UPS CEO Carol Tomé on People-First Leadership and the Future of Logistics

0:00I think 10 years ago, a lot of us thought supply chain was about the most boring topic in business. And I know for a fact there were CEOs who didn't know who their own top supply chain officer was. But obviously, in recent years, supply chain has become cool. And we have the coolest of the cool with us here this afternoon. We've got the CEO of UPS, Carol Tomé, had an exciting six years. Come on up. Let's talk about it. This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington.

0:41Listen at schwab.com slash Washington Wise. You were happily, I think, happily retired. I was happily retired. Sitting on the board of UPS. Yes. Six years ago. Yeah. Why did you do it? Well, you know, I had the incredible pleasure of working for Home Depot for most of my career. And after that, I did retire, went out to my farm and started a family foundation with my husband and was on a couple of boards. So I thought life was good. But UPS, when they were going through succession planning, put together the skills and the attributes of the CEO of the future. And when they took those skills and attributes and matched them up against the existing leadership team, They said, well, this team is awesome, but they're not quite ready.

1:30And so the board decided to go to the outside. And when they made that decision, they came to me and they said, well, Carol, we think you have those skills and attributes. And I'm like, really? So I'm like, okay, well, if you do, let me reflect on why I might throw my hat in the ring. Because they were doing a search. I'm like, well, first of all, I'm a values-based person and my values are aligned with UPS, so check. Second, you know, I know what happens when succession planning doesn't go well. And I love to develop people. And if I got into the company, I think I could develop the next CEO of the future.

2:06So check. And then I like to create value. And I thought if I got in there, I could turn the dials and figure out how to create some value. So check. And then I went to my husband, Alan. We've been married now over 42 years. And he's fully retired. I'm like, Ramon, what do you think? He said, would you please go back to work? You are driving me crazy. So check. And never did I imagine actually it was going to happen. And did you have, how long had you been on the board at that point? I went on the board in 2003. Right after, you know, there was a change in requirements where boards needed to have financial experts on their boards.

2:44Yeah. Yeah. So did you so having been on the board all that time, did you have a pretty clear theory of the case? Did you go in knowing this is what I need to do? Or did you go in and kind of like Mike Tyson, when the first punch hit you, your plans went out the window? So I had some big learnings, actually. What I learned is that management was telling us what they wanted us to hear. They were showing us buildings that they wanted us to see. and when I got inside I'm like oh there's some things that are very different for example I onboarded in March of 20 so you know what was happening then the world was shutting down and we were essential workers and we couldn't shut down so we didn't have the personal protective gear for our employees all we could tell them to do was wash their hands and I had pictures come in from buildings with sinks hanging off the wall, like how am I supposed to wash my hand?

3:44What's up with this? I'd only been in the bright, shiny building, bright, shiny new buildings. I hadn't been in the old, tired buildings. And we have lots of buildings that are over 50 years old. So it was a big learning for me and launched what we still have today, which is programmatic maintenance for all of our buildings. Because I'm like, absolutely, we've got to have sinks working, break rooms updated, so on and so forth. So that was a big learning. The other big learning was customer profitability. I used to ask questions about customer profitability because I didn't really understand it.

4:13And what I was told, it's a smart global integrated network. It's too hard to calculate customer profitability. And I'm like, really? I think we can do that. So when I got inside, I saw customer profitability. I said, oh, we've got some opportunities here on the customer profitability. They didn't have a clear sense. They didn't have a clear sense. Okay, I want to come back to that because that's been central to your strategy. It has been central. But before I do that, I also want to talk about the people piece. And let me say before I ask you this question, you come from a CFO background. Yeah.

4:45But you are extraordinarily committed, based on everything I've heard and been told, to a people-first management structure. Without a doubt. Without a doubt, yeah. And my understanding is you're kind of surprised by the people policies. Well, very surprised by the people policies. Very surprised by the people's policies. So, gosh, if you were African-American, you couldn't have natural hair. If you were male, you could not have facial hair. And our tattoo policy was more restrictive than the U.S. Army. And I'm a big believer in letting people bring their real, genuine, authentic self to work.

