In an interview conducted by Ann Graham for strategy+business magazine, published by Booz & Company, William J. O’Rourke explains why executives in international business practice, ethics and competitive advantage go hand in hand. Here is a brief excerpt. To read the complete interview, please click here.
Photograph by Peter Gregoire
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International business is essential to every multinational’s profitable growth. But too often companies are unprepared for the compromising situations they encounter by expanding in risky countries. Worker safety, environmental responsibility, financial controls, procurement, and community citizenship are all areas where ethical business practices can make or break a strategic foreign investment.
Consider the Russian business established by Alcoa, the world’s leading manufacturer of primary and fabricated aluminum products, which had US$25 billion in annual revenues in 2011. Its first attempt to enter Russia took place in 1996, when Alcoa’s then chairman and CEO Paul O’Neill (who later became the U.S. Treasury secretary under President George W. Bush) went to Krasnoyarsk, the third-largest city in Siberia, to buy a smelter. Russia had a long-standing reputation as one of the world’s most difficult countries for business, but its deposits of aluminum alloy were too rich to ignore. O’Neill traveled to Siberia in order to secure a handshake deal, only to learn the next day that the head of the facility had been killed in an accident there. O’Neill found that type of safety record untenable, and that was the end of Alcoa’s Russian business plans for almost 10 years.
In 2005, under O’Neill’s successor, Alain Belda, Alcoa returned to Russia. This time, the company acquired two of the world’s largest aluminum fabricating plants, both located in southeastern Russia: Belaya Kalitva, about 500 miles south of Moscow, and Samara, about 500 miles southeast of the capital. Over the next three years, Alcoa invested more than $787 million to upgrade these facilities, known today as ZAO Alcoa SMZ and ZAO Alcoa Metallurg Rus, respectively.
Belda appointed William (Bill) O’Rourke as the chief executive of Alcoa Russia, the company’s Russian subsidiary. O’Rourke, an O’Neill protégé, had never run a plant before, but had spent 30 years at Alcoa in the legal; finance; procurement; and environment, health, and safety departments; and in senior positions as chief information officer, corporate auditor, and corporate patent counsel. O’Rourke was a skilled “fixer,” known within the company for his integrity, discretion, and judgment in identifying and handling difficult managerial problems. Those attributes were essential in this assignment: to make these plants — which were rife with cost overruns, authoritarian mismanagement, worker hazards, and environmental exposures — safe, profitable, and embedded with Alcoa values.
Within his first days on site, O’Rourke began encountering common forms of Russian extortion and corruption. Once he was robbed by local police officers who spotted him walking away from a cash machine. Another time, he received a casual death threat from a government official for refusing a payoff on a bribe. “If this was five years ago,” the official told him, “I would kill you, and I would get away with it.” O’Rourke didn’t relent, nor did he ever weaken his stand against corrupt practices.
Today, Alcoa Russia is a productive and profitable enterprise in a country where some other multinationals have given in to the culture of corruption, lost control of their assets, or left. Both of the Alcoa plants deliver solid performance against health, safety, and environmental metrics, including ISO 14001’s ecological management standards, which require robust employee involvement. The facilities have helped Alcoa maintain its global advantage in sheet metal production for cans, and in protective coating processes for aluminum. They have also been good for Russian employment and advancement: Alcoa Russia, which had 62 expatriates from eight countries on its 2005 management team, is now managed solely by Russian citizens.
O’Rourke, who retired from Alcoa in 2011, now teaches and writes about business ethics and safety management. He is the executive director of the Beard Institute, an organization that is dedicated to business ethics, sustainability, and responsible financial management at Duquesne University’s business school. He is also a fellow in business ethics at the Wheatley Institution at Brigham Young University’s Marriott School of Management. He remains a director of the Alcoa Foundation board and serves as chairman of the board of Sustainable Pittsburgh.
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To read the complete interview, please click here.
Ann Graham is a contributing editor at strategy+business and an editorial consultant with the Center for Higher Ambition Leadership. She is a co-author, with Larry Rosenberger and John Nash, of The Deciding Factor: The Power of Analytics to Make Every Decision a Winner (Jossey-Bass, 2009).