.d.). pauloneilllegacy.com. Retrieved July 6, 2022

Suskind, R. (2004). The Price of Loyalty: George W, Bush, the White House, and the Education of Paul O’Neill. New York: Simon & Schuster.