5:20Of course, we need to be professional. Of course, we must be professional. But, you know, bring your real, genuine, authentic self to work makes a happier place. I also looked at just how happy UPSers were. And we do a culture survey every year. And we measure happiness along a number of factors. And it all rolls up into a likelihood to recommend. And when I saw the likelihood to recommend number, I was really quite shocked. Because it was only 51%. Which meant that 49 % of the respondents would not recommend us as a place to work. But these are great jobs, right? I'm like, what is up with that?

5:55So we put together action plans. We changed our appearance policies, and we put together action plans to actually really do a few things. Most of the decisions were coming up. They were coming up to the top, and many of them being made by the CEO. I'm like, no, no, no, we're going to push the decision-making closer to the customer. And we did a number of other things, Alan, and I'm pleased to tell you that our likelihood to recommend is now 61%. And in our industry, in transportation, that's best in class. But I'll tell you one of the things that shocks me about that story. We've got a number of members of our board of directors council in here.

6:31You were on the board for all of those years, and you didn't know that the likelihood to recommend score was 51 percent. Were they not telling you about? This was not talked about. This was not talked about. Again, things that were talked about were about growing and investing and other things. But I'm a big believer of the people. I think everything rests on their happiness. Yeah, I don't want to get too much of a detour here, but we are at our board of directors meeting in November. We are going to talk about what are the policies that boards have? What does the board of the future need to look like?

7:09And one of the issues that a number of our members have raised is we spend all this time auditing the financials. You know, we have like Deloitte or PwC or somebody who comes in and we spend, you know, we have the audit committee. We spend tons of time on the financials. Yet the CEO tells us that people are his most important asset, and we don't have anywhere near the same kind of review of the people. It's so important, and so I've changed all of that. We now – we even changed one of the committees of our board. It was the comp committee. It's now the Human Capital Committee, and yes, they talk about comp, but we talk about people in every board setting.

7:49And it's about walking the talk. So, you know, when I worked for Home Depot, I would put on an apron and work in the stores because I really wanted to understand what that experience was like. So when I got into UPS, I put on my Browns and I went on delivered packages. And then I'm like, you know, those 18 wheelers, those big feeder trucks that travel the highway, you know, they come into our hubs. And I'm like, you know what? I'm going to see what it's like to unload one of those trailers. And I'm going to load one because loading one, he's got to build a really tight wall to make sure that the packages don't fall over.

8:16Well, I did. It is hard work. And guess what happened to me? Because I have a unique workforce, a majority of 460 ,000 people. The majority of the workforce are employed under some sort of a collective bargaining agreement. So I'm building my wall, and I'm feeling pretty happy about that. But I was touching a package, and I am management, and I'm touching a package. So I had a grievance filed against me. I did. For moving a package. For moving a package, yeah. But we got that taken care of. Because I'm like, no, really, if you let me into your space, I will find ways to make it better for you.

8:49Yeah. Yeah. Wow. I want to come back. There's so much to talk about. But but you you talked about customer profitability. So you as I understand it, you go in, you see the customer profitability numbers and you and you then formulated a strategy, which is I'm going to make this company better, better, but not bigger. We don't hear that very often from CEOs. Big is an aspiration. How hard was it to come to that conclusion? Well, you were basically firing some of your customers. Yeah. So we sold several businesses that were either not making money or were capital intensive with very low margins.

9:30And then we looked at the package business, the small package business and said, wow, that old myth that all packages are created equal and volume solves all problems is really not true. And our largest customer is a customer you all know. They're headquartered in Seattle and probably all are members of their Prime program. But you're not going to use the name? Well, I will happily move it because it's all public. So, you know, Amazon made up at one point over 13 % of our revenue. And yet we were not making money on that revenue. Nothing. Nothing. So I'm like, all right, this is not nutritive for us.

10:03How can we continue to grow and put resources against this relationship? We've got to reconfigure that relationship. So 18 months ago, we launched a pretty big transformation of our company, which was to take their volume, got it, and glide it down by half. That's a hard thing to do. It was hard for them, too, because they had been relying on us for this service. But we reached agreement together on the packages that made sense for our network, like returns, and the packages made sense for their network. And we got it done. In 18 months, we took that volume down by 50%. We had to close buildings.

