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FedEx’s incoming CEO on what it’s like to follow in the footsteps of a legend

May 4, 2022, 9:20 PM UTC

On this week’s episode of Fortune‘s Leadership Next podcast, co-hosts Alan Murray and Ellen McGirt talk with Raj Subramaniam, the incoming CEO of FedEx, about taking over the company from its legendary founder and CEO, Fred Smith. During the interview, they cover company culture, changes spurred by the new way the world operated, and what it’s like to take over from the man who grew FedEx from an idea into the company it is today.

Listen to the episode or read the full transcript below.


Transcript

Alan MurrayLeadership Next is powered by the folks at Deloitte, who, like me, are super focused on how CEOs can lead in the context of disruption and evolving societal expectations. Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray, and I’m here with the best co-host anyone could ever ask for, Ellen McGirt.

Ellen McGirt (00:28): Oh, that makes me feel so good. Thank you, Alan, and thank you, everybody, for tuning in. I’ve got a little cold today. So if I don’t sound like the best co-host in the world, that’s the only reason why. So Alan, here’s something that I bet most of our listeners don’t know: Each year on the Fortune 500, there’s a very elite group. We’re talking 18 to 20 people who are CEO/founders, meaning they started the company they’re running today. But when the newest 500 list is released later this month, there’s going to be a name missing from that elite group.

Murray (00:58): Yeah, there certainly is, and you’re referring to the CEO of FedEx. Fred Smith is one of my favorite Fortune 500 CEOs—or was. He’s been doing this for half a century, and at the end of this month, he’s stepping down, becoming an executive chairman.

McGirt (01:15): Well, he can still be your favorite former CEO. But that brings us to our interview today, the incoming CEO of FedEx, Raj Subramaniam. This is pretty cool. We’re the first major media outlet he’s speaking to. Do I have that right, Alan? That’s my understanding. Yeah. And I have to say, the invite to interview him just showed up on my calendar. Now, how did this happen? How did you work this magic—because I know this is you?

Murray (01:38): I don’t know. We have good relations with FedEx. I’ve interviewed Fred Smith a number of times over the years. I’ll tell you something, though, Ellen. It’s really hard to imagine FedEx without Fred Smith. I mean, he founded, it, he envisioned, it was his idea when he was in school at Yale as a school project. He envisioned the whole thing, really transformed the economy and the world. And I think we saw the full power of that during the pandemic, when FedEx became so central to keeping the economy going and getting critical supplies to people all over the world. So taking Fred Smith out of FedEx is a big, big deal and it’s not an easy position to step into. But I I think from our conversation, Raj Subramaniam has the experience. He knows the company—grew up there he spent his life there, really. Came from India, but was brought into the company and spent his career there.

McGirt (02:37): You know it’s so interesting, and this seems to be—and Alan, I’m going to test your knowledge on this: This seems to be one of the few circumstances where a founder/CEO’s unique personality, which includes some idiosyncrasies, actually improved the company, did not derail it in any meaningful way. So what do you think Raj’s big job is now.?How would you characterize the task that’s in front of him?

Murray (03:02): Well, you’re right. I mean, no one ever questioned Fred Smith’s right to continue running the company. I think job number one, and we saw some of this in the interview is, you know, can he continue the magic? Can he replace a legend? No easy thing to do. I think he’s still being a little reserved on how he’s going to change the company. But remember, this is a company that’s competing with Amazon, as well as UPS. So there’s no doubt in my mind that the company is going to change, and technology is going to be a big part of that. You know, are you going to have self-driving vehicles and also alternative delivery from drones and other new technology? So, he’s got a lot ahead of him.

McGirt (03:42): And this is exactly where we started our conversation with Raj. Let’s take a listen.

Murray (03:49): So Raj, someone once told me that you should pick your predecessor carefully. You are replacing a legend. I mean, he started FedEx in 1973. That was the year I graduated from high school. I think you were probably what, four or five years old?

Raj Subramaniam (04:05): I was seven. Yes.

Murray (04:07): Okay, so how do you replace a legend?

Subramaniam (04:10): Well, obviously, you cannot. And Fred is absolutely a special person. And, you know, one of the great privileges and honors for me over the last several years, and particularly the last three years, has been to work so closely with him. One of the byproducts of the pandemic was the fact that we spent hours and hours together. And it’s not only just CEO school, but leadership school, visionary school, humanity school, history school, whatever you want to call it. Whatever happens going forward, I will never forget, and I will be forever grateful for that opportunity to work with him. I’m also privileged and honored that the succession process over the last many years, and then specifically in the last three, that I’m able to take on this role and take on this opportunity going forward.

