Name: FedEx's New CEO: 'We have significant upside and great potential'
Uploaded: 2022-07-21
Duration: 12 min 55 s
Description: Raj Subramaniam says that working with FedEx Founder Fred Smith is 'one of the greatest things that happened to me'

Raj Subramaniam says that working with FedEx Founder Fred Smith is "one of the greatest things that happened to me"

FedEx's New CEO: "We have significant upside and great potential"

Leadership

FedEx CEO: "We have significant upside and great potential"

thank you so much for joining us to talk about Fedex, it's almost two months now since you became Ceo. And already you're unveiling your plans to, to grow the company. In fact, you met with a large investor group recently and the first thing you told them, We are at a pivotal moment in our 50 year history. What's the message you want to get across to everyone as the new ceo? That's indeed exactly right. We have a built a very strong foundation over the last 50 years. Building networks is not easy at all and it takes a lot of time and patience to build these networks. And so now we are at a pivotal point where we can build on that foundation and create more value for all our stakeholders. The second part of the story is the fact that we have such a strong physical network, but it's also got a strong underpinning of digital network and going forward, we're going to create value not only from the physical aspects of our network, We're also on the digital aspects of our network. We're here to create the legacy of the next 25 years. And with that as the backdrop, you laid out your plan for 20, and what's going to happen over the next three years. And you told everyone that earnings are going to grow as much as 19% a year. Uh you're expecting double-digit operating margins and an adjusted dividend payout ratio of at least 25%. Sounds like you are setting a very high bar for yourself roger, we are in the middle of a fast growing aecom Merce market, we have a strong portfolio and uh, and then in the fact that we find ourselves in the center of the e commerce ecosystem there. In fact critical infrastructure for e commerce. So the question is, how do we balance our growth going forward? How do we improve our operating margins of our individual operating companies and then deliver the returns that that we talked about? We believe we have significant upside and great potential for Fedex going forward. Some people were kind of surprised that you took such a bold action so early in your tenure. Um, as Ceo, did you feel that you needed to be bold right away because of all the pressure that Fedex has been getting from the activist group D. E shaw and your agreement with them to add three new board members directors to the Fed export. Did you feel a sense of urgency that you have to show that as the new boss, you're really doing things to make a strong, even stronger company? Uh, the short answer that when, that's not that that's not, that was not the motivation. In fact, we've been planning for this event for almost a year and that these plans are already in place over the last several months, well before any conversation that we had with the show the message that I'm trying to get across here is that the networks that we have taken time to build over this time is very valuable. And you know, it's really that pivot that we're now doing is to make sure that we create value from the networks. What will it take for Fedex to reach your goals? I mean, what are the key things that the company needs to be doing? But it's not doing right now? It's about execution now. And um, and the fact that we have to make sure that we have a balanced growth in our portfolio. The fact that each of our operating companies have to improve their efficiency in their operations using technology and driving the operating margins. And you know, we also be very disciplined in the way we, you know, spend our capital and improve our return on invested capital when you put those three things together, it drives significant value uh, to to all our shareholders. You told investors that you don't think a recession would weigh down all the plans that you have talk us through that. Because just about every economist we talked to these days is warning about a long recession to be very clear. That's not exactly what I said. I said, what I said was what our plans did not assume a deep and prolonged recession. And if we have a deep and prolonged recession, then it's a different matter altogether. We are, you know, we have weathered different storms before and we are able to flex our networks and we are able to manage through this time period usually. So I'm not, you know, any particular quarter or any particular six month period, we're talking about three year time period where the economy might go down but also might come back up and so there are opportunities that you know, again, I don't manage this company for any particular quarter as much as I manage it for a period of time and this is this is a three year goal I'm very confident of. What about some of the other pain points to what extent are you factoring in a continuation of supply chain disruptions for example or are you figuring that the supply chain issues are going to go away and it's not much of a concern. Well, the supply chain factor the two issues one is the lack of semiconductors for example and the other one is the transportation bottlenecks. On the first point, I think we are a few maybe a year or two away from that getting sorted out because of the classic supply chain bullet effect on that on the transportation side of the equation, I expect that to get sorted out much sooner. But meanwhile, while you're planning this new growth trajectory for your company, what impact supply chain have on what you're trying to do? Well, you know, we have dialed in some of those impacts, but I think, you know, to the extent that the supply chain impacts manufacturing and that manufacturing impact, demand for our services obviously will be impacted. So we are we are we have been conservative in our volume growth levels in this next three year timeframe. Uh and uh and it dials and some of those things into into into into effect here. Consumer spending also has to be an important component in your success. I mean up until now people have been coping with price hikes, but now everybody's complaining about higher gas prices, higher food prices. Uh you know, what's your take on how the consumer is doing and how a belt tightening on their part could mean a slowdown in package volumes at Fedex when you're trying to do just the opposite increasing them, those things are again obviously way against us in the short term. So we have to deal with these issues in the short term. But