10:42Our workforce is smaller. But guess what happened, Alan? In the second quarter of this year, we returned to revenue, profit, and operating margin growth. Good for you. But I'm curious how much pushback you faced before you got there. Oh. From your board, from your investors. So it took about a year to get the board, bring the board along with me. Yeah. Because this is a big deal. This is a very big, scary deal. It took about a year to get the board. And from an investor perspective, massive amount of blowback. Just a massive amount of blowback. But you know what? I'm like, you've got to play the long game here.

11:19Because if you're not playing the long game, you're playing quarter by quarter. And that's not going to work for us. It's just not going to work for us. So now we're through that. As you said, the other thing you had to do was bring down the workforce. We did. Tens of thousands. We did. Still are. We are. Yeah. Now, and we just talked about you being a people first leader. How does that work? So it's about understanding that shrinking is important to reset the company so that you can return to growth. And for everyone who's left, it's investing in them in a meaningful way. and for the people that left treating them with the utmost grace and dignity and in some cases money.

12:06So in our U.S. business, in our unionized workforce, you really can't fire anyone unless the behavior is egregious. You can lay them off, but then they continue to earn their benefits. So to actually get the cost out of the network, they must leave. We had too many drivers in our business because of this change. So we're like, okay, how can we help them leave? How can we help them leave? So we offer them each$150 ,000. And you can appreciate it was way oversubscribed. So we were able to reach the number. And they were not angry. They were happy. Now, leadership was not so happy. But the people who were impacted, the people of the company were very happy.

12:51It allowed them to go on. Some went back to school. Some retired. Some started their own business. It was just what they needed to move on. The theme of our conversations these three days has been resilience. Yes. You've heard some of that earlier. It's an important theme. Well, you took this job at the very beginning of the pandemic. Yeah. You've been through, you had major union negotiations, almost a strike. They voted for a strike. Well, which is oftentimes the case in a negotiation. Oh, it's a tactic. It is a tactic. But it was loud and it was late. And we ended up seeing some volume divert because our customers were worried about a work stoppage.

13:33So, gosh, you know, as I reflect back, Alan, resilience is so important. It's almost table stakes, I think, for all of us as companies. Because, you know, who would have thought, you know, when I joined the company now almost seven years ago, that you would have the global pandemic. Two wars, two wars. And we operate in over 200 countries and territories around the world. So those wars have impacted us. You know, when Russia invaded Ukraine, I'm like, oh, no, what are we going to do now? So we ended up leaving Russia, Ukraine and Belarus. And yet we paid our people a year after that happened because we wind up.

14:05It wasn't their fault. So we're like we had no business, but we continued to pay them because it wasn't their fault. So we had two wars, high inflation, the largest labor contract in the history of the United States. Point of pride. Absolutely. You know, the most significant change in trade policy in the United States of America in nearly 100 years, which certainly impacted our business. And then tragically, tragically, almost a year ago, you know, we have one of the largest airlines in the world. Almost a year ago, we lost a plane. We had a terrible accident. And three of our pilots were killed, as well as 12 people on the ground.

14:47Of everything we've gone through. That one was the worst. But I'll tell you about resilience. Yeah. I'll tell you about resiliency. So with all of that, how do you think about resilience? So first of all, just on that terrible accident, horrific accident, we were trained for it. And it wasn't just building scenarios. It was trained for it. A month before that accident occurred, we had run it out as if it had. And so while the UPSers, this is in Louisville, Kentucky, which is our main air hub. Well, the UPSers were mourning the loss of their friends and family and just the impact on the community.

15:23They stepped into action immediately. They knew what they did, what they were trained to do. They were resilient. We stepped back and looked at the aircraft that crashed, which was an MD-11, and we're like, I don't know. We don't know what the cost of the crash is. It wasn't pilot error, but we don't know what the cost of the crash is. So we're going to sit down all of our MD-11s. And because of our strength of who we are as a company, we were able to secure all the airplane leases necessary to serve peak, which is the holiday selling season in December. We have trained for this. It's in our DNA.