McGirt (05:05): Clearly, the job is very different now than it was back in the day, where he was beaming in front of a handful of planes with a big dream of success. Can you talk a little bit about, I know we’ve had the pandemic to deal with too, which nobody really saw coming, but how you prepared for the new version of FedEx that you’re going to be bringing forward, for the last three years? Because, I mean, you were the president in 2019. That was about to be a time of rapid change.

Subramaniam (05:32): Well, you know, so just pick your predecessor, but also pick the timing. 2019 March was when I got appointed to the role. The world was already in flux at that time, but had no idea what was coming in 2020. Right? But we made some very important strategic decisions in 2019 that stood us in great stead in 2020 and beyond. I’ve been thinking about it, and working for a long time about, where the growth is going to come from for industry. And we decided that we had to lean in into the e-commerce side of the equation. We’re already very, very strong in our business-to-business, and that was going to continue to grow at a GDP plus-one … GDP plus two [inaudible]. But, you know, e-commerce was growing very fast, and so we had to lean into that and made some strategic decisions, which paid off quite handsomely when the pandemic hit because, you know, especially as people stayed at home and we became people’s personal supply chains, in addition to the tremendous job that we did on the health care side of the equation. So all of those are great, and I’m working very closely with Fred on the strategy, setting those in place. And you know, as we go forward, again, we have a very strong foundation to build off.

Murray (06:53): Raj you were focused on e-commerce, and that paid off, but you had also made the decision in 2019 to essentially divorce the king of e-commerce, Amazon. Can you talk about how you fared given the split with Amazon through this extraordinary period?

Subramaniam (07:08): Yeah, no, that was a tactical and strategic decision. You know, Amazon is obviously a very well-known company [hard to hear] obviously quite well. However, we couldn’t get to a commercial [hard to hear] to work with them. On a strategic basis what we decided to do was to be on the side of retailers and to make sure that their retail stores as assets. So we had this notion that if we linked strategically their store bays and fulfillment assets with our logistics infrastructure assets that we could provide tremendous value proposition for the end consumer. And precisely that’s what happened.

Subramaniam (07:33): We also didn’t want to be dependent on one large customer. So we want to have a much more diversified customer base. So that was very important to us, small, medium, large and a variety of customers and to enable them to succeed, and do it in a strategic way. And if you think about what’s happened in the e-commerce space, it’s grown tremendously. Amazon being the largest player, of course, is the largest but the rest of the ecosystem is also very large and it’s actually growing fast. When people talk about this tremendous growth that the retailers are seeing, what they don’t see is that as a FedEx [hard to hear]

McGirt (08:26): You mention the healthcare piece. I’m not sure all of our listeners know exactly how monumental that shift was. Could you walk us through that?

Subramaniam (08:35): Yes, of course, you know, as a pandemic began, we were moving PPEs actually to China. And then as it spread around the world, we started moving all kinds of healthcare related materials and equipment to all over the world. And the reason we can do it—and this is the part that people don’t fully understand—is there are only two companies who really have these global networks in place. And what is the network mean? And network is basically saying, taking something from any one part of the world and getting to any other part of the world in a couple of days. That is only possible if you already have these networks and you just can create a network that’s what Fred has done in the history of 50 years to build those physical networks. And that’s the foundation that we as a team leveraged for the healthcare side of the equation. So when the vaccines came, and we had to distribute the vaccines, there are literally two players who could do that: FedEx and UPS. So along with the physical network, we also have technology. This is what we call sensor based technology, but it was on each of those shipments that proactively told us where the packet was, and we managed it with advanced artificial intelligence. And machine learning or FedEx Surround, the combination of our physical and our sensor-based tracking and FedEx Surround, made sure that these vaccines were distributed and they were done with more than 99% accuracy. We’ll be talking about hundreds of millions of vaccines that have been deployed not only in the United States and around the world. So that gives you a  little bit more flavor for what we did in the pandemic and actually continue to do.

