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Q2 2015 Earnings

July 28, 2015
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Right Turn at the Right Time


Scott Davis, chairman and CEO of UPS, delivered his address "Right Turn at the Right Time" on the role of reputation in today's business world at TOWN HALL Los Angeles on Thursday, June 12, at the Omni Los Angeles Hotel. On corporate reputation, Davis says, "Having a solid reputation, a reservoir of trust with your stakeholders, is a business imperative."

Thank you Greg. Good afternoon ladies & gentlemen!

I've barely had a moment to catch my breath since a remarkable day last Saturday at the Belmont Stakes in New York. It didn't turn out exactly as we'd planned, but I now have a much better understanding of that line from The Wild World of Sports - "The thrill of victory, and the agony of defeat!" Big Brown won the Kentucky Derby and the Preakness. Unfortunately, he fell short at the Belmont Stakes.

But for months, Big Brown captured the hearts, minds, and imaginations of literally millions of people worldwide, and all I can say is it's been an incredible ride!!

Let me ask you a few questions:

"How many of you are wondering: What the heck does Big Brown have to do with his comments today?"

Well there is a connection I will tell you about in a few minutes, but let me focus first on the topic, something that is important to all of us: Reputation.

It seems that almost weekly , we hear of multimillion-dollar write-downs and massive infusions of capital to shore up balance sheets. Storied companies find themselves on their financial knees, and others are simply imploding before our eyes.

So, how'd we get here?

Why are so many companies struggling to survive, let alone grow in value?

There are plenty of theories: it's a business cycle; it's the war; it's the price of oil; it's the sub-prime crisis; it's corporate malfeasance. Some astrologers speculate that it's caused by a misalignment of the planets.

And in truth, all of those factors have undoubtedly contributed . . . well, most of them anyway . . . I'm not so sure about that planet theory!

Let me suggest one additional factor that deserves your consideration:

I believe that some companies made expedient decisions¿ or took ill-advised shortcuts¿ that compromised their reputations, and in the long-term, their underlying value.

There is no question that this is a challenging economic environment. It's very tempting to take the quick, cost-cutting approach without carefully considering the impact on your company's reputation.

In the short time we have together today, I'd like to share my perspective on the vital role your company's reputation should play in your strategy and decisions.

I'd like to address two topics:

* First, why reputation should matter to every company, large and small, and why you should guard it zealously. Why, in my view, it's the bedrock of long-term profit, and sustainability.

* Second, what we can do to ensure that our companies' reputations do not become the victim in this belt-tightening environment . And

* Finally, I'll take a few questions . . . provided you don't ask me to explain the results from Belmont Stakes!

First, let's consider just how important your company's reputation is, and the impact it can have on your bottom line.

Let me frame my comments by saying that reputation to me essentially means the degree of trust, admiration, and esteem that stakeholders have for a company.

Jeff Bezos, the CEO of Amazon, and someone I admire greatly, defines reputation in a more candid way : He says "reputation is what people say about you when you leave the room."

I like that as well . . . and wouldn't we all love to be a fly on the wall during those conversations!

According to most reliable sources that study issues involving corporate reputation, the value of a company's reputation capital¿ its intangible assets such as brand equity, intellectual capital, and goodwill¿ is enormous.

It can constitute between 70-80%, and in some cases, such as Google and Coca Cola as much as 90% of a company's market value.

UPS's brand value has been placed as high as $21 billion dollars. That's "B" as in billions . . .

I see a few CFO's out there, and I can tell by the smiles on their faces that I just got their attention!

A recent Harvard Business Review article entitled Reputation & Its Risks identified numerous benefits of a positive reputation. Those include a company's ability to attract and retain the best people¿ and more loyal customers who buy a broader range of products and services.

And we've seen a few additional benefits of an exceptional reputation at UPS :

* It played an integral role in the massive transformation of our business.
o Changed purpose after 95 years
o Package delivery to enabling commerce
o Customers turn over guts of companies to UPS - their supply chain
o Demands incredible trust!

* Our reputation also opens doors for us in new and emerging global markets .

* And our reservoir of trust - that invaluable reputation capital we have built over the years with fair and sound business practices - provides cover when we make mistakes, as every company inevitably will.

Managing our reputation permeates every decision we make. This isn't something we merely pay lip service to - we invest in it.

For example, customer expectations are increasingly driving us to be more innovative, and to be a role model in terms of environmental stewardship.

We have implemented many environmental programs company-wide, but our efforts in this area are perhaps best illustrated by our initiatives relating to our vehicles.

For nearly 80 years, we've been focused on fuel conservation, long before it became the critical issue that it is today.
In the 1930s, for example, we pioneered the use of electric-powered vehicles in New York City.

Today we operate the world's largest fleet of low-emission vehicles, approximately 20,000 of them, and that number will continue to grow.

We also operate the largest alternative fuel-fleet in private industry. That includes natural gas, liquefied natural gas, propane, fuel cell, electric, hybrid electric, and hydraulic hybrid fleets.

Our entire delivery network has been re-engineered for more environmental benefit. You may have heard it described in the press as the UPS Right Turn Policy .

I can see a few of your smiling out there, and I know what you may be thinking¿ but it really works.

We carefully map-out routes for all our drivers to reduce the number of left-hand turns they make.

Now get this: In 2007 alone, this helped us:

* shave nearly 30 million miles off already streamlined delivery routes.
* save 3 million gallons of gas, and
* reduce CO2 emissions by 32,000 metric tons¿the equivalent of removing 5,300 passenger cars from the road for an entire year.

And we continue to find new technologies to help make UPS a deeper shade of green.

