Paradigm Constraints

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This case was prepared by Assistant Professor James R. Rubin and Batten Fellow Barbara S. Carmichael. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2007, by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Our package cars, aircraft, and 360,000 employees are part of the fabric of everyday life worldwide. This report represents our official stake in the ground to identify areas for improvement and set goals by which to measure ourselves.

—Operating in Unison UPS 2002 Corporate Sustainability Report

At UPS we believe our business success depends upon balancing economic, social, and environmental objectives.

—Operating in Unison1 UPS 2005 Chairman’s Letter

UPS began using its signature brown for its trucks and driver’s uniforms in 1919. As Dave Guernsey, a manager in environmental engineering, pointed out in the fall of 2005, most local UPS buildings were similarly utilitarian. “Shipping buildings are boxes to hold conveyer belts with room for trucks to pull in.” At corporate headquarters in Atlanta, however, the dominant color was green. Turnstiles led to open spaces—escalators moved from the lobby up through a large atrium. Windows looked out on trees with a view complemented by many interior plants. Taken together, the contrasting designs of the operational buildings and UPS headquarters were telling. UPS had long focused on tangible solutions and engaged corporate social responsibility in a quiet way while competing in an environment where brand and reputation and image and marketing increasingly had become competitive factors.

In 1999, after more than 90 years as a private company, UPS went public in what was to that date Wall Street’s largest IPO. Historically UPS’s culture was modest, but the headquarters building suggested a readiness to make bold statements, even as the operational buildings suggested continuity in efficient solutions.

1 See Exhibit 1.

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UPS had a large environmental footprint. Delivering packages on time required a large fleet of trucks and airplanes, and using tons of paper and cardboard packaging. Even with an ambitious program to increase its fleet of hybrid vehicles, for example, UPS still burned a lot of fossil fuel.

BY the end of the 20th century, corporations were becoming more closely scrutinized on

such a wide range of issues. Few U.S. companies the size of UPS had made so substantial a commitment to environmental sustainability and paid attention to social issues; few had a culture and business model that made this commitment so pragmatic a fit.

In 2002, under CEO Mike Eskew, UPS launched a separate corporate sustainability responsibility report—Operating in Unison—the first of its kind in its industry. The report was much like European triple-bottom-line reporting, and provided stakeholders with information on environmental data and social responsibility activities not required by regulation. The 2002 report (published in 2003) built on a hallmark of the UPS culture—measuring everything by making data that were originally collected for internal reporting available to external stakeholders. For Mike Herr, UPS Corporate Environmental Affairs manager,2 the central question leading up to publishing the report in 2002 was, “What does it mean to be a global company?” The report established UPS as a leader in exemplifying the way U.S. companies should approach corporate citizenship. But was disclosing potentially controversial information too far ahead of the curve?

Most companies manage risk. In fact, inherent negatives exist in every business model. These inherent negatives are elements of an organization’s business that have the potential to negatively impact stakeholders. The more successful the business, the more the inherent negatives can multiply.

With close to 400,000 employees, many of them coming to customers’ front doors, UPS knew its people were a primary touch point for the UPS brand, personalizing the company. But the potential for problems also arrived with every delivery. UPS trucks consumed fuel, contributing to emissions, and could break down or have accidents, delaying deliveries. With 60% of UPS employees unionized, the work force could go on strike at crucial times. In addition, as the company moved into new businesses and expanded globally, its upstream and downstream risks or potential inherent negatives increased.

In UPS’s first corporate sustainability report, Eskew wrote that the report was “created with 2007 [the company’s centennial] in mind.”3 Looking back on the 2002 decision to publish Operating in Unison, would this global company’s long-term thinking be rewarded by American capital markets? To what extent would UPS’s innovative efforts to “synchronize your world” and its forward-looking policies aligning technology, the environment, and social concerns mitigated risk in a wired world where information flowed freely and public opinion was increasingly shaped by so many factors?

2 Herr’s title in 2005. 3 UPS sustainability report published in the 2006 Operating in Unison.

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Company History

As the UPS story illustrates, firms with sustained organic growth often have long- standing and reliable business principles. Even after 100 years in business and with annual revenues of $47.5 billion (in 2006), UPS remained very much a founder’s culture, Jim Casey started the company in Seattle in 1907 as the American Messenger Service, using bicycles to deliver messages, It was six years before the founding of the United States Parcel Post, and the messenger and delivery business was highly competitive. The roots of UPS’s current focus on efficiency in the flow of goods, information and funds, supply-chain management, and innovative transportation and logistics were evident in Casey’s early emphasis on courtesy to customers, 24-hour service, and competitive rates. To differentiate his service in a business where such novelties as telephones and automobiles were making messengers less necessary, Casey specialized in delivering packages for retail stores. With the post office initially his company’s largest customer, Casey made commitments that foreshadowed the company’s later to efficiency and environmental sustainability. Packages going to a given neighborhood were bundled into one vehicle, sometimes a motorcycle. After acquiring a Model T in 1913, the ever- evolving motorized service became Merchant’s Parcel Delivery, and began focusing on packages rather than messages.

The year 1919 saw expansion to Oakland and a new name—United Parcel Service—to emphasize that the company remained a single business, a guiding principle that continued throughout the years. In 1922, UPS acquired a common-carrier business that allowed further differentiation from competitors through daily pick-ups, automatic returns, and accepting payment by check and COD. UPS introduced the first conveyor belt to handle packages in 1924, and, by 1927, delivered to all major cities on the West Coast. By 1930, the department stores on the East Coast could use the company’s services. The 1950s brought mass movement to the suburbs, shopping centers outside cities, and increased car ownership, prompting UPS to look for new opportunities while remaining committed to the delivery of packages.