16:01Is it scenario, constant scenario planning? But it's actually doing it. So when those folks in Louisville trained, they were in the field as if the crash had happened. There wasn't one, but they were ready for it. We don't really build plans anymore. We do build scenarios. And we have built, I know agility is hard, especially when your company like ours scales a blessing and a curse. Agility is hard. But I will tell you, we have brought a ton of agility into our network. We now use digital twins for supply chains so that we can move on a dime if we have to move on a dime to make sure that we're taking care of our customers and meeting them where they need to be.

16:44This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen at schwab.com slash Washington Wise. Good to be. We talked about the businesses you don't want. Yeah. Goodbye, Amazon. Some of Amazon's business is great. But talk about the business you do want, the parts you want to grow, where you think UPS's future is.

17:25Well, I was thinking about John's response to what is he hopeful for or why is he optimistic? And I'm like, health care. We have leaned into complex health care logistics in a meaningful way, and we are the number one player in this space. We've invested in cold chain capabilities. This is not a package. It is a patient. And the growth is explosive. If you think about radiopharmaceuticals, biopharmaceuticals, GLP-1, it's so exciting to think what we can do in this space. And it's just getting started. It's just getting started. How does drone, I know at one point you were experimenting with drone delivery to make sure you could get medical supplies in time.

18:06So during the COVID pandemic, we were the first carrier to deliver COVID-19 vaccines, and they needed cold chain. So we manufactured our own dry ice, and we got those vaccines to deliver the first year, building vaccines with 99.9 % efficiency. That was the commercial business, but we also know there were parts of the world that needed the vaccines that really couldn't pay for them. So through a philanthropic effort, we used drones to deliver vaccines in Rwanda, as an example. And we did that just through our UPS Foundation. Drones themselves are really interesting. They're getting a lot of coverage, aren't they, today?

18:45We actually were the first company to receive authorization from the FAA for a drone airline. We have it, UPS Flight Forward. The commercial applications are very good, candidly. Because if the weather is, you know, if you want to deliver on time and you've got bad weather, how do you deliver on time? Now, if you're having fun with it, sure. But for us, delivery on time is what differentiates us from everybody else. So we'll continue to stay on the fringes, but don't expect any big announcement from us in the near term. Yeah. So let's talk a little more about you. You're part of a very elite club.

19:21Okay. I'm from Wyoming. No. Well, that. No, women who run Fortune 500 companies. It's a pretty small number. It's 10%. Where did you learn leadership and the leadership skills that enabled you to get to this point? Well, I had many, many mentors over the year. In fact, I just had lunch with one today who's Ken Langone, one of the founders of Home Depot. and I learned so many incredible leadership lessons from the founders of that company, Ken, Bernie Marcus, and Arthur Blank. They created what they call the inverted pyramid of leadership where typical pyramids have the CEO at the top and all the people who do all the work who matter are at the bottom.

20:07They flipped it around so the CEO and the leadership team are at the bottom of the pyramid, at the bottom of the pyramid to bear the weight for the decisions they make, for the actions that they take. You bear that weight so you can actually free up your people to take care of their customers. And that was such a just really just burnt into my brain the power of that inverted leadership pyramid. And so I've tried to practice that all my life. I'm also very much a believer in purpose. And I think if you live your purpose, you can actually lead. And it starts with being real genuine and authentic, knowing you, who you are as a person, and letting everyone else know that.

20:46And I think you and I had an opportunity to talk about purpose a little bit. Our company purpose is moving our world forward by delivering what matters. And I love that because it's not just about moving goods. It's about doing good, too. But my personal purpose is lead to inspire, serve to create, give to remain. And as I think about that personal purpose, it really influences leadership. And what I really understand, and this goes back many years ago now, way before Home Depot, when I first became a leader. I was really a deal person. I was a deal person. I loved to do deals. I didn't want to leave people.

