SUMMIT 2015Director & Officer Training Conference

December 3, 2015

Business Ethics:Pointing North – Leading With Integrity

Bill O’Rourke

Today’s Discussion

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

Specific Business Ethics Situations Ethical Challenges

A Suggested Approach Questions/Comments

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Our 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 >61,000 Employees

2014 Revenue: $24 Billion

Alcoa Russia

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

Alcoa

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Founded in 1888 in Pittsburgh

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

2014 Revenues: $24 Billion; Net Income: $268 Million

>61,000 employees in 31 countries.

Strong Values. Environment, Health & Safety (EHS) In 2014 it was 10 times safer to work for Alcoa than it was in 1994. GHG Emission Reduction – 46% on a 1990 base and 22% on a 2005 base.

Alcoa’s Current Directors

Klaus Kleinfeld, Alcoa CEORatan Naval Tata, Tata Sons Ltd.Michael G. Morris, former CEO AEPMartin Stuart Sorrell, founder and CEO of WPP AdvertisingJames W. Owens, former CEO CaterpillarPatricia F. Russo, former Lucent Technologies CEOErnesto Zedillo, Yale University, former President of MexicoKathryn S. Fuller, Smithsonian, Formerly WWFLeo Rafael Reif, President MITCarol L. Roberts, CFO International Paper CompanyE. Stanley O'Neal, formerly Merrill Lynch CEOArthur D Collins, former CEO Medtronic, Inc.

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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

0.290.3200000000000020.19 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

11th Consecutive Year

Safety Incident Rate History and Significant Accreditations.

Founding Member

Best Ever Safety Performance

COVALENCE ETHICAL RATINGS – No. 1 in Industry

Corporate Equality Index

Exemplary Patented 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.

Alcoa’s Safety History

19871989

19911993

19951997

19992001

20032005

20072009

20112013

0

1

2

3

4

5

6

7

8

9

10

1.861.48

1.25 1.11 0.990.81 0.7700000000000010.75

0.46 0.49 0.45 0.36 0.24 0.29 0.31 0.19 0.19 0.13 0.13 0.11 0.15 0.14 0.15 0.13 0.1 0.1 0.09 0.09

9.05

8.5

7.046.85

6.51

5.46 5.45.11

4.42

4.03

3.64 3.513.13

3.863.57

2.262.03

1.851.48 1.4 1.5 1.42 1.32 1.38

1.17 1.16 1.15 1.1

Total Recordable Rate

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Lost Workday Rate

Our ValuesRespect - 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?

Belaya Kalitva

Samara

Moscow

Russia

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

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

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Belaya Kalitva - Forging - Pump House

Safety Challenges

The Russian Facilities averaged 5 deaths per year for 50 years.The LWD rate was 10x the Alcoa average.The facilities had been neglected for 12 years – no investment, little maintenance. The workers did not wear PPE.There was no safety training.There were no Safety Meetings.There were no marked walkways. Russian culture gives the right of way to vehicles.Housekeeping was a disaster. Scrap was everywhere.Locker rooms/lavatories were a sign of disrespect.“Life” itself was not valued.

Safety Challenges – Some Results

The Russian Facilities averaged 5 deaths per year for 50 years. In 2006, zero fatalities. Today: over 6 1/2 years without a fatality.

The LWD Rate was 10x the Alcoa Average. For 2012 LWD rate at 0.08; Total recordable rate at 0.90.

The facilities had been neglected for 12 years – no investment, little maintenance. Maintenance and investment programs instituted.

The workers did not wear PPE. PPE purchased, rules communicated, audits show 98% compliance in one year.

There was no safety training. Mandatory safety training, starting at the top. 8,000 trained in the first year.

There were no Safety Meetings. Businesses, Departments and Work Groups required to meet 2x/month minimum.

There were no marked walkways. Russian culture gives the right of way to vehicles.Housekeeping was a disaster. Scrap was everywhere. 40,000 tons of steel scrap removed in 4 months.

Locker rooms/lavatories were a sign of disrespect. New locker rooms/lavatories made a priority

“Life” itself was not valued.

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?

Business Ethics Issues – From My Life“Bill’s Experiences”

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Blatant Violation Scenario

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

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Someone In Authority Instructs Others to do Wrong

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.

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Is Legal Compliance Our Objective; or is it More?

You get a call at 5:00 PM on a Wednesday from your Environmental Manager in Texas. She reports to you that trichloroethylene (TCE) was found in the groundwater. The sample was taken at the property boundary of your Texas plant which has not operated for 5 years.