Murra  (10:19): Raj, it’s such an amazing story and we’re so grateful for what you were able to accomplish, but it also illustrates something else I mean, FedEx’s history to date has been pretty much synonymous with the history of globalization. And a lot of people today are saying ah, globalization, you know, that may be over. I mean, you look at the war in Ukraine and what’s going on between businesses in the west and Russia. You look at all the supply chain problems that we’re dealing with and everybody thinking about onshoring you look at tensions with China. What’s your view is the era of globalization over? Are you going to have to deal with a dramatically different world than Fred Smith dealt with?

Subramaniam (10:57): So I think if you think about globalization, and you know, one measure of globalization is trade as a percentage of GDP. And you gotta go back and look to history, actually, before the first World War trade as a percentage of GDP was very high. And then it kind of went down and then in the ’70s and ’80s started going back up, and I think about 2010 or so. I feel we have to adapt to nearshoring. That’s I think, people are looking at distributing their supply chain. Some good news about that is doesn’t matter where you’re going to locate your manufacturing, we are there already. The patterns of trade might change, but we are there in every part of the world.

Subramaniam (11:44): The second thing that’s important to note here is that, you know, it doesn’t matter about the politics. People around the world ultimately want to trade and travel. There’s a natural resiliency for people to do that. I think that provides ballast as counter to some of the geopolitical tensions. So I feel like there’s enough opportunity here and maybe the patterns of trade may change to be ready to regionalized, but again, our network is global in nature and we are here there and everywhere. And we’re able to move assets around to accommodate changing patterns.

McGirt (12:24): Building on Alan’s question to in addition to the enormity of the challenge and the success achieved, your network is only as good as the people that are part of it. And I know that last summer you had a labor shortage and we’re short some package handlers. and that was an interruption. It certainly was something that you had to an issue you had to deal with. How do you think about strengthening the human part of your network and making sure that that doesn’t happen again?

Subramaniam (12:49): Well, you’re 100% right about that. We went through a pretty difficult period last summer because we were short of packag handlers. However, by the time the peak season rolled around we had closed that gap. You know, FedEx is founded on people-first principles. That’s core to our culture. From the very founding Fred was very clear about the philosophy. Take care of your people they’ll provide the right service which [builds] profit for the company. That unending circle is still with us today. It will be with us as the foundation of FedEx, and I feel very confident in our culture. So again, with that we had a temporary period of time where we were really understaffed but again, as we got into peak season… [cross-talk]

Murray (13:33): Raj that does get to one of the fundamental operating differences between FedEx and UPS. UPS employs its own delivery drivers and they’re Teamsters. They’re unionized. You use an elaborate system of contractors and they aren’t unionized. During that episode last summer some people were saying, well, that’s why you had problems and UPS didn’t. are you confident that your contract or non union system is the right way for FedEx?

Subramaniam (13:54): FedEx is composed of multiple operating companies, you know, the FedEx Express, FedEx Ground, FedEx Freight, you know, we have FedEx Office, FedEx Logistics, FedEx Dataworks, and then the FedEx services company which provides all the customer facing activities. So it’s the FedEx Ground company that you’re talking about. We feel that it’s the right model, especially as we go into e-commerce that provides us the flexibility to tackle that market. I feel like that we have to take that up front while the step change can probably come in for  competition later in the day.

Murray (14:43): Because for the competition that comes in when they negotiate a new contract with the Teamsters. Yours is more market based.

Subramaniam (14:50): We to be able to adapt to those increases already in our numbers.

McGirt  (14:54): So as part of your job, you now own the future of FedEx. I want to dig into that a little bit. I know there’s bots coming. Autonomous, self driving cars coming. Can you tell us how [cross-talk]? The drones the bots. My Lord, this is the future tell us about it.

Subramaniam (15:13): Well I think the way I’m approaching it as simple as ABC. “A” is for atoms. It’s the physical networks, the foundation that we have built for, you know, building networks is hard and Fred’s done a remarkable job of starting this company as a team to build these enormous physical networks that’s irreplicable. It’s very difficult to replace, build something that [FedEx already has]. The “B” is the bits, the technology play. 20 million packages per day. Each of them scanned 25 times.

