UPS CEO Carol Tome On Coming Out Of Retirement

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UPS CEO Carol Tome On Coming Out Of Retirement
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The following is the unofficial transcript of a CNBC interview with UPS CEO Carol Tome from the CNBC Evolve Global Summit, which took place today, Wednesday, June 16th. Video from the interview will be available at cnbc.com/evolve.

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Interview With UPS CEO Carol Tome

Suzy Welch: Well, delighted to be here with Carol Tome, the CEO of UPS. And Carol, there's so much territory to cover, but I'd like to start right before the pandemic when you were in retirement after 24 amazing years at Home Depot. And you had looked forward to retirement, it said, but then you found yourself seriously bored. And along came this opportunity at UPS where you had been on the on the board of directors. And you started in and then suddenly, almost overnight, the entire world changed, it changed for all of us. But it probably didn't change for all of us the way it changed for delivery companies like your own. And so where I want to start is with you coming out of retirement thinking well, this will be a fun new challenge and with a lot of experience under your belt, but then suddenly, the world – and in particular the world of your business – imploding around you and changing and ask you what that felt like and what were your first thoughts?

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Carol Tome: Well, Suzy, it's great to be here with you. And I must say this year has been a year that I never anticipated or expected. I onboarded in March of 2020. And I thought I'd be spending time traveling the world, meeting with UPSers, talking to our customers, you know, just glad handing and shaking a lot of hands. And within the first week of my onboarding, the world shut down. And we realized that in order to remain essential, we had to first protect our employees. So it was a mad, mad scramble, finding masks and gloves and hand sanitizers and changing our operating procedures just to keep our employees safe, so that we could start to deliver essential products to keep the world alive. We had to work with government agencies around the world to keep our pilots flying. It was wild. So there was no traveling, it was just about protecting our folks. And then I’m like, well, travel –

Welch: Right.

Tome: If I can’t travel, I’ll spend some time getting to know people via Zoom. So the whole way of interacting with people changed for all of us around the world. But in some ways, I look at it as a real gift. Our business was growing, and then it took off. And then the second quarter, we were faced with unprecedented demand. And we're like, oh, no, we don't have enough people to handle the volume. So we had to hire 40,000 people in the second quarter alone to deal with the volume. And those are just a few stories of what we went through in just the very first few months of my tenure.

Welch: Okay, so it's an amazing story, because you've grown and had a lot of success in a period where it all could have imploded and exploded. And so I guess my question for the leaders and managers listening is what lessons did you learn? Like you're a year out from it, and so, you know, what did you do right and what did you do wrong? And what do people think about when they're thinking about leading through enormous change, which is sort of the day to day for everyone now?

Tome: Well, I think there are a few things. Put your people first, put your people first. Because without your people, you can't do what you need to do. Listen to the needs of your customers and lean into their needs. And we certainly did a lot of listening as stores were closing and online businesses were exploding and how we could help our retailers and other customers survive during this time. Make sure that your financial condition is rock solid, strong. We went out and issued debt even though we didn't need to because we didn't know what would happen to the financial markets. So we raised some debt capital so we can ensure that our we had enough cash to survive whatever came our way. And that enabled us actually to invest through the crisis. And that's another thing that I would is say so very important. In the face of incredible change, don't lose sight of the opportunities you have to invest through it. So we had an initiative underway called fastest ground ever. We weren't as competitive as we should have been from a time and transit perspective. And the team said, you know, Carol, if we could just get faster on the ground, we could win market share. And I'm like, well, what's getting in the way? And they're like, well, money. It’s expensive. I'm like, well, we've got money now, let's go ahead and do that. So we pulled forward that initiative, it was to conclude in June of 2021. We concluded that initiative in October of 2020. And when things started to settle out, well, we started to see a huge return on that investment. It actually makes us more competitive from a small and medium size customer segment perspective. And we've seen growth in that segment north of 30% in each of the past three quarters.

