The Birth of a Companyand an industry On a cold February day in 1886, Charles Martin Hall

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The Birth of a Companyand an industry On a cold February day in 1886, Charles Martin Hall filled a crucible with a cryolite bath containing alumina and passed an electric current through it. The result was a congealed mass that he allowed to cool and then shattered with a hammer. Several small pellets of pure aluminum resulted. It was a remarkable discovery. Hall secured his financial backers in nearby Pittsburgha group of six industrialists led by Alfred E. Hunt. These early venture capitalists formed the Pittsburgh Reduction Company and built a small plant in Pittsburgh. On Thanksgiving Day in 1888, Hall and his first employee, Arthur Vining Davis, produced the first commercial aluminum using Halls technology.Hall kept improving his process and developing alloys, reducing the price of aluminum ingot from $4.86 a pound in 1888 to 78 cents in 1893. By 1907, the company had grown to include bauxite mines in Arkansas, a refinery in Illinois, three aluminum smelters in New York and Canada, and a fabrication plant in Pennsylvania. The owners changed the companys name to something more appropriateAluminum Company of America. Later, as the company became increasingly global, this changed to Alcoa Inc. Today, Alcoa is a world leader in the production and management of primary aluminum, fabricated aluminum, and alumina combined, through its active and growing participation in all major aspects of the industry. The company employs 97,000 people in 34 countries. Its revenues in recent years have been approximately $30.7 billion in 2007. Alcoas values, first documented in 1988 but followed for decades before, are the cornerstone of the company. They are considered key to achieving Alcoas vision of being the best company in the worldin the eyes of its customers, shareholders, communities, and people. These values direct the actions of Alcoa employees toward others, govern employee behavior with external stakeholders, and establish Alcoas business conduct guidelines. They are also what Alcoa values in its people. There are seven key values that establish these basic behavioral principles:

Integrity: Alcoas 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, and 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 teamsfor our behaviors, actions, and results. Within Alcoa, both ethics and sustainability are about living these values each and every day

Alcoa and ethics Within Alcoa, ethics play a major role in the decisions the company makes by creating awareness that whatever actions are taken should be focused, to the extent possible, on creating a positive impact on all stakeholders. A key belief is that ethicsor doing things rightare more than complying with the law. Legal compliance is a must, but laws are not meant to govern all conduct. For example, Alcoa operates in countries with little or no environmental regulations. It could operate its plants in those areas with minimal investment in pollution control equipment and still be in total legal compliance. However, Alcoa recognizes its responsibility to regions of the world in which it does business. Thus, it follows what its values tell it to do and invests heavily in pollution abatement equipment to ensure these locations meet Alcoas more stringent environmental standards. Another example is child labor. In some countries in which Alcoa operates, it is legaland often encouragedto employ children. However, the companys values and human rights policy clearly indicate child labor is strictly forbidden. As a fundamental principle, we do not employ children or support the use of child labor. We do encourage the creation of educational, training, or apprenticeship programs tied to formal education for young people. These two examples merely serve to highlight Alcoas commitment to its environment and social responsibilities. To ensure every employee has a clear understanding of the ethical behavior expected of him or her, Alcoa has a comprehensive ethics and compliance program that goes beyond just putting words on paper. The program consists of the following key elements:

