The Value of Values – Amos Beer

When I worked in the corporate world, every time there was a talk about corporate values I used to roll my eyes. The reason was that the “value statement” was nothing more than a boilerplate. A group of consultants sat with the board and came up with something that sounded good but meant little. It certainly did not reflect the prevailing values in the business, and nothing was done to change this.

It doesn’t have to be this way. Values can have, well, value that can be measured in financial terms.

The story of Alcoa demonstrates this:

Paul O’Neill  was appointed CEO of Alcoa, a major American aluminium manufacturer in 1987. When introduced to a group of investors and analysts, he didn’t talk about revenue and expenses and debt ratios and earnings before interest, tax, depreciation and amortization. “I want to talk to you about worker safety,” he told the Wall Street crowd.

“Every year, numerous Alcoa workers are injured so badly that they miss a day of work,” he continued. “Our safety record is better than the general American workforce, especially considering that our employees work with metals that are 1,500 degrees and machines that can rip a man’s arm off. But it’s not good enough. I intend to make Alcoa the safest company in America. I intend to go for zero injuries.”

When one attendee asked about inventories, and another asked about capital ratios – the standard vocabulary for these kinds of sessions – O’Neill returned to the same theme.

“I’m not certain you heard me,” said the new CEO. “If you 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 entire institution. That’s how we should be judged.”

One of the investors bolted for a phone after hearing O’Neill’s declaration. “The board put a crazy hippie in charge and he’s going to kill the company,” the investor said he told his clients. “I ordered them 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.”

A prescient investor would have gone long on Alcoa stock. By the time O’Neill retired in 2000, the company’s annual net income was five times larger than before he arrived, and its market capitalization had risen by $27 billion.

Paul O’Neill understood that a single value (employee safety) was the perfect conduit to overall excellence: no one would object to it, and achieving it will require a methodical focus on processes that would lead to overall better business results. Not only it would save Alcoa a fortune in lost productivity (shutdown of production, sick leave, not to mention compensations) but it would introduce a culture of carefully looking into every aspect of manufacturing, something that would drive efficiency.

As the results show, he was right.

A business doesn’t have to be a multi-billion-dollar behemoth like Alcoa to benefit from clear values. It is almost intuitive that having a clear value-set that is accepted and adopted by the entire team will help any organisation to make better and faster decisions, avoid mistakes, and eventually deliver better results.