21:21And I had a woman on my team who really needed coaching. She really, really needed coaching. I'm like, ah, I don't want to deal with this. I do not want to deal with this. And finally, it was performance review time. I had to give her her performance review. So I gave it to her over the phone. And you know what she did? She quit. She quit. And when she quit, I'm like, oh, she quit me. She didn't quit the company. She quit me. So if I'm going to actually be in a leader role, I better understand that this is not about me anymore, Carol Deal Queen. It's not about you anymore. It's about the people that you serve.

21:57That was really, really transformative for me because I pledged on that day, and this is back in 1988. I pledged on that day that no one would ever quit me. If they left, they were leaving because they got promoted, it was time to retire, or there was a performance review. You didn't do performance reviews over the phone. Ever. And truthfully, I've never had anyone quit me since that point. Ever. Good for you. Good for you. But how did somebody who's such a people person end up a chief financial officer? That goes against stereotypes. Square those. Well, okay. I can be a bit of a hard ass, too.

22:33Come on. I mean, I love people, but I also like to make money. So, and, you know, I'm the daughter of a banker. My dad was a community banker. And I got the privilege of working for my father every summer when I was growing up all through college. In fact, I thought that's what I was going to do. And trust me, I grew up in Jackson Hole, Wyoming. It's a beautiful place. I thought that's where I was going to be, was a banker. A banker in Jackson Hole. Yeah, that would have been pretty. You need to be a banker in Jackson Hole. Anymore you do, for sure. That's the truth. But, you know, my dad called me up and said, Carol, you know, divorce from your mom.

23:08I'm selling the bank. And I'm like, okie dokie. You know, I'm going to go on and do something else. And how did you end up at Home Depot? Yeah. So back in 1992, I was working for a paper and packaging company headquartered in Denver, Colorado. A company called, at that time, Riverwood International. It was part of the John's Manville Corporation. I had joined John's Manville, the largest manufacturer of asbestos, to help them come out of Chapter 11. So anyway, the paper and packaging company was making a big acquisition. They said, we're going to fund this through an IPO. So I was on the IPO team.

23:41Took that company public in 92, and they were headquartered in Atlanta. So I got to Atlanta in 92. Had never heard of the Home Depot, never seen a Home Depot. So, and I'm in Georgia by myself because my husband had not yet moved. And so I would drive around getting to know my city, my new city. And I saw one day this store with this orange awning and a whole bunch of cars in the parking lot. And I'm like, ha, I like to shop. I'm going there. So I went in the store. I shopped that store for about an hour. I'm like, this place is cool. I called my husband Ramon that night. I'm like, I don't know anything about this company, but let's buy stock, which we did do.

24:19And then they came a call and said, hey, do you want to come work for us? I'm like, yeah, of course I do. So, yeah. Wow. So what do you want your legacy to be when you leave Home Depot? I'm sorry, not Home Depot, UPS.

24:35So that as a team, we really did lead with people. We really did put customers first. and we were the most innovative provider of logistic solutions in the world. Yeah. And, well, let me open it up for questions because I know there are people here who would like to have a chance to ask you questions. I have a bunch more, but, yeah, please identify yourself for Carol so she knows. Sure. Hi, this is Aminu with Philip Morris. Hi. And as an HR professional, I must personally thank you for being such a people person. We need more people like you in HR, probably not in finance. Having said that, your experience with the aircraft crash reminds me, and your resilience reminds me of Rocky Balboa's line.

25:26It's not about how hard you can hit. It's about how hard you can get hit and still keep moving forward. So I'm glad you were able to keep moving forward and you were trained to do that. So kudos to you guys. But having said that, you also mentioned about using drones for deliveries and you being a people person. And looking at the future, there's more and more robotics, more and more drones coming into the picture. How do you think you, as a CEO of UPS, and UPS as an organization whose ultimate objective is to make profits, how would you balance that out in the future? Yeah. So this is how we think about technology broadly and how committed we are to helping people reach their highest potential, whatever it may be.