Guide to Business Conduct

Training

Business Conduct and Conflict of Interest Survey

Ethics and Compliance Line

Background Checks

Ethics Risk Assessments

Consistent Discipline

Corrective Actions

Corporate Culture of Ethical Behavior

Guide to Business Conduct The heart of the program is the Guide to Business Conduct. Alcoas first code was written in 1992 by an international team to reflect the cultural nuances of all areas of the world in which the company operated. It was updated in 2000 to encompass the many changes that had taken place both inside Alcoa and in the external regulatory world and again in 2006 to reflect new policies enacted since 2000. In updating the guide, Alcoas values required it to go beyond putting English words on a piece of paper. The guide is split into four major sections: employees, business partners, business resources, and communities. In addition to text that explains Alcoa policies and procedures, each section highlights up to 10 easy-to-understand bulleted points the reader should take away, as well as a questionand-answer segment that deals with the material in that section. As a result, there are three separate ways to understand the material, an approach that is considered cutting edge for a code of conduct. Because the overarching Guide to Business Conduct contained material that did not apply to the shop flooremployees who would not be in a position to violate certain itemsAlcoa created an abridged version for the manufacturing environment. The company also decided to create an abridged version for its suppliers and customers. While Alcoa does not mandate the behavior of these two external groups, this version explains the behavior each of these stakeholders should expect when conducting business with Alcoa employees. In essence, it created another means of monitoring Alcoas ethical behavior while also serving not as a mandate but as an example to suppliers and customers.

alcoa and sustainability This strong ethical focus influencesand is influenced byAlcoas approach to sustainability. While sustainability is a relatively new concept in the business world, it is not new to Alcoa. For decades, the company focused on understanding and managing the impactsfinancial, environmental, and socialit had on the communities in which it operated. In 2004, Alcoa formalized its sustainability goalusing the companys values to build financial success, environmental excellence, and social responsibility through partnerships in order to deliver net long-term benefits to its shareowners, employees, customers, suppliers, and the communities in which it operates. Achieving this requires being a transparent and accountable organization and engaging the companys thousands upon thousands of stakeholders in the 30-plus countries in which it operates. This can be challenging, as most stakeholders have differing expectations, viewpoints, and experience that at times can be contradictory. As such, Alcoa strives for a global view on sustainability that accommodates local viewpoints, using its values and ethics as guideposts while being sufficiently flexible to take into account local conditions and stakeholder expectations. To meet stakeholder expectations as well as its own, Alcoa has integrated sustainability into its business decision-making processes and set goals and performance measurements that are mutually agreed upon. The company has also created frameworks and processes that codify its sustainability approach and permit it to manage and measure its internal and external efforts in achieving sustainability.

Ethics and Sustainability in Action The following are recent examples of Alcoa initiatives that illustrate how ethics and sustainability converge within the company

Climate Change Leadership Within Alcoa, climate change is both a challenge and an opportunity. The challenge is that making aluminum is an energy-intensive process, resulting in the release of greenhouse gases (GHGs). One of the metrics contained in Alcoas 2020 Strategic Framework for Sustainability was a 25% reduction in greenhouse gas emissions by 2010 from a base year of 1990. The company achieved that goal seven years ahead of the target and has maintained the reductions despite its continuous growth. Alcoa continues to research ways to reduce its greenhouse gas emissions further. After Alcoa proved to itself that significant GHG reductions are feasible, the company began taking a leadership stance on the issue to help ensure others also do the right thing. In early 2007, Alcoa joined nine other U.S.-based companies and four leading environmental organizations to call on the U.S. government to quickly enact strong national legislation to achieve significant reductions of greenhouse gas emissions. The partners formed an unprecedented alliance called the U.S. Climate Action Partnership (USCAP) to send a clear signal to lawmakers that legislative action is urgently needed. In addition, a senior Alcoa employee testified before a U.S. Senate subcommittee in 2007 to express Alcoas support of the Americas Climate Security Act. Alcoa is also partnering with or joining organizations focused on global climate change. Alcoa is also actively involved in the development of GHG accounting standards in conjunction with the International Aluminium Institute, International Standards Organization, and the Intergovernmental Panel on Climate Change. In early 2008, Alcoa became a founding reporter on the Climate Registry, a non-profit organization that measures and publicly reports greenhouse gas emissions in a common, accurate, and transparent manner consistent across industry sectors and borders. Alcoa was among the first companies to join the organization. As a founding reporter, Alcoa has voluntarily committed to measure, independently verify, and publicly report its GHG emissions on an annual basis utilizing The Climate Registry General Reporting Protocol.