Welch: I want to dig down because what you did is you crunched almost more than in half the time it took to innovate. Okay, so everything is changing all around you. And you're actually innovating through that. A lot of times people are just thinking about surviving, but you are innovating much more rapidly. Can you talk about what it took to do that? What did it actually take? Did it take changing people out? Or did it take you making some kinds of phone calls? Or like, really, what did it mean to innovate during change?

Tome: Yeah, it was about selling the dream. So there were a number of reasons why I came out of retirement to join UPS. First it’s just a fabulous company whose values are aligned with mine. Secondly, we have 540,000 people in our company, and I love to develop people. So I thought that would be a great opportunity. And one of the other reasons is that the stock price had been flat for about six years. And I'm like, you know, I think I could get in there and swizzle the business model a little bit and create some value. And so got in and with the team, we built a total shareholder return model that said, you know, if we do these things, we can create value for you, which means you can create value for your families and change lives and change communities. And we really sold the dream, made it real for people and they're like, Oh, well, okay, interesting, Carol, we need to see this come into action. So we talked about changing the way and the pace of how we operated. You know, we were operating very much by committee, we had 21 committees that were running the business. And every decision had to go up to the committee for approval. So if you had an idea, you had to wait until the next committee meeting. And I'm like, oh, gosh, no, no, no, that's working by a calendar, we got to work off the pace of the watch, so we've knocked all those committees out of here. Of course, we have review boards, but we just started getting the bureaucracy out. And this is not a negative on UPS. Many companies who are old legacy companies, like UPS, you know, we're 114 years old, you get over-engineered with time. So we just reverse engineered some of those processes. And it really sped up decisions. So we sold the dream, we put speed into the decision making process. And then and I think Suzy, this is one of the most important things we did. We had an exercise about stop work. And all the initiatives that were in flight were around the room and we gave everyone green dots and red dots. We said, okay, put up the green dots on those things we should continue, and put up the red dots on those things that we should stop doing, because they're not wildly important. All the green dots went up, not a single red dot went up. I'm like, no, we're not leaving the room until the red dots go up. So the red dots went up. And then there were a number of initiatives with no dots. Which means there's no passion, no energy behind those initiatives. So the red dots, the no dots, we were able to take those initiatives off, and really focus on the wildly important.

Welch: So this sounds like a culture change to me. I mean, I think it sounds like you were attempting to, and succeeding at, changing the culture in the middle of this by this exercise, with the stop work and, you know, famously strategies also deciding not to do some things. And I think I read that you said that when you got to UPS, there was a lot of how to do things and what to do, but there was not a lot of why around it. And it sounds like you're talking about putting the meaning, giving people meaning to what they were doing that sped things up as well.

Tome: It did. Before I came to UPS, you know, I had been on the board for a long time. And I admired our company so much for our values and for what we did. But I thought our purpose was missing the why. Why we did all of this. So shortly after I on boarded, we created a cross functional team of UPSers to work on our purpose. And this cross functional team of UPSers around the world did a masterful job of talking to our customers, of talking to retirees, talking to our suppliers, talking to each other, talking to the communities in which we serve from a philanthropic perspective and brought forth what they thought our purpose was. And it was brilliantly done. There were a few iterations as you might expect, but brilliantly done, and we landed on that purpose, which is moving our world forward by delivering what matters. And we just love it, because you can unpack it in so many different ways. You can unpack it in so many different ways. But just to make it real, think about this moment of vaccines, COVID-19 vaccines. We're in this moment. As of late May, we had delivered over 300 million vaccines in over 90 countries. And by the end of this year, we will have delivered over 1 billion vaccines. That's delivering what matters.

Welch: So you come into this legacy company with a great history, and a strong sense of being a delivery company, lot of logistics, the pandemic hits and you decided to change the culture. You feel like that's a necessary thing to do, you know, to basically reinvented a wall it is being reinvented by the outside world. Did you face resistance? And if you did, what did you do about it?