again, over a three year period, if you think about the e commerce aecom worse represented about 16% of retail prior to the pandemic at the peak of the pandemic represent 22% and now it is 20%. So it's been, is being reset but still significantly higher than 16%. So we expect e commerce as on a secular basis to continue to grow. Once this research is over. So again, over three year period were very comfortable. Once again, we're dialing in pretty conservative volume growth in, in our forecast. Well, we can't talk about Fedex without talking about UPS, people are always making the comparisons as you know, and UPS has been making changes in the past few years and the results have been a strong performance. Whether you're talking about profits, operating margins, even the stock has gone way up. Are there any takeaway lessons for Fedex and all of this? Well, financially, every, you know, almost every company is trying to achieve those kind of goals. I think what we have doing is again, to make sure that to build on the foundation that we've created and that's very important. And we, you know, Fedex prides itself on entrepreneurship. We pride ourselves on uh, differentiation and those are the kind of things and, and customer experience and then the diversity of our customer base and that's what's driving us and that's ultimately sustainable for a much longer period of time. Let's turn Roger and talk about leadership and talking a little bit more about you personally, um, you've been working aesthetics for 30 years now, in fact, It was your first job out of college. Um, but at the time you thought you wouldn't be hired, it was a long, a long shot. Um, but you did, so tell us what happened? Well, that's, you know, one of those things where it was in the month of August in 1991, in the middle of the recession. And uh, I just finished my M. B. A from the University of texas. Austin, I was walking into my apartment, my apartment made was on the phone talking to Fedex and he basically said I'm leaving the country and not interested or not. He put the phone down and said who are you talking to? And he says Fedex and they're coming to campus said give me the number, let me call them. So I called him and said you just talked to my roommate, he's he's leaving the country but I'm still here. Can I send you back to my resume? Which I did? And then they said, okay, well we'll do the interview. Well the rest is history after that. And so it was almost, you know, it was a uh serendipitous event that that made it happen. But if someone had told me back in 1991 when I walked into Memphis at the lowest level possible in the staff role In Fedex that this is what I would be doing 30 years from then had a much better chance to play for the Memphis Grizzlies. Well, when you did walk into the Fedex headquarters and you took that new job, you didn't know anybody uh in Memphis. And I guess it was kind of lonely and you could have just as easily gone back to India gone back home, but you didn't what motivated you to tough it out? Well, I think the right away. You know what, you know what got me into the garden to Fedex is the job was very interesting. We were expanding into international and I was even though, was that the the the lowest level in that the marketing function, I was put in the middle of this incredible project of international expansion and it really was fascinating. And so I got to see it, you know, emerged from that level onwards, you know, Fedex was much smaller companies. International business is much smaller and to develop a new whole new business area and opportunity was so great and it just kept going from there. Well, exactly. And you, you know, it paid off and you worked your way to the top with a lot of leadership roles along the way. And for the past few years you've been working very closely with fred smith, the founder and Ceo of Fedex. And from what I hear, fred was treating you as sort of the last couple of years as an understudy grooming you to be his successor. What are the most important leadership lessons you learned from him at that time? Well, I'll tell you what I mean. Working with fred has been just one of the greatest things, you know, that that has happened to me. You know, you know, there's so many things and especially in the last two or three years after I was appointed C. E. O. And the succession plan was pretty clear, especially during the pandemic when the company did one of some of the most important work in the history of our company to be working really closely with him. So it's not just see your school, it was history school, it was geography school, it was humanity school. So you put everything in context and perspective. It was just amazing. And you know fred has got the unique ability to connect this grand vision to the strategy, to the execution to the tactics in a way that very very few people can. And uh you know, I've just learned a whole lot from him and you know, it's just a matter of great honor and pride for me that that that I that I get this opportunity but also that that I'm succeeding somebody like him. Well you're clearly the boss now, although fred is still the largest shareholder of Fedex and he stays on as executive chairman. How often are you updating him now or checking in with him or asking his opinion on something? What are the sorts of things that he tells you to do? I mean obviously he's available on the phone anytime I want him. And uh so we make it a point to at least sit down once a week uh and you know, just chat and it could be about anything. And uh and so it's it's a it's a it's a great relationship. And so you know, I look forward to those conversations because there's so much one can learn from him. Well the job description of any ceo running a Fortune 500 company has changed dramatically in the past few years. Um There are so many new demands and expectations of C. E. O. S. Whether it's from the employees or customers shareholders, even sometimes from the public knowing all of that. How would you describe the way that you want to leave Fedex? First of all, I want to be true to the core of Fedex and that's what attracted me to the Fedex in the first place is the whole people culture. And so for me, it is to make sure that that that culture continues going forward. That we have the people first culture that we, you know, that we have respect our folks and we make sure that we reward and recognize the right behavior and you know, and and and then give the right expectations and doesn't matter where you are and cuts across humanity. So for me, it's building on that bedrock and then creating uh, you know what we want to create in the digital front, on the networks and so on. But don't forget where we came from.