Iceland SmelterStakeholder Consultation In 2007, Alcoa opened its first new smelter in 20 years in the fjords of eastern Iceland. The project presented the company with an opportunity to engage stakeholders early in the process and incorporate their feedback to improve the facilitys design and performance. The Alcoa Fjaral smelter and the nearby Krahnjkar hydropower facility developed by Landsvirkjun, the government-owned energy company, represented the largest construction projects and private and public sector investments (almost US $3 billion) in Icelandic history. When the two projects were announced, controversy broke out almost immediately, with the focus primarily on the environmental effects such industrialization would have on the surrounding environment. Alcoa approached Landsvirkjun to jointly create a pioneering sustainability initiative that involved substantial stakeholder input and would create a way to measure the long-term environmental, social, and economic performance of both projects. The result was the formation of a 40-member stakeholder advisory group in mid-2004 that consisted of both project proponents as well as opponents who represented the following stakeholder groups:

National government;

Regional/local governments;

Non-governmental organizations (international/ regional/local),

National Church of Iceland;

Health organizations;

Educational institutions;

Business associations;

Concerned citizens;

Project contractors;

Alcoa; and

Landsvirkjun.

The group decided its purpose was to look forwardnot backwardand develop indicators to measure the performance of the hydro facility and smelter against sustainability objectives adopted for the project by Alcoa and Landsvirkjun. I was very pleased how Alcoa and others came to the table to discuss the projects and focus on what we need to do to lessen the impact, said Dav Baldursson, a Christian minister who has lived in the area for three decades and served on the advisory group. I would have liked the industrialization to have happened a little slower, but we had no choice. The advisory group has helped us with managing the impacts, and I think the managers of Alcoa and Landsvirkjun are trying their utmost to be responsible in every aspect. These projects have given us renewed hope for the future of our community. Guinea RefineryEnvironmental Impact In an underdeveloped portion of Guinea, Alcoa is working with project partner Rio Tinto Alcan to ensure a proposed alumina refinery will have minimal environmental impact. While the refinery would bring substantial economic and social benefits to the local community, the partners wanted to evaluate the environmental effects for the region under consideration. Because there was minimal information about the Bok prefectures biodiversity, Alcoa engaged Conservation International (CI) to conduct an initial biodiversity assessment and planning project. Such projects integrate biodiversity information and conservation planning into the earliest stages of a projects design and implementation using a science-based approach. CI, with assistance from Guinee Ecologies (an in-country environmental non-governmental organization), first conducted a biodiversity rapid assessment, examining the flora and fauna of several sites within the bake prefecture. The scientific team included experienced tropical biologists from both foreign and West African institutions, including eight Guinean experts. In some cases, the assessment represented the first biological surveys of the region in nearly 50 years. While the habitats surveyed appeared heavily impacted by human activity, several important species were observed. These include a rare crab species recorded for the first time since its original collection in 1947 and known previously only from the male holotype, species on the Red List of Threatened Species, and numerous species never before recorded in Guinea. CI, Guine Ecologies, Alcoa, and Rio Tinto Alcan presented the findings from the survey at a multi-stakeholder workshop in June 2005. The results of this workshop were used to form an action plan for conserving biodiversity in the Bake prefecture of Guinea.

