Duquesne University University of IllinoisLeighton Lecture on Ethics & Leadership April 8, 2013 Bill O’Rourke

Does Your Moral Compass Point to True North? 

Agenda

Opening Comments

Brief Overview of Alcoa Inc. Alcoa’s Investment in Russia

Specific Business Ethics Situations Ethical Challenges

A Suggested Approach

Moral Compass

A compass is a beautiful, simple tool that allows us to find our way.

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An Overview: Alcoa Inc.

31 Countries; 181 Locations >61,000 Employees

2012 Revenue: $24 Billion

Alcoa Russia

Alcoa is 1 of 61 “survivors” on the Fortune 500 List since its inception.

Founded in 1888 in Pittsburgh, PA

A leading producer of primary aluminum, fabricated aluminum and alumina.

2012 Revenues: $24 Billion

>61,000 employees in 31 countries.

Strong Values. Environment, Health & Safety (EHS) In 2012 it was 10 times safer to

work for Alcoa than it was in 1992.GHG Emission Reduction – 46%

on a 1990 base and 22% on a 2005 base.

Alcoa – Global Leader in the Aluminum Industry

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0 3.86

3.57

2.262.03

1.85

1.48 1.4 1.5 1.42 1.32 1.30

0.290.3200000000000010.19 0.19 0.13 0.13 0.11 0.15 0.14 0.15 0.11

Results: Alcoa Lives Its Values Every Day

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Total Recordable Incident Rate

Lost Workday Incident Rate

Inci

dent

Rat

e

Strengthened Reputation

Continued Sustainable Growth

Established Carbon Leadership

10th Consecutive Year

Safety Incident Rate History and Significant Accreditations.

Founding Member

Best Ever Safety Performance

COVALENCE ETHICAL RATINGS – No. 1 in Industry

Exemplary Products

Packaging/Can Sheet

Marine Plate

Aerospace Sheet, Plate &Hard Alloy

Automotive Brazing

Lithographic Sheet

Hard Alloy, Oil & Gas

VISION

Alcoa aspires to be the best company in the world.

ALCOA VALUESIntegrity. Alcoa’s foundation is our integrity. We are open, honest and trustworthy in dealing with customers, suppliers, coworkers, shareholders and the communities where we have an impact.

Environment, Health & Safety. We work safely in a manner that protects and promotes the health and well-being of the individual and the environment.

Customer. We support our customers success by creating exceptional value through innovative product and service solutions.

Excellence . We relentlessly pursue excellence in everything we do, every day.

People . We work in an inclusive environment that embraces change, new ideas, respect for the individual and equal opportunity to succeed.

Profitability. We earn sustainable financial results that enable profitable growth and superior shareholder value.

Accountability. We are accountable - individually and in teams - for our behaviors, actions and results.

1.861.48

1.25 1.11 0.99 0.81 0.77 0.75 0.46 0.49 0.45 0.36 0.24 0.29 0.310.19 0.19 0.13 0.13 0.11 0.15 0.14 0.15 0.13 0.10

9.05

8.50

7.04 6.856.51

5.46 5.40 5.11

4.424.03

3.643.51

3.13

3.863.57

2.262.03 1.851.48 1.40 1.50 1.42 1.32 1.38 1.17

LWD Rate TRI Rate

Safety - Alcoa Incident Rates

Our Values

Respect - We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here.

Integrity - We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won’t do it.

Communication - We have an obligation to communicate. Here, we take the time to talk with one another. . .and to listen. We believe that information is intended to move and information moves people.

Excellence - We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.

Articulated Values – of the Fortune 100

IntegrityPeopleQuality

CustomerCommunityInnovation

EnvironmentAccountability

Health & SafetyTeamworkLeadership

Passion

0 10 20 30 40 50 60 70 80 %

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Leadership Challenges

Alcoa purchases assets in Russia.

What are the initial Leadership Challenges?

Why Invest in Russia? The Future Potential

530

800

1100

2002 2006 2011

RussiaOther

0 5 10 15 20 25 30 35

India

Argentina

Brazil

Russia

Venezuela

China

Mexico

UK

France

Spain

Switzerland

Germany

Sweden

Canada

Italy

US

Japan

(kg/capita)Aluminum Consumption Per Capita, 2007

Source: McKinsey analysis, CRU

CAGR11%

CAGR7%

Eastern Europe & CIS Sheet & Plate Market

KMT

Aerospace – The fast-growing industry

Packaging – Major can manufacturers are now building new plants in Russia

Automotive/Transportation – Expected increase in usage of aluminum rolled and extruded products, forged wheels, etc.Significant Long-Term