Subramaniam (15:57): So we are sitting on mountains and mountains of data but more importantly insights about the global supply chain. When you see that truck driving down the street, you see the truck, the physical truck, but there’s logistics intelligence in the truck. So in this age, when people are talking about supply chains with different portions of supply chains, our mission would be to make our customer supply chain smarter using technology. So bits and bytes, the “B” part of it plays a big role. Along with that, of course we have autonomous vehicles, looking at potentially robotics and all these autonomous vehicles to be all the way from the air to the ground here. So we have to look behind me to see the Abbey Road [hard to hear–popping]. Also the last mile delivery of income. And then that’s the “B” part of the strategy. The “C” is the carbon efficiency. So you know, we announced ambitious goals of being carbon neutral by 2040. And so the A+B+C is really where we are at.

Murray (17:03): Raj this is a podcast and so our listeners can’t see but is that literally Abbey Road.

Subramaniam (17:09): It’s not but it is what it is, it looks like Abbey Road but it is FedEx Roxo. sIf you just Google up FedEx Roxo so you will know what I’m talking about.

Murray (17:19): That’s your robot delivery.

Subramaniam (17:21): That is the last mile.

Murray (17:24): I met one of those in Florida a couple. It’s very charming, very charming.

[Music]

Murray (17:34): I’m here with Joe Ucuzoglu, the CEO of Deloitte US and the sponsor of this podcast for all three of its seasons. Thank you for that.

Joe Ucuzoglu (17:40): So pleasure to be here, Alan.

Murray (17:42): Joe, business is facing so many challenges these days: the continued pandemic, the battle for talent supply chain problems, rising inflation, and now on top of all of that, war in Europe. How are companies responding to all this disruption?

Ucuzoglu (17:58): Alan, you’re seeing a remarkable level of optimism in the face of so many varied challenges. And by and large, I attribute that to a recognition that this is just the new normal, the constant curveballs that will be thrown at us. But at the same time, given how successfully so many of these organizations have made it through these things over the past couple of years, a growing confidence that we’ll be able to continue to navigate the issues that get thrown at us and grow our businesses. But to do that, we are absolutely seeing a new brand of leadership emerge grounded in resilience, in agility, In a learning mindset. These are the most important leadership attributes in an environment where we should just expect that change and disruption are going to be at a consistently high level of intensity.

Murray (18:48): The problems aren’t going away, Joe, right?

Ucuzoglu (18:51): I had a CEO said to me recently that if you put a list of the top 20 risks one week, something big is going to hit the next week, and it probably isn’t even on that list. And that’s just a reflection of the number of different phenomena in the world right now and the level of complexity that businesses are managing through

Murray (19:11): Joe, thank you.

Ucuzoglu (19:12): Alan, It’s a real pleasure.

Murray (19:18): We’ve been talking about the FedEx story. I want to talk about your personal story because it’s an incredible story. You were born in India, you were educated in India. Talk about how you ended up at FedEx.

Subramaniam (19:30): You know, the actual story about how I got into FedEx is kind of an interesting one because, you know, I finished my business school MBA in Austin, Texas. This was the height of the recession in 1991. And I did pretty well in school and you know, I got interviews for several companies second interviews, but the minute that people realized that I didn’t have a green card, it stopped. The whole process stopped. So here it was in August. I’m already graduated three months ago, and I had no job and I was walking into my apartment one day. I see my friend on the phone and he was talking to FedEx as I found out later. It was FedEx and they were coming to campus and wanted to interview my roommate but he had already decided to leave. So I immediately said “give me the number. Let me call.” So I called over and I said “you just talked to my roommate. He is leaving but I’m still here and I can send you my resume.” So they said “fax me your resume.” So I did I faxed the resume. They said okay. But by that time my euphoria come down way back down again because of several failed attempts. So I walk into the room and I didn’t say good morning and say hello. I just said “I don’t have a green card. If that’s going to be a problem, then I don’t want to waste your time and my time.” To which those two very nice gentlemen who have come to campus from FedEx and looked at me and said something like “First let’s find out what it takes to do the the job at FedEx, and then worry about the paperwork.” The rest is history, so to speak. So that’s how that started. I tell you, you know, someone had told me then that in 30 years that this is the job I would be doing. I thought I had a better chance to play for the Memphis Grizzlies. So this is a truly American story.

Murray (21:23): So Raj, I understand you played a role in helping to deal with the COVID crisis in India.

