A Steelmaker's Heart of Gold

Meet a steelmaker with a heart of gold, a firm that shows why a "triple bottom line" is good business -- in one of the world's toughest businesses.

You don't typically think of a steel company as worker friendly. You don't think of a steel company as an environmental innovator. And nowadays, it's even getting harder to think of a steel company as a profitable entity with a promising future.

That's what makes Dofasco Inc. a different kind of steel company. Tiny by industry standards, with just 8,500 employees and a market cap of $2.3 billion, Dofasco operates with a close eye on the "triple bottom line": In addition to tracking financial metrics, Dofasco also monitors its impact on society and on the environment. As a result, the company, based in Hamilton, Ontario, has outperformed many of its big competitors. Despite the 2001 slump in the automobile industry, which accounts for 50% of its business, Dofasco ran at 100% capacity that year and finished 2002 as one of the only integrated steelmakers in all of North America to report a profit.

"These things all bleed into each other," says John Mayberry, Dofasco's former CEO, who led the company for 11 years until his retirement in May. "How do you get happy shareholders? Start with satisfied customers. How do you get satisfied customers? Start with happy employees. How do you please employees? Try not to wreck the community they live in."

Take Care of People; They'll Take Care of Business

It's a line that most CEOs routinely insert into their annual reports: "Our employees are our most important asset." In Mayberry's case, Dofasco's unique relationship with its employees makes it more than a line. In the steel industry, Dofasco is one of the only mills without a union -- and its employees like it that way: Turnover at the company's primary facility in Hamilton is less than 1%. (The company also has operations in Ohio and in Monterrey, Mexico.)

Part of the reason for the low rate is Dofasco's approach to compensation. All of the company's employees receive equal bonuses based on 14% of the company's pre-tax income. In 1999, employees split a record pot of $36 million. And in 1996, Dofasco added a variable-compensation plan. Every employee, from the cafeteria cooks to the senior managers, has a percentage of their salary that is variable pay. When the company does well, the employees prosper. When times are tough, few people -- if any -- are laid off.

But the compensation plan is just one way Dofasco treats its employees differently. In reaction to two poor years in the early 1990s, the company realigned its strategy. Mayberry sliced out layers of management and put decision making in the hands of line workers. Cross-functional teams with responsibility for quality control were superimposed on the department-driven structure.

"People can make a phenomenal difference if you can tap into them, if you stop telling them to come to work, put their brains in a box, and do whatever the supervisor says," Mayberry says. "We've put the accountability and reward right where it belongs: at the team level. And that's why we get great innovation."

Save the environment; kill the competition

Dofasco has placed a premium on articulating and achieving environmental goals. In just 10 years, the company has cut the amount of energy it uses to produce a ton of steel by 22% -- an achievement that blows away the Kyoto Protocol's 6% goal for Canada as a whole.

"They're far ahead of the curve in relation to other companies in their industry," says Colin LeDuc, head of research operations for Sustainable Asset Management, a Swiss company that evaluates companies' triple-bottom-line performance for Dow Jones & Co. "And it's important to note that they've taken the lead on environmental issues on their own -- without the government or some agency breathing down their necks."

Dofasco's environmental accounting not only helps the climate, it also boosts the company's competitive performance. As a result of efforts to reduce energy consumption, Dofasco installed new electric furnaces that can produce steel using a cleaner method. In most mills, electric furnaces are relegated to producing steel of a lower quality for different applications than steel that is made from traditional blast furnaces. At Dofasco, engineering teams worked with the new furnaces and with customers to improve quality and to find new uses for electric-furnace-produced steel. The company has been able to continue supplying its customers for high-end steel, as well as develop cheaper, more cleanly produced alternatives when appropriate. The move represented a leap from thinking about steel solely in terms of how it was produced to thinking also about customers' needs. That kind of leap is one of the key advantages of triple-bottom-line thinking, says Norm Lockington, Dofasco's vice president of technology.

"We were able to make that jump in thinking because we rigorously return to our stakeholder model: How can we do better for the environment, for customers, for our community, for suppliers, for our shareholders?" Lockington says. "We're constantly examining problems from all perspectives as we try to solve them. And often, an improvement in one area that might initially look bad for another stakeholder actually pushes you to come up with solutions that are better all around."

Think locally; act locally

Most com-panies become sensitized to community issues only after they've done enough damage to draw the locals' anger -- which is precisely why Dofasco helped establish the Hamilton Industrial Environmental Association. Founded in 1997, the group tries to get ahead of business and community issues by bringing together representatives from the Hamilton community, local businesses, and government agencies. Each year, the group approves a list of projects designed to improve the local environment and to raise awareness of the importance of environmental issues. Over the past two years, the group has spent more than $100,000 on projects such as combating soil erosion and $40,000 teaching inner-city schoolchildren about the environment.

The group also holds an annual meeting during which all of the companies involved report to the community on their environmental impacts -- and what they're doing to improve their environmental performance. The companies also encourage a resident representative to observe their operations, ask questions, and challenge policies.

What is the result of community participation? On Dofasco's most recent internal survey, the thing that figured most highly in employee satisfaction was "pride in the company." "They see how we behave in the community, and they see that it's consistent with the way we behave with them," Mayberry says. "That isn't about a program of the month. That's about earning people's trust, proving the link between what we said yesterday and what we're doing today. It's about deep values with real application. All of that ties in to make us a stronger, more profitable company."

Sidebar: Measure What Matters

How can your company measure its performance in categories as squishy as "impact on society" or "effect on the environment"? Finding numbers with meaning is fairly straightforward, says Thomas Scheiwiller, a partner on the Sustainable Business Solutions team at PriceWaterhouseCoopers. He offers these tips on how to take your tally.

Think long-term. When analysts look at a firm's long-term financial prospects, they ask about corporate governance: Do you have enough skills on the board? There are parallels for nonfinancial analysis. Do you have an environmental management system? Do you reward appropriate environmental decisions?

Shoot for zero. To some degree, your company's relationship with its community is a game you can't win. You can only measure trouble. The way you keep that measurement close to zero is to identify stakeholders, to know their agenda, and to have a way of being in touch with them formally or informally.

Put numbers in context. It's not enough to measure employee satisfaction. You have to decide what qualifies as a good rating given your industry, where you started, and where you want to end up.

Experiment with various measures. Triple-bottom-line reporting is still in its infancy. There isn't a lot of standardization at this early stage, and there shouldn't be. Experimentation is what is needed to develop best practices.

Cheryl Dahle is a writer based in San Francisco. Visit Dofasco on the Web (www.dofasco.ca).

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