* Exciting test called "telematics"
* How many of you are familiar with telematics?
* Sensors on familiar brown delivery vans.
* Draws detailed picture of driver's day.
* Measures speed, RPMs, oil pressure, seat belt usage, reverse, idling.
* Improved safety, 30% less idling
* $10 million savings.

Boy, I'm sure glad my parent's didn't have this tracking devic e when I was a teenage driver!

The bottom line for us is that our stakeholders need to know that when it comes to the environment, we intend to be part of the solution, not part of the problem.

And we are convinced that our commitment to the environment will increasingly impact our customers' buying decisions.

Certainly, these important investments in our environment have required substantial up-front capital.
But as enticing as it may be, we won't cut costs if it compromises our reputation.

So what price does a company pay when it doesn't enjoy an exceptional reputation?

Consider a recent survey on global risk management conducted by AON in 320 large global companies. It found that the greatest threat . . . the greatest threat. . . to a company's value is "damage to reputation."

The report concluded that damage to a company's reputation can lead to lowered stakeholder support, a decline in financial performance, and in some cases, the loss of its license to operate in key markets.

You don't have to look any farther than the recent, swift demise of Bear Stearns to understand how a damaged reputation can impact a company's value.

Bear Stearns wasn't just an overnight success. This was an 85-year-old storied investment bank that evaporated in a flash.
So wouldn't you expect reputation and trust of a company that was one of the major Wall Street institutions to carry it through turbulent times?

While there were several factors at work, some of the evidence that's emerging reveals that its customers and its business partners simply lost confidence in Bear Stearns, and as a result, it swiftly collapsed.

The problem, according to a recent article in Fortune magazine, was that Bear Stearns was a company without a reservoir of trust. Without that, it had very little staying power when some of its risky bets turned sour. Bear Stearns was, in a very real sense, walking a high wire without a safety net.

The business landscape is littered with similar fallen institutions: Enron¿ WorldCom¿ you know the names.

They all had the chance to do the right thing when no one was watching. But instead they mortgaged their companies' futures by making decisions without weighing carefully the long-term implications on their reputations.

Stephen Covey said : "Trust is the one thing that changes everything . With it, almost any business difficulty can be overcome.
Without it, you will have a difficult time getting anything done."

He's right.

UPS has a laser-like focus on costs, as every well-run company must. We aren't immune to the challenges impacting business today. We face significant economic pressures like most of you : escalating benefit costs; spiraling fuel costs; and intense competition at every turn, to name just a few.

But we try to take a long-term view, because we're convinced that an excellent reputation is not only our obligation as responsible corporate citizens, it also ultimately translates into profits.

So what can you do to solidify or enhance your company's reputation? I don't have all the answers, but here are a few ideas we've found beneficial at UPS.

First and foremost : if it's not already there, I believe it's important that you move your company's reputation to a strategic and preeminent position in your decision making.

As Henry Ford once observed , "You can't build a reputation on what you're going to do."

I understand that competition creates pressure to continually do more, faster, and at a lower cost. And as the U.S. economy slows and perhaps slides into a recession, the pressure mounts to focus only on immediate profits, to let those profits drive all of your decisions.

But when it involves your company's reputation, you have to have the courage for the long haul :

* The courage to cling to your convictions
* The courage to place reputation at the head of the line...Every Time!!
* The courage to maintain, despite all the howls of protest, clarity of purpose, and relentless focus on your company's reputation

Second, do the right thing at the right time . . . repeatedly.

That's a philosophy that we abide by and communicate - both with our words and our actions - at every opportunity and to every constituency: we will do the right thing. That's the core of long-term success.

It may not be brilliant or original. And there's no Reputation GPS to tell you where to turn, no beacon light to guide you. It simply means our company's reputation is critical, and it is factored into every decision we make.

You have to be true to what your company is . . . and what you would like it to be.

And finally, communicate your conviction about your company's reputation, especially to your employees.

Legendary football coach Vince Lombardi said it best : "If your players don't understand the play called in the huddle, they won't execute it very well."

Every employee should absorb and abide by your company's reputation playbook. What does that mean?

Simply this: Your employees need to understand the critical importance you place on your reputation. They need to understand that when it comes to your reputation, you will not compromise or take shortcuts.

Extensive internal research demonstrates that our 70,000 UPS drivers are the number one competitive advantage in the eyes of our customers. Number one!! Not rates¿ Not technology¿ Not even our world-class service. Our drivers!

They are our reputation ambassadors, on the front line interacting every day with our customers. They go the extra mile; do the little extra, intangible things, that you may not be able to measure. But we're convinced it shows up on our bottom line.

In closing, let me leave you with this challenge: When it involves your company's reputation, do what's right over what's easy.

It's especially tempting to pursue only cost-cutting solutions in these challenging economic times. I understand that pressure . . . and if I ever forget, my CFO is happy to remind me! But I encourage you to look at your decisions with a long-term view, through the prism of your company's reputation.

We've learned an invaluable lesson about reputation from Big Brown. As Paul Harvey would say , here's "the rest of the story."

The owner of Big Brown is a business partner. In 2005, we completed a deal with him, and he was so impressed with the straight-forward, respectful way we dealt with him, he named a colt he'd just purchased, Big Brown.

We learned of this just prior to the Kentucky Derby this year, and we immediately became a sponsor.

The rest, as they say, is history. Big Brown has had a tremendous positive impact on our reputation . . . worldwide. That all resulted from doing the right thing at the right time.

I can't promise you that doing the right thing will result in a near Triple Crown winner for your company. But if I may quote my mother: "You just never know Scott . . . you just never know!"

Do the right thing - pretty valuable advice all the time!

Thank you for inviting me to share my ideas with you. It has been my honor.

Now if you have any questions, I will be happy to answer them.

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