Guinea RefineryStakeholder Consultation and Relocation In an effort to ensure the resettlement of people who may be displaced by the proposed refinery in Guinea is fair and accepted by the community, the government of Guinea, Alcoa, and Rio Tinto Alcan are following the world standard for resettlement that requires extensive community consultation and comprehensive compensationdown to paying for individual trees that would be lost. Guineas Bake region consists of small villages that do not have piped water and electricity and are populated by a citizenship that has not been afforded many of the opportunities provided in the developed world. The preferred site to undertake more detailed feasibility studies that was announced in July 2007 would require the resettlement of eight villages consisting of around 300 total households. Resettlement is not as simple as building someone an equal or better home in another area. Sacred sites must be protected, cemeteries relocated, and income streams maintained. For example, a farmer with mature fruit-bearing trees cannot be given seedlings as fair compensation. Consideration for the farmers current crop productivity must also be evaluated and form part of the compensation. Alcoa and Rio Tinto Alcan developed a resettlement approach that is in accordance with the guidelines established by the International Finance Corporation (IFC), which is a member of the World Bank Group. The guidelines require extensive community consultation, the establishment of independent committees to handle grievances, and fair compensation for houses, household goods, crops, and more. Since the project started, the partners have conducted numerous community meetings, keeping the Bake regions citizens informed about progress and conveying new information as soon as it is available in accordance with a no surprises approach. Key to the success of this work has been employing local university graduates to serve as community liaisons. Known as field workers, these employees speak the local language and know the local customs. They have conducted surveys, translated for the project team during community meetings, and solicited feedback from the communities. Once the preferred site for more feasibility studies was announced, the field workers visited each affected household to gather pertinent data for the resettlement process using a detailed 20-page survey document. The collected information includes family structure and membership, property boundaries and house measurements, farming practices, crop type and size, number of trees, income, photographs, and more. The next major step was forming a community committee that will help develop standard compensation amounts, determine where the residents should be resettled, and handle any grievances that arise during the process. Alcoa and Rio Tinto Alcan have also announced community projects focused on water, rice, and literacy training to help improve the quality of life for villagers throughout the Bok region.

1. Aluminium production is an inherently energy intensive process and is driven by consumer demand. However, many consumers discard aluminium cans rather than recycling them. Recycling aluminium cans for reuse consumes much less energy than mining alumina (Aluminium oxide), transporting it via ships or trucks, and then processing it to make aluminium. Who bears primary responsibility for reducing greenhouse gas emissions from the production of aluminium? Alcoa? Consumers? Governments? Explain.

2. Why do you think Alcoa joined USCAP and advocates for climate change legislation? Explain.

3. How would you evaluate Alcoas actions with respect to the Guinea Refinery? Do you think they should do more to lessen their impact? Do you think they should do less in order to conserve shareholder resources? Or do you believe that they are doing about what they should do in this regard? Explain.

4. What ideas or concepts discussed in the articles in this chapter does this case best illustrate? Explain.

45:

