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strategy and business
 / Winter 2012 / Issue 69(originally published by Booz & Company)


The Thought Leader Interview: William J. O’Rourke

S+B: What were Alcoa’s market ambitions for Russia?
Our sales plan was 50 percent domestic and 50 percent export. Besides aluminum cans, oil drilling equipment and aerospace were obvious markets. Russia’s commercial airplanes were old, and hadn’t been upgraded in years. In 2005, there were only three places in the world that made aluminum plate for aircraft: England; Italy; and Davenport, Iowa. We were going to make the city of Belaya Kalitva the fourth one. That market hasn’t caught on as fast as we hoped, but it’s coming, especially with the nearby Chinese aircraft industry poised for expansion.

The Ethical Advantage

S+B: You’ve said that the ethical challenges of doing business in Russia were part of a broader pattern of behavior that is the Russian way of life. Can you elaborate?
We knew there was a lot of corruption, and not just in business and government. The prevailing attitude is that you are an idiot if you don’t make money for yourself when you can. People expect to be extorted to get good medical care, to get their child accepted into a first-class university, or to get any legal document processed quickly. Most Russians “buy” their driver’s licenses rather than take road tests; when they take a driving test, they often have to slip a few rubles to the instructor.

I made our position on bribery and corruption clear: “We don’t condone it. We don’t participate in it. We are not going to do it. Period.” I was realistic, but I never judged the culture as irredeemable. America 100 years ago was not unlike Russia today. Ethical maturity takes time.

S+B: Describe some of the tough situations where you had to stand your ground.
When we arrived, there were more than 15,000 employees in Samara and Belaya Kalitva. Between 2005 and 2008, we downsized to 7,887. We had a million things to do and I was relieved at first when the human resources manager at one location volunteered to handle the downsizing.

But then I heard about the deal she was making. Under local law in Russia, severance pay typically amounts to about two or three weeks’ salary. For the first round of layoffs, we decided to pay three months of salary since that was fair under Alcoa’s compensation policy. Most workers who volunteered to leave had never seen that much money before. But the HR manager was telling employees they had a choice: three weeks’ pay or three months’ pay. If they chose the three-month package, they had to pay her a thousand rubles — the equivalent of about $30 to $40 per employee. There were thousands of people being laid off, so it added up.

I only learned about this because a young woman in the HR department, who spoke English, felt free enough to walk into my office to tell me that I should look into the situation. The HR manager in question wasn’t around long after we confirmed the facts.

In another case, we were preparing to take delivery of a new $25 million aerospace plate furnace in the Belaya Kalitva plant. The local police stopped the transport trucks on the road into the city; we were informed that the trucks would not move until a certain government official got the equivalent of $25,000. We didn’t pay, and we told them, “The furnace can rust there.”

All I could think of was the myopia of any official who would try to extort a corporation that was trying to put his city on the aerospace manufacturing map of the world. But the Russians around me in Alcoa didn’t see it the way I did. They pressed me to pay. “This is common,” they said. “We can negotiate it down to $10,000.”

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