26:14And just to put that comment into perspective, over the past eight years, we have promoted 90 ,000 part-time workers into full-time jobs. And 13 ,000 of those occurred over the past two years as we were gliding down. So we are very much about investing in people and helping them reach their highest potential, whatever it may be. And it's going to be different for all of us. Promote from within is really important. So from our management staffing, we've had nearly 2 ,000 promotions this year. Over 70 % of those came from within. So we are really laser focused on talent development and promoting from within.

26:55Now, from a technology perspective, think about it in two caps. First are the buildings that we operate. Inside of the buildings, we're going to continue to put automation inside of those buildings. Now, the jobs inside of those buildings tend to be part-time jobs, oftentimes students who are in school. So as the technology rolls out into these buildings, and it will, there will be turnover and those jobs will not be backfilled. From a knowledge worker perspective, the way we think about technology is this, and we're a big, big user of AI, as you can appreciate. In fact, that's how we route our network every day around the world.

27:40What the AI is going to enable us to do is to get rid of the toll work. We have people who pull reports at 3 in the morning. Imagine work like auditing fuel logs. That work is going to go away. The toll work will go away. But that's going to give people time to work on creativity and innovation. And oh, by the way, it's going to give people time back in their lives. I have some people who work six days a week. No, I want to give you time back in your life. We can remain the most productive nation in the country if we think about this the right way. We drive innovation and creativity and let the toll work go away.

28:23I don't see that the group is going to double in size, but neither do I think it's going to shrink. I think it's going to be the best place to be at the best time ever. Because the work is going to be a lot more fun and interesting and customer focused and creating solutions. I couldn't be more optimistic, actually. Very inspiring. Somebody have a last question here? Yeah, please. Yeah. Hi, Lori Marcus. So question about something you said before. And you were talking about, I serve on corporate boards after a long career in corporate America. And you were talking about how you served on the board.

29:00And there were a lot of things that you didn't know. You talked about like the people surveys, the likelihood to recommend. You talked about which buildings you would go into. And I think all of us who serve on boards know what it was like when we used to pitch our boards on things. And you're conscious when you're on the other side of the table that you're not getting the full story. I would love to hear from you a couple of other examples of things that when you became the CEO, you realized. And then how you changed overall, how you conduct board meetings, what you share. I wonder if I didn't have a bit of an advantage.

29:34because I was a member of the board and the people who put me in the role had been my peers. And so when I went in to be the CEO, I had a relationship with them as a peer. And I'm like, I'm going to tell you how I see it. I'm not going to bring you a problem. I'm not going to bring you a problem, but I'm going to tell you how I see it. And I do. I tell them how I see it. And I think because of that peer relationship, it helped. I really do. If you've got a young, new CEO who's not certain of that relationship with the board. Maybe it's not as easy to be transparent, but then it's incumbent upon the board to make sure that you're getting the answers to your questions and you are thinking through all the various aspects of the company to ask the right questions.

30:16And if you're not getting the right answer, then that's a problem, right? That's a problem. The other thing I did is each member of my executive leadership team meets with a director every quarter. And they will bring along some of their top talent for those meetings. I never look at the materials. I have no idea what they tell them. I have no idea. Because I wanted to create that sense of trust. I trust them. I trust what they tell the board. I trust the board to have a good relationship. And if there's something they need to share back with me, they can. I'm not sure that's very common. I think it's very rare, actually.

30:53I think it's very rare, but how empowering it has been for the team. And so perhaps that's another reason why the agility has come into our company, because we trust each other. Carol, it's so clear you love what you're doing. I'm curious, if you hadn't taken this job six years ago, what do you think you'd be doing? Oh, you know what I really wanted to do before I did this? I really wanted to go into politics. Oh, well, we'll get behind that. No, no, no, no, no, no, no. No, that ship has sailed. No, no, it hasn't sailed at all. You're still young in the political world. You've got a long roadway ahead of me.

31:31True that. Carol, thank you so much. Fascinating conversation. Pleasure. Thank you, everybody. Thank you. Thank you. Thank you. Today's episode was produced by Kevin Burke, Michael Claudio, and Lulu Chang. It was edited by Nicole Zarrilla, and my executive producer is Lulu Chang.

31:52This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen at schwab.com slash Washington Wise.