Case

the Water initiative

Fully 2 billion people worldwide lack dependable access to clean drinking water. In 2006, serial entrepreneur Kevin McGovern decided that he wanted to devote the rest of his professional life to the development of a company that could address the growing world water crisisspecifically, the lack of affordable clean drinking water for the underserved. The new venture, which McGovern dubbed The Water Initiative (TWI), would focus on developing a commercially and environmentally sustainable way to serve the drinking-water needs of those at the base of the pyramid. It would focus on distributed, point-of-use technologies, embrace a cocreation-based approach to business development, and, ultimately, seek trickle-up solutions. Centralized water treatment plants are inherently inefficient and environmentally unsustainable. It takes tremendous amounts of energy, chemicals, and money to purify water to drinking-water standards. Meanwhile, less than 2 percent of water is actually used for drinking and cooking; most is used in less demanding applications like washing, bathing, and irrigating. At the same time, nearly half of the purified water from treatment plants leaks out of antiquated pipe networks before it reaches its final destination. (Leaky pipes also provide opportunities for recontamination, thus negating much of the investment up to that point.) Given these realities, it became clear to McGovern that point-of-use systems, offered through enterprise-based models, showed the greatest promise to make clean, convenient, and affordable drinking water available to underserved households and communities. McGovern observed that most existing water ventures focused almost exclusively on marketing specific technologiessuch as filtersto the worlds poor and under-served, usually without great success. TWI, therefore, began with two premises that represented departures from conventional wisdom. First, TWI asserted, there can be no single solution or magic bullet to the clean-water crisis. Water problems and challenges vary multi-locally, from one region to the next, and any successful company has to take this reality into account. Second, rather than seeking merely to market existing products, TWI would engage people from local communities in the co-creation of its business concept. Using a methodology called the BoP Protocol as the foundation for this approach, TWI aimed to develop a business that would combine the knowledge and resources of the company with those of the local community. In so doing, TWI would focus on building community pull, rather than product push, as its basis for BoP market development. This strategy would clearly set TWI apart from other water ventures. TWIs leaders chose Latin Americaspecifically Mexicoas the initial location for incubating the new business, in part because of its geographic proximity to the U.S. and company principals. (Making it easy for principals to be onsite, where possible, almost always makes good sense.) TWI launched the BoP Protocol process in Chapala, a poor community in North Central Mexico near the city of Torreon, where arsenic contamination was the most pressing drinking water problem. Government-supplied water also contained excessive amounts of chlorine (used to kill pathogens), so local people preferred to buy expensive bottled or garrafon (jug) water because it tasted better. Neither of these preferred water sources, though, was consistently free of arsenic or pathogens. TWIs R&D team thus set out to develop an affordable, point-ofuse technology to remove arsenic and excess chlorine, while providing protection against pathogen contamination when needed. The TWI team recruited a number of interested partners, or socios, from the immediate community to join in the co-creation effort. Home stays and trust-building exercises produced a committed group of local partners intent on helping to build a successful business. Ultimately, a business concept was developed that embedded TWIs platform technology in a wider community-based process of Healthy Dialogue Groups (HDGs), which engaged mothers and families to encourage healthier lifestyles. Initially, TWI had assumed that any in-home water purification device would have to be as barebones as possible to make it widely affordable. By engaging the community in the co-creation process, however, TWI quickly learned that local residents did not want a cheap device on the roof to remove arsenic from their water. (In fact, most people were not particularly concerned about arsenic contamination because they couldnt taste or smell it in the water.) Instead, people aspired to have something in their homes that they could be proud of. And yes, they wanted healthy water, but they also wanted cold and good-tasting water. It was through this process that the design of the WATERCURA purification product came aboutagain, a more elaborate product than TWI originally anticipated creating. Even with its added functionality, however, the WATERCURA can still be operated without any external energy source, thus reducing both its cost and its environmental footprint. The device also permits disassembly and remanufacture, which again holds down long-term cost and waste. In addition, ideas for complementary products using TWIs healthy water were developed by the socios. One such product was FruTWIa line-up of healthy fruit drink concentrates made with purified TWI water and various fresh fruits. Some socios launched their own microbusinesses selling FruTWI, thereby offering a good-tasting and healthy alternative to Coke and other soft drinks and also creating welcome opportunities for income generation. Finally the business model also included a set of activities focused on community greening, such as TWI-sponsored events at schools, neighborhood clean-ups, and so on. Thus, the cocreation process produced a business concept that added value at several levels, creating community pull, with TWIs point-of-use water treatment technology at the centre. By early 2010, the business had begun to take root in Chapala, with more than 100 socios involved and hundreds of WATERCURA units in place. Of course, many challenges remain, but through small-scale experimentation and co-creation, TWI is poised to take the business to the next level in the coming years, pending second-round financing. A second site has been established, with FruTWI and other similar complementary products (such as salsa and soup concentrates) providing the early revenue for socius. The company also receives frequent inquiries from more affluent individuals and organizations voicing interest in the WATERCURA. Eventually, TWI will develop a model focused specifically on the needs and requirements of this higher-income demographic (trickle-up), but for now, the focus remains on scaling out the business across the Mexican Bop. In time, the company aspires to expand throughout Latin America and ultimately, the world.

1. Is the Water Initiative an example of a sustainable business practices? Explain.

2. Does the technology utilized in the case have applications in developed nations? How is this issue relevant to the success of the project? Explain.

3. Do you believe that there are many products or services that are needed by base of the pyramid populations that simultaneously serve an important social function, are environmentally friendly, and are profitable? Explain. Can you think of examples?

4. There are 4 billion people at the base of the pyramid who earn less than $3,000 per year and aspire to have a lifestyle more like Westerners. But it is widely believed that if they were to consume natural resources at the same rate as Westerners, the Earths capacity to host billions of humans would rapidly decline. What obligations, if any, do you think Westerners have to curb their consumption to allow for economic development at the base of the pyramid? Explain.