Alan Cransberg addressed an American Chamber of Commerce in Australia luncheon on 30 July 2009 in Perth.
These are unprecedented times we are currently travelling through. Alcoa felt an immediate impact when the global financial crisis hit, with a slowdown in demand for our product across key customer industries – construction and transport – and for us the storm is far from over…
And, there is another massive challenge that we all face – the reality of climate change, and how we must all come to understand more fully what our role in that needs to be. We all need to find our place in becoming part of the solution to climate change.
These are two of the biggest challenges facing Alcoa, Australia, us all. At the moment, all businesses, across all industries, are employing different strategies and tactics to ensure your long-term sustainability.
I want to look at these key challenges and their associated issues, and discuss how Alcoa is addressing them - knowing that these are of course issues common to us all:
• the need for a secure gas supply and national energy strategy;
• the power of people to make a difference; and
• the importance of being a good corporate citizen - now more than ever.
Economic downturn
The economic climate presents us with extraordinary challenges requiring extraordinary action.
Our approach at Alcoa has, and continues to be, control what we can control and manage well within the confines of the things which are not in our control. For Alcoa, the things we cannot control are the metal price and the exchange rate. At the moment the metal price is down, and the strengthening Aussie dollar is working against us.
Alcoa of course has a plan to manage through the downturn, which includes wide ranging financial and operational initiatives, to reduce costs, increase cash and strengthen our balance sheet. Globally we made a commitment to our investors that we would deliver on a tough cost sustainability plan to ensure our sustainability and our strength to flourish when we come through this thing.
Alcoa Inc’s results in quarter two, released earlier this month, demonstrated that our plan is working. While we recorded a loss, it was a significant improvement on quarter one. We’ve made no secret of the fact that we will aggressively manage our business, taking decisive action, and we’re not afraid to make the hard decisions to ensure our long-term sustainability.
I do believe that if anything good can come out of the downturn, it’s that these times will really set good companies and good leaders apart. This is a positive and I love seeing how leaders in my organisation react. Yes, life is tough at the moment, but victims won’t survive. This is an opportunity for all of us to analyse our businesses, look at what we can do to change for the better and improve, so we can successfully emerge as stronger businesses when the economic climate improves.
And while the economy will recover, (it’s just that none of us have a crystal ball to be able to know exactly when that will be) recovery is a certainty. These ups and downs are cyclical and of course our learnings now will help guide us through future fiscal challenges. A new road map is being created.
Climate change
There is another road map being drawn up and it is complex in the extreme. When we come to the issue of climate change, we have an issue that isn’t going to resolve itself, and it’s here to stay. Without wishing to sound arrogant, Alcoa recognised that fact almost two decades ago.
We took an early voluntary global leadership position on climate change. We were instrumental in setting up a group of business leaders that talked to the Bush administration on behalf of industry, and we set ambitions targets to reduce greenhouse gases within our operations.
We set a target of reducing our global greenhouse emissions by 25%, based on 1990 outputs. The due date for achieving that reduction was 2010 - but it we achieved it way ahead of schedule in 2003. In the years since, we have gone further and reduced our greenhouse emissions by 36%. These cuts were achieved by focussing on business efficiency and by taking responsibility for developing our own
technology to help us move forward in a carbon constrained world.
The gas challenge
We do have an innate advantage where efficiency is concerned. Our WA operations, our alumina refineries, run on gas – a clean transitional fuel that carries environmental positives. And we seek ways to maximise that environmental advantage.
Alcoa is the biggest co-generator of electricity in this country. Our gas fired co-generation is the most thermal efficient and greenhouse friendly non-renewable energy source.
We have a well documented history in underpinning energy infrastructure both here in WA and in Victoria. It goes back 25 years when we underwrote the Dampier to Bunbury Gas Pipeline, bringing gas and, with it, enhanced economic prosperity to the South West region.
But the positives of being a gas user here in WA are weighed out by a significant challenge - and it’s quite simple …. we need to keep the gas flowing!! Sounds obvious doesn’t it? But the fact is if we continue to offshore our gas as LNG, our domestic needs cannot be met in the long term. We need to run a vibrant domestic gas industry alongside a vibrant LNG industry, and I do believe that is very possible.
I’m not going to dwell on the detail today, (you’ll hear a lot about this in the coming months from me and others) but the issue of energy security revolves around domestic gas supply in WA and it impacts us all.
I’ve been on the record for some time now saying that Australia must develop a national energy security strategy to guarantee the country’s energy requirements for the next 50 to 100 years. For too long we have been focused on expanding and maximising energy exports without proper strategies for our own country’s needs. Australia has an immediate need to promote diversity of domestic gas supply – an immediate need to ensure domestic and local industry have a secure supply of gas in a competitive market.
This issue has been highlighted recently with the media focus around the Gorgon LNG project in WA.
A strong domestic gas industry based on competitive selling and diversity of supply is critical to meet the State’s industry and domestic needs - it is critical to stimulate continued economic growth, jobs and investment.
This issue impacts everyone - your business, your suppliers, your household. I’ll be out there working with others, talking with government and industry groups, to address the challenge and help drive some acceptable solutions that balance the need of LNG with domestic users.
These are solutions for economic development and for greenhouse challenges. Remember, many low-emission technologies, with the exception of natural gas, will not be substantial contributors until after 2020.
Carbon Pollution Reduction Scheme
Let me turn now to our other massive component of the greenhouse challenge - the impending Carbon Pollution Reduction Scheme (CPRS).
Alcoa supports the introduction of a CPRS that reduces greenhouse gases and does not compromise the international competitiveness of the alumina and aluminium industries. Australia needs a sustainable solution that supports greenhouse reductions and Australian jobs.