You Uncover Improper Conduct

During a routine audit of the Treasury function you learn that procedures (regarding segregation of duties) were not followed in processing the largest currency hedge in the history of the company (in the $ billions).

The Corporate Treasurer tells you he was instructed to take the shortcut by the CEO and CFO of the Company.

You are the Corporate Auditor. Your responsibility is to report “failed” audits to the Audit Committee of the Board of Directors.

The Treasury function “passed” the audit – just barely, despite this significant deficiency.

What do you do?

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Unfair Advantage

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.

Being a Party to Deniability

Before leaving on a multi year international assignment to Russia you meet with your tax advisors to get a briefing on your future tax liabilities. You tell the advisor that you understand your tax obligation to the Russian Government is 13% of your income. You ask, does this include income on my U.S. investments.

Your tax advisor says; “If you don’t tell us about your U.S. investments, we won’t know anything about them.”

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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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Respecting the Community

A group of neighbors who live close to your manufacturing plant complain about the noise and odor coming from your plant. How do you address the complaint?

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After Making a Promise the World Changes

Toward the end of their senior year of college, your child is offered a full time job with a large local hospital. The compensation is attractive, there seems to be a lot to learn on the job. Your child accepts the position on Friday, in writing. On Monday your child is offered a very attractive job with Dick’s Sporting Goods Company. The pay is higher. Your child could really use the additional money – there are loans to pay, they are moving into a new apartment, they need to buy a car and insure it.

Your child asks you for your advice. What do you say?

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The Tone at the Top

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

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.Treat everybody with dignity and respect. 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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“Just like a wilderness, the business world can be a scary place.”

EthicsFieldGuide.com

Thank You!

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Thank You!

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Heroes

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Expense Account Issues

Expense Accounts at Alcoa

Some Examples: You are on a business trip. You decide not to eat dinner. You

figure that dinner would have cost $30.00. Can you put that $30.00 on your expense account?

You arrange your business trip to Florida the week that your brother is getting married there.

You are entitled to fly Business Class to China. Can you trade the business class ticket for a coach ticket and pocket the difference?

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Categories of Business Ethics IssuesSomeone in ‘power’ asks you to do something wrong.Conflicts of interest.You suspect wrongdoing but don’t have clear evidence.You make a promise then the World changes.Skirting the rules and breaking the law.You see unethical conduct happen – Intervene?Your job requires you to sacrifice personal values.You’ve acted unethically – what do you do now? Repair?You have an unfair advantage.Organizational rules are in the way of doing something “right,”Laws must be broken to do what’s “right.”Repaying harm with harm.Does loyalty outweigh the need to punish improper behavior?Misrepresenting the truth or allowing the misunderstanding.Showing mercy. Is it yours to give?

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Standing-Up To Power

Your company applies to the appropriate government agency for a license to sell a new product. The head of the licensing agency is reluctant to approve your license. In a meeting he suggests that if your company donates $50,000 to a certain business school, he will grant the license. The head of the licensing agency owns that business school. Your company donates money regularly to support education. The Business School has a good reputation.

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Classifications to Take Advantage

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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Changing the Rules – Is It OK?

You are asked to serve as the Chairman of your company’s Benefits Administration Committee. A group of employees from one of your manufacturing plants appeals a recent decision on their right to severance pay to the Benefits Committee. It seems that the company changed the severance policy at one manufacturing location (from 2 weeks of pay for every year worked; to 1 week of pay for every year worked) three weeks before a major lay-off at that plant. What’s your decision?

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Beyond the Law; Beyond Compliance

Your company has the technical capability to eliminate harmful beryllium from the alloys but it will cost a little more. Do you do it?

Your company needs to install a wastewater treatment plant as a part of the new factory in Mexico. The City does not treat its citizen’s water. Should you build the plant to handle the processing of all the City water?

You are building a manufacturing plant in rural South Carolina. Only 30% of the population has a high school education. You decide to help individuals get their GED (General Educational Development). Should training be limited to prospective employees or open to everyone?

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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.

My Career

U. S. Army, Transportation CorpsUS Steel Corporation, Industrial EngineerAlcoa, Inc:

Patent Attorney Patent Counsel Assistant General Counsel VP Procurement VP Global Business Services Corporate Auditor Chief Information Officer VP Environment, Health, Safety & Sustainability (3X) President – Alcoa-Russia Alcoa Foundation – Board Member

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