Geographic expansion, speed of delivery, and increasingly sophisticated operations combined to grow UPS’s business through 1999. As the first company to deliver packages to every address in the continental United States, UPS met the demand for faster delivery and growing competition by first offering overnight delivery in 1985. In 1988, the year FedEx was founded, UPS began to operate its own airline, which became the fastest-growing airline in U.S. Federal Aviation Administration history. Expanding to Canada and then to Europe, the UPS network would eventually include 185 countries and territories that, by 1993, delivered packages and documents to 11.5 million people. By applying new technology to the package-delivery business, UPS provided its drivers with electronic tools such as the handheld delivery information acquisition device (DIAD), allowing the company to integrate drivers with global communication and computer systems that included a half a million miles of communications lines and satellites. In 1992, UPS started tracking all packages, and by 1994, customers could track their own packages on the company’s Web site, UPS.com.

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By the end of the 1990s, the application of technology had become fundamental to UPS business strategy. A business unit called the Logistics Group was formed to consult on issues of global supply-chain management and Sonic Air (an extension of same-day air-service capability), and UPS Capital was established in 1998. The Logistics Group and UPS Capital played key roles led UPS to be referred to as a “global flattener”: “The UPS people are not just synchronizing your packages—they are synchronizing your whole company and its interactions with both customers and suppliers.”4 All that was left was the IPO in 1999 to fund further growth.

Change was inevitable as UPS became a public company. As a privately owned enterprise, UPS underwent such a highly visible event as the well-publicized union strike in 1997 without being subject to pressure from investors. In addition, its engineering heritage and the legacy of being privately owned combined to create a culture that did not “blow its own horn.” In 2001, for example, data showed media coverage unaligned with the fact that FedEx was significantly smaller than UPS (Exhibit 2).

After UPS went public, it made some changes, departing from its preference for keeping a low profile. In February of 2002, UPS began the largest corporate advertising campaign in the firm’s history with the tagline: “What Can Brown Do for You?” Television advertising was timed for the 2002 Olympics. While raising external brand awareness, the advertising campaign also connected employees to the brand in a way that was aligned with the heritage of Jim Casey’s original customer focus. One year later, the company introduced a new shield logo combining a dominant brown with gold and tan that looked good as a banner on eBay. Environment

By 2002, more and more stakeholders were becoming concerned about the environment, but UPS had long recognized the issues involving its consumption of fossil fuels and globalization. While small, fuel-efficient cars in corporate parking lots were a common sight in Western Europe, U.S. vehicles tended toward larger models, and Detroit’s reliance on high- margin SUVs had only recently proved unsustainable. Although many corporate annual reports claimed to support environmental sustainability or corporate social responsibility (CSR), for some stakeholders in the United States—particularly those on Wall Street—these concepts remained controversial and were seen as distractions from a corporation’s main purpose of increasing shareholder wealth.

If a business argument had to be made for investing in intangible assets, UPS had an unusually strong inherent business case for investing in environmental sustainability and CSR. The solutions approach that started with Casey’s bundling packages in one vehicle traveling to the same neighborhood led to technology that allowed customers to quickly track a package on the corporate Web site. UPS’s highly centralized culture stood in stark contrast to its main rival’s highly marketed linking of the decentralization of business units with efficiency. In contrast,

4 Tom Friedman, The World is Flat (New York: Farrar, Straus, and Giroux, 2005), 150.

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UPS’s strong engineering culture was founded on centralized, integrated systems forming the basis for the company’s global operations, allowing UPS to find the most efficient routes from point to point and, in turn, burn the least amount of fuel.

The story of UPS and environmental reporting brought together the goals of top management, UPS culture, and the career paths of UPS’s CSR team. UPS was a company where employees could have several careers. Take, for example, environmental engineer David Guernsey. While a graduate student in environmental science, Guernsey worked part time loading UPS trucks. Because UPS drivers were better compensated than entry-level environmental-science graduates, Guernsey took a full-time job as a driver, following the pattern of many UPS managers, who began their careers working as drivers or in other operational jobs (Exhibit 3). Guernsey became a supervisor, but still hoped for a job in his field. In 1989, Guernsey, who had lived in South America and spoke French, joined the International Planning Team, spending six months in Western Europe and six months in Eastern Europe working for operations as UPS opened new markets. He returned to the United States to work in industrial engineering on “loop teams” linking driver routes and computer technology and then worked on interfacing mainframe computer systems with operations.

In 1992, UPS started an environmental affairs department. In an anecdote that exemplified how UPS drew on employee talent, Guernsey remembered, “They needed somebody to deal with international environmental issues and matched up my résumé with my experience. My boss and I were driving down the road in England, and he asked: ‘What do you want to do?’ I told him I’d like to work in my field. He said, ‘Oh, I think we’ve got something.’” So Guernsey became the point person for environmental concerns on an international scale at UPS.

When UPS began an internal environmental report for the company in 1994, Guernsey looked closely at the area of environmental reporting. “We were not going to go external at the time,” he recalled, “but we still had a lot of good things to talk about.” Environmental reporting or “green bottom line” was an opportunity for companies to tell their own stories. In the period before it went public, UPS began to combine internal environmental reporting with social- responsibility reporting. From there, Guernsey explained:

We started to make the business case that we have all this good stuff to talk about. We have a very strong UPS Foundation. And we had a lot of environmental activities that we were working on already, things that made complete sense to UPS, because of the business we’re in. We had a good story to tell.

During the transition to becoming a public company, Guernsey explained, “We started to

see evidence out there that as a public company, you should probably get involved in [external reporting]. What’s the down side?”

UPS formed a cross-functional team (CFT) to refine the case for externally reporting its environmental activities. Mike Herr, a civil engineer who thought like a communications professional, