FROM THE OFFICE OF PUBLIC AFFAIRS

Good morning.  It’s a pleasure to be here with Chicago’s business leaders and future business leaders.

The past year has been full of shocks and surprises for those who study and participate in American business. We've suffered through a bursting stock market bubble, terrorist attacks on New York and Washington, and discoveries of corporate fraud.  People have lost jobs, and a lot of retirement accounts are hurting.  Economic security is on all our minds.

The economy was in recession when President Bush took office last year, and we’ve been focused on recovery since inauguration day.  First, the President's historic tax relief program last summer reduced taxes for the average family of four by $1,040 a year, and put cash in consumers pockets when we needed it most: last August and September.

Then in March, he signed the Job Creation Act to stimulate investment in our economy - a second major accomplishment.  Combined, these two tax relief measures saved one million jobs in the US economy this year – one million more Americans got paychecks because President Bush cut taxes so that money that would have gone to Washington stayed in the hands of employers and working Americans.  Without that tax relief, the recession would have been deeper and the recovery slower.

Today, key economic fundamentals such as inflation, real wages, productivity, interest rates, business profits, and the housing sector are all strong because of the resilience and determination of the American people.   I am confident that we will return to 3 to 3.5% growth rates by the end of this year, and that growth will create jobs and renew our prosperity.

The latest indicators look good.  The auto and housing markets are strong.  Consumers are taking advantage of low interest rates to buy cars and homes.  We need to see business investment and job creation pick up, and I believe we will as we soak up the excess capacity in the system today.

We’ve also taken strong steps to advance corporate accountability.  It’s been a wild ride for some corporations of late.  Companies that received every accolade for innovative accounting and CEOs who graced countless magazine covers have fallen further and faster than they once rose.  Nothing is what it seemed – earnings statements, revenue projections, or the boundless, bump-less, New Economy.

As the pendulum of public opinion has swung from worship, to doubt, to outrage over corporate behavior, some have called into question the system of private enterprise and economic freedom that has allowed our nation to achieve prosperity.  Are they right?  Do we suffer from too much freedom?  Did Y2K arrive a year late, and the end of the world is now upon us?

I don’t think so.  I’ve been around long enough to have seen this cycle play out a few times: the glorifications of a boom, and the recriminations of the subsequent return to reality. We’ve improved the system, putting new standards in place to holding corporations accountable for telling the truth to investors and employees, so Americans can save for college tuitions and comfortable retirements with greater confidence.  And now that the August 14 deadline for certifying financial statements is past, I am confident that the worst of the corporate scandals is behind us – call them what you will, but I can’t believe any CEO still standing would be stupid enough to falsely certify their books.   Not when jail time is the certain consequence. We’ll recover from this wave of scandals as we have every other, and we’ll move on to new heights – and occasional dips.

We’ll be better for it too, as legitimate technological advances, productivity gains, and improved regulatory structures raise our overall standard of living, and set the stage for further growth.

Any of you who have studied economic history know there is nothing truly unprecedented in today’s trials and hearings, or the images of shamed ex-executives led off in chains.  Those infatuated with greed eventually get their due, in every generation.  Our economic system has the flexibility to absorb these shocks, adjust, and recover.

The question I prefer to address is a deeper question of leadership.  For you students here, I presume that most of you here today have ambitions of becoming tomorrow’s captains of industry, luminaries and visionaries.  Maybe you want to become great leaders, who unleash the potential in others, and set an example for your peers.  Or maybe you just want to make a lot of money.   If it’s the latter alone, I don’t have much to tell you. Best of luck.  But if you believe your life and your special talents have more of a purpose than dying with the most toys, I have a few ideas to share.  Specifically, I want to consider the importance of values, by which I mean honesty, accountability, and respect for human dignity.

From 1977 to 2001, I worked in the private sector after working 15 years in the federal government.  During those private sector years, I worked in two large multinational companies. From 1987 to 2001, I was the Chairman and CEO of Alcoa. 

When I joined Alcoa in 1987, we employed 55,000 people in 13 counties. When I left at the end of the year 2000, 140,000 people worked for Alcoa at 350 locations in 36 countries.  Our shareholders’ value increased eight-fold during that time. 

But even more than the growth and profit figures, one statistics stands out as a measure of our values.  During the time I served Alcoa, we reduced our workplace injury rate by 90 percent.  Let me explain the importance of this fact.

Over the course of my career in business and with the government, I have come to believe that in an organization with the potential for greatness, the people in it can say yes to three questions every day.  These are the three questions.  Are you treated with dignity and respect by everyone?  Do you have the training, tools and support you need in order to make a contribution to the organization – a contribution that gives meaning to your life?  And are you recognized for the contribution you make?

All organizations say that employees are their most important asset.  You can look it up in the annual report.  At Alcoa, I set out to create tangible evidence that people were the most important asset.  I reasoned that if people were hurt that nothing else mattered much and that therefore we should set a goal to eliminate workplace accidents.  Not to reduce them but to eliminate them.  It was the best kind of goal – no one could challenge its desirability.

A company with real leadership, honest and accountable, is one that helps all its employees to work together toward a common goal, and to realize their potential to a far greater extent than they could otherwise.  Effective organizations unlock human potential for all who strive within it.  And that only happens when those people at the top, the leaders, set the example.

Once you get used to taking the high road, putting values over expedience, and treating people like people, the end and not the means, it gets easier and easier.  You will go beyond what seemed possible before.  Workplace safety is just one example – when you become effective at organizational problem solving, many of the targets that seemed out of reach, whether that means profits, growth, innovation, or new markets, become easy to grasp.

So what really happened with these corporate leaders now fallen?  I think they strayed from their values in the anything-goes 90s, and by the time they realized how far they had strayed – after all, in their minds, everyone else was doing it, or would if they could – it was too late.  Like frogs in boiling water, they didn’t feel the heat until they were cooked.  There was nothing special about these people, except their hubris.  They abandoned any pretense of moral direction to follow each dollar down its path, and figured they’d return to the main road before anyone noticed they were gone.  But after the bubble popped, there was nowhere to hide.  That’s what I think.

If all you want is money, it’s not that difficult.  But if you want to achieve something greater, to become a true leader, you need to think about the people in your organization, and put them first.  The money will follow, if that’s part of your mission.

The question for our new, post-Y2K era is not whether we can or should continue the economic success we enjoyed in the 1990s.  The question is how leaders of business and government should incorporate the best aspects of the 90s – growth, productivity, and innovation – into the emerging decade, while actively working to make this new era a time of both personal responsibility and public integrity.  How can we reaffirm the link between value and values, and restore public confidence in American enterprise?

In my view, the answer is simple: honest, accountable leadership.  With leadership, everything is possible; without it, nothing is possible. 

In the economic domain, I believe the connection between creating value and affirming values in American business has always been strong.  Far away from the headlines, most business leaders, from mom and pop shop-owners to corporate chiefs, have always treated their shareholders and employees with honesty and fairness.  Today, however, doing your job with competence is not enough.  Leaders must stand up and set an example not just for their employees, but for the general public as well.  Honesty in business is the new patriotism.  There is nothing better business leaders can do for this country right now than restore faith in the system that has made it great.

What we achieved at Alcoa, we did not achieve by managing quarterly earnings, abusing tax rules or playing accounting tricks.  We did it by focusing on our people, making sure they had the tools and incentives to get their jobs done right, and done safely.  And when people have those tools and incentives, they can do anything.  We focused on the fundamentals: creating value and producing results.  The rest followed.  That’s the truth in every company, and in every endeavor.

The real challenge is to achieve your ambitions while refusing to bend your values to the demands of the day.  Set an example for your organization, no matter your place in it. 

Thank you.