Growth Potential

Alcoa-Russia: Two Major Plants Acquired in 2005

Samara

Belaya Kalitva

Samara (Population 1.5 million)Age of facility: 1950’sInitial Headcount: 8,200Capabilities & capacities: Cast house Flat Rolled Products: sheet and plate Extrusions 31 small to medium presses; 2 large presses (12,000 MT and 25,000 MT) Forgings: 4 presses including 30 & 75 KMT

Belaya Kalitva (Population 60,000)Age of facility: Early 1960’sInitial Headcount: 5,300Capabilities & capacities: Cast house Flat Rolled Products: sheet and plate Extrusions: 1-15,000 MT & 14 small to medium presses Forgings: 6 presses

75,000 Ton Forging Press

Production Capacity

25,000 Ton Extrusion Press

Production Capacity

A Top Priority - Invest in Russia - $1 Billion

Investment: $750 million through 2008; $1 B now. Acquisition price: $257.5 million 2005 Capital: >$20 million 2006 Capital: >$100 million 2007 Capital: > $167 million 2008 Capital: > $186 million

0

200

400

600

800

Initial 2005 2006 2007 2008

Cumulative Investment: Alcoa Russia

Millions of Dollars

* Plus Working Capital

Why was the 2005 Investment only $20 million?

New Slitting Operation

Before

After

PRIVILEGED AND CONFIDENTIAL 29

PRIVILEGED AND CONFIDENTIAL 30

Belaya Kalitva - Forging - Pump House

Business Ethics

Can a Leader be successful in Russia: While being honest? By playing by the rules? While respecting the environment? By making worker safety a top priority? By being a good neighbor in the community?

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Blatant Violation Scenario

You hear that the HR Manager of your Business Unit is accepting payments of $1,000 from each laid-off employee after she approves their very attractive severance packages.

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The Good Employee – in Most Respects

It is reported to you that the relatively new Plant Manager in an Australian Plant, who was recently hired to succeed the Business Unit President, and who is having tremendous early success across the business (net income, working capital reductions, procurement savings, delivery performance and employee engagement scores), has instructed employees to “spin” the safety results.

Taking a Questionable Deduction

An investment banker visits you and shows you a way that your company can classify certain expenses so they qualify as a credit on your corporate income tax. Taking that action will save the company $200 million in tax avoidance. What do you do?

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Confidentiality of Information

• Overheard Conversation in an Airport: Although you don’t work directly with the Alcoa Rolling Business

you are very well aware of their difficult business environment especially in the can sheet market.

You’re sitting in the St. Louis Airport waiting for your plane and you overhear four businesspeople behind you openly discussing their upcoming negotiations with Alcoa. They start discussing negotiation roles, supply, competition, and price positions very specifically.

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Environmental Scenario

You run an aluminum extrusion business. You have 15 manufacturing locations globally that are operating. Eight (8) locations have been shut down and are for sale. One location, in Texas, which has not operated for 5 years is under a signed Sales Agreement and the closing will occur next month.

You get a call at 5:00 PM on a Wednesday from your Environmental Manager. She reports to you that trichloroethylene (TCE) was found in the groundwater. The sample was taken at the property boundary of the plant.

Taking & Receiving Gifts

You are a Buyer of electronic components for your company. You buy over $200 million of electrical components annually. After placing a large order with your largest supplier, the salesperson you deal with sends you a gift. Can you keep it?

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The Tone at the Top

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…..and it goes without saying that we will set goals and execute our strategy in accordance with our values.

Proactive Behaviors

Periodic Discussions with Employees.A Formal, Compliance Program – Policy, Procedures, Phone Line, etc.Annual Business Conduct Surveys.Publicized Punishment – sometimes.Rotation of Assignments – where conflict is possible, avoid it.Education & Training.Climate – where reporting is acceptable.Values Management.Reward Employees based on proper Ethical behavior.

A Suggested Approach

Identify the Issue as an Ethical OneGather the FactsDiscern The Options Identify the Affected Parties Identify the Consequences Identify the Obligations Consider Character & Integrity Think Creatively

Check your GutActReview

Some Thoughts

If it looks wrong or feels wrong, don’t do it.Let others know the rules – upfront.Be outspoken and quick when you spot an ethical issue.Tell the truth.Listen.Be fair – to all concerned.Walk the talk – leaders’ actions establish culture.If in doubt, seek advice.

Seek True NorthBuild and Practice Excellent HabitsGet the “Most” from every day, every minute.

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Integrity and Trust are the currency of business and the foundation of lasting relationships.

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Thank You!

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