Subramaniam (21:29): Yeah, no, it was a year ago, to be honest and the COVID cases started rising dramatically, very, very quickly. And the need of the hour was oxygen. So over a weekend, to be honest, and I was talking to some of the other CEOs and then we decided to convene a group and on Sunday, it was a Zoom call, it was amazing how many of the Fortune 50 CEOs showed up on the call. And it was very clear at that point that we needed to prioritize what was required, and then we had to find a delivery mechanism to get it there. Then again, the same group convened again on the next day, and we have some other folks on U.S. government as well on that call. And so it was very quickly mobilized and so again, I said the need of the hour was oxygen and oxygen concentrators. So again, this is about the power of the network. So we had to find oxygen concentrators all around the world and get it India. We fly 40 flights a week to India on a regular basis. So that became the mechanism to get these oxygen concentrators to India. So we moved thousands and thousands and thousandsof oxygen concentrators then we donated many flights on top of those regularly scheduled flights, and it was needed that hour and we were happy to be able to step up and do that.

Murray (22:54): Raj, I have one more question for you that I know our listeners will care about. And then Ellen has a lightning round of questions that she’ll take you through you need to prepare yourself. But you are a supply chain expert and a year ago that would have been a reason for everybody to move to the other side of the cocktail party. It’s like it was nobody ever wanted to talk about supply chains, the ultimate in boring topics and…

Subramaniam (23:21): …talk shows these days.

Murray (23:22): Yes today it is the hot topic that’s driving the inflation that everybody’s dealing with. So tell us how long is it going to take us to get back to supply chain boring normality?

Subramaniam (23:34): Well, I’ll tell you what I’m talking about supply chains that at least two things that sometimes get conflated. One is you know, what was classically this bullwhip effect of supply chains that is, you know, originally when the demand started to fall, so production went away and specifically on semiconductors and chips and so on and so forth. But then the demand rose much higher than what people ever thought is going to be and that’s never caught up. And so that kind of shortage, we are, you know, 12 to 24 months before being totally squared away on that as you know, the demand, you know, maybe when the demand moderates a little bit it’s got a chance to catch up somewhat. But that’s the first thing.

Subramaniam (24:14): The second was what happened at the port in Los Angeles from the vessel operator to the terminal operators to the trucking to the warehousing is the first 20 30 miles from the coast. There are several players that play when in regular times, they kind of work seamlessly. But when things got bottled up here, then the information flow was not as good and then were a shortage of workers in different parts of that chain. There was a logjam and you can see those ships lined up to dock at the port.

Now, the good news was after those 20 miles, inland systems were actually working pretty fine, you know, so FedEx and UPS and others did a very good job of moving things into the country and distributing to the end retailer or to the end consumer. So now, you can see that that situation is getting better. And I think that’s probably going to get over sooner. But I have to give one caveat to this: Is that what is going on in Shanghai in on the port of origin side? We have to watch that carefully.

Murray (25:23): Yeah, the COVID locked down and the effect that has on factories and shipping and transportation and everything.

Murray (25:29): I’m particularly talking about the ships.

McGirt (25:33): Here’s the lightning round. Really simple. This season. We’ve been asking our guests three quick answers to three important questions, but what’s top of mind for them. The first question is what’s top of mind for you as you think about COVID?

Subramaniam (25:46): Well top of my mind is get it behind us. And we’ll do everything in our power to get it behind us. And that’s the hope and prayer.

McGirt (25:56): Top of mind for you when it comes to the economy.

Subramaniam (25:58): Well right now, obviously the inflationary environment is concerning. And so how the governments deal with inflation and what that does to the resulting economy is something that we have to carefully monitor.

McGirt (26:13): This is a wonderful one as you embark on the next step in your career: is what’s top of mind for you as you think about your development as a leader?

Subramaniam (26:22): Yeah, for me, this is, as I go forward, I’m looking to leverage the core strengths of FedEx, but then expand upon it in ways, unlock value using our networks and our technology. So again, that’s that’s going to be you know, a transition for FedEx and I’m looking forward to driving that change.

Murray (26:44): Well, good luck to you, Subramaniam. You know, on average, the CEO of FedEx stays in that job for 50 years. So we wish you the best of luck for a great half century.

Subramaniam (26:57): Fantastic. Fantastic. Thank you so much. Thank you, Alan. Thank you, Ellen.

Alan MurrayLeadership Next is edited by Nicole Vergalla, written by me, Alan Murray, along with my amazing colleagues, Ellen McGirt and Megan Arnold. Our theme is by Jason Snell. Executive producers are Mason Cohn and Megan Arnold. Leadership Next is a production of Fortune MediaLeadership Next episodes are produced by Fortune‘s editorial team.

The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.

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