Tome: Well, we had a three-pronged strategic platform: customer first, people-led, innovation driven. But we hadn't set accountability metrics against those three prongs. So as a leadership team, and the first week that I onboarded as CEO, so now June, a year ago, we talked about what we wanted to stand for under each of the three. So customer first – it's about net promoter score, and having a net promoter score of more than 50%. Innovation driven is having increasing rates of return on capital or the capital we deploy. On the people led side, and this is what gets to culture. I said, how do we measure employee satisfaction? And they said well, we take employee surveys and we roll it all up to a likelihood to recommend. And I'm like, okay, what's the likelihood to recommend? And the result was 51%. I'm like 51%? That means that 49% of UPSers wouldn't recommend us as a place to work to their family or friends? Hair on fire. So we got as a leadership team, we said no, that's not who we stand or not who we stand for. We want our likelihood to recommend to be higher than 80%. So we started to look at the underlying root cause of the employee satisfaction. And part of it candidly was, because we are an engineering driven company, we are so method driven, so process driven, that's why we're best in the world at what we do. We weren't actually empowering our people for innovation. In fact, we were very much command and control. We were telling people what to do. Rather than listening to them and responding to their ideas. So we are really working to change that up. We're also working on an environment of bringing one's authentic self to work. And you may say, this sounds sort of symbolic, but it was really meaningful. You know, we did not allow facial hair, we did not allow natural hair. So if you're African American, and you wanted to have an afro or twist or braid, that wasn't permitted. And our tattoo policy was more restrictive than the US Army. So we're like, you know, what, we can still be very professional, we can still wear our brown uniforms. Recently, I was in a brown uniform, delivering packages. We can still be very professional, but we can also bring our authentic self to work. So we've made some changes in that regard, as well. And we're starting to see improvement in our likelihood to recommend. So this is the culture – if you get the hearts and the minds of your people, right, your culture is going to change in the direction that you want it to.

Welch: So interesting. Let me ask you this, since it's all sort of been very inspiring. What is scaring you right now? What keeps you up at night? And actually, as importantly, what do you do about that?

Tome: Yeah, so I recently listened to a great sermon, you know, fear should not be the boss of you. So I'm like, fear cannot be the boss of me. But of course, you know, there are many sleepless nights because our competitors are changing, our customers are changing, and the rate of change is accelerating. So it's like, are we looking around corners? Are we fast enough? Are we leaning into the customer experience that our customers want? You know, we've declared 16 customer journeys to really improve the customer experience end to end, from the shipper all the way to the recipient. We're making some very good progress here. But are we moving fast enough? You know, I'm afraid. I'm afraid of that, that we're not moving fast enough. So we have to continue to just focus on –

Welch: When you have a sleepless night, and you are thinking all of these thoughts, I mean, what do you do the next morning? I'm asking this, you know, for the people listening, okay. Because as a manager, right now, it is to have sleepless nights. What do you do the next morning? Who do you talk to? What's the next step?

Tome: Well, in some ways, I work out the next steps in those sleepless nights, because they're usually nightmares that come then wake me up. And then I think through that nightmare, I'm like, okay, I think this is what we can do. So we all sit on – the executive leaders here at UPS – we all sit on the same floor, and we actually are in the office. We've been in the office, because UPSers are essential. We've been masked and social distanced, but we're here. So it's fantastic. Because you can have these meetings, you can do it via zoom, too. But we are constantly talking. And we'll change direction if we need to. We'll say you know what, we've got to change direction. So at the beginning of this year, we covered 75% of the U.S. population on Saturdays. Weekends are becoming very, very important for delivered packages. So we covered 75% of the U.S. population, we're feeling pretty good about that. Then we saw a competitor, who was covering 90%. We’re like, alright, we got to go to 90%. So we changed course. And we'll be at 90% by October. And we're also increasing our deliveries on Sunday as well. In fact, over the next three years, our weekend delivery volume’s going to increase by 46%. So you've got to be nimble, you got to be agile, you've got to be quick and willing to change. And actually don't let fear be the boss of you.

Welch: And that's a great place to end. Don't let the fear be the boss of you. I will say retirement did not work out for you as you expected and the company will never be the same because of it.

Tome: Well, thank you. It's just an honor privilege to be here. Thank you.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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