Alcoa faces a number of key issues with the CPRS: we are emissions-intensive and trade-exposed and we can’t pass on the costs of the CPRS to our customers. The price of our metal is set by the London Metals Exchange, so we’ll be absorbing a cost that our competitors overseas don’t face.
There are ways to manage this, but if the government doesn’t get the scheme right companies like Alcoa would be at an international competitiveness disadvantage. This quite simply can lead to jobs and carbon leakage – which means aluminium is produced offshore in countries where there is no carbon cost and where industry practice is not as greenhouse efficient. We would therefore see greater global carbon emissions and loss of jobs in Australia.
Did you know our alumina refineries in Australia are amongst the most greenhouse and energy efficient in the world? Every tonne of alumina made by Alcoa in Australia produces less than half the greenhouse emissions and uses just over half the energy than alumina made in China. So, you can see why it’s important that mechanisms are put in place to support industry and jobs until the rest of the world comes online with carbon trading.
Scheme or no scheme - at Alcoa, we are continuing to work very hard to reduce emissions via cutting edge technology. We invest about $25 million dollars each year on research and development. In fact our global refining research and development group is based right here in WA at Kwinana and it services Alcoa globally.
A few years ago, our Technology Delivery Group developed a ‘carbon capture’ process which locks up large amounts of carbon dioxide in our bauxite residue that would otherwise be released into the atmosphere (bauxite is what we process to create alumina). Our first ‘carbon capture’ plant in operation at Kwinana locks up 70 thousand tonnes of carbon dioxide each year. It’s revolutionary research that has impacts for the alumina refining industry around the globe – bringing enormous environmental benefits.
Make an Impact
We recognise that tackling climate change is about behavioural change at an individual level too.
I think any parent in this room will relate to the desire to teach your kids how to live sustainably – it’s perhaps one of the greatest gifts we can give them.
Alcoa is seeking long-term solutions to these global problems and that’s where our Make an Impact program comes in. Make an Impact is something we devised with our climate change partner ‘Greening Australia’, back in 2006 and I love it. It’s a program that encourages our people to become part of the solution to climate change by identifying simple, practical steps to lower their household water and energy use, and it’s a program that encourages thinking, conversation, and crosses the generations.
It can be shared across the workplace, the home, the school room - and we have just started to roll the program out to some of our communities. This is something I feel proud of and I encourage everyone at Alcoa to get involved with.
So you can see that our direction around climate change extends from operational innovation to change at an individual level.
Employee engagement & leadership
Our Make an Impact program is a demonstration of what people power can strive to achieve. Our people - your people - are surely our business’ greatest asset. Without the talent, intellect and loyalty of our people - I know we can’t even hope to retain our position as one of Australia’s largest exporters and deliver value to our shareholders.
Talented, engaged people are quite simply vital ‘keys’ to some of the issues I’ve already talked about. And keeping people engaged and motivated is certainly a challenge in itself.
As we manage through turbulent, uncertain times – our people remain at the heart of everything we do. We need to maintain the focus on them, on how we engage them, on how we lead them. As we continue to ask for more of them - even as we freeze pay rises and ask them everyday to reduce their costs - how do we keep them buoyant? Focused on the job? Loyal to Alcoa?
I want to make the point though that successful employee engagement is not about making everyone feel good all the time, and saying yes to everything. Leaders still need to be able to make the tough decisions, which won’t always make everyone happy.
The challenge is this: people want to be motivated not manipulated, inspired not ordered, committed not obedient. I want our people to challenge us and be involved in the business’ success.
Among our six thousand plus employees, we have an incredible talent bank with bright ideas. A few years ago, we implemented an Employee Suggestion Scheme which captures all the great ideas from our people around the country. Through the scheme, we reward employees who come up with smart ideas for the business, and in some cases employees are rewarded financially.
To give you an idea of the success we’ve had through this initiative, last year we received over 14,000 suggestions and over 10,000 were accepted by the business. The real results are in the number of suggestions accepted and implemented - it’s what you do, rather than what you say.
Current research by leading human capital management practitioners shows repeatedly that employee engagement and attracting and retaining top talent is more crucial than ever in this time of economic uncertainty. It sounds almost too obvious to say ‘an engaged workforce is more productive …’ It’s not rocket science - businesses with an engaged workforce are more profitable.
We can refer to the experts. A recent Watson Wyatt study found: “..when employees are highly engaged, their companies enjoy 26 per cent higher employee productivity, have lower turnover risk and are more likely to attract top talent.
“Their companies have also earned 13 per cent greater total returns to shareholders over the last five years.”
Leaving staff in the dark, as uncertainty or rumours mount, can undermine morale and motivation.
I won’t preach on best practice HR, but I know the importance of connecting regularly with our people, keeping them informed, taking them on the journey and giving them a context so our decisions, however tough, make sense.
At Alcoa, our engagement with employees includes them being a part of the communities in which we operate. I believe that our people’s engagement with our communities is a vital part of our success.
We’ve certainly found that employee volunteering, while it is the right thing to do, also assists with building cohesive teams. And volunteering is big business at Alcoa.
Apart from our regular, ‘business as usual’ volunteer programs here in Australia, Alcoa worldwide holds an annual Month of Service each October to encourage and reward employee volunteering in our local communities. I was impressed that last year 30% of our people lent a hand to community organisations. This figure rises each year, as we strive to make a difference. It’s a sustainability issue, for our business and for our communities.
Many of you will be continually assessing your own rating of corporate citizenship I am sure.
The issues and challenges we are all facing today are many.
I have packaged it up into easy pieces - economic downturn… climate change… leadership of people - but they all interact and touch on many aspects of ourselves and our business.
The economic climate presents complications and further challenges for how Australia will deal with the costs and practices associated with climate change. The climate change issue very much has a bearing on the need for energy security. And all these things can’t be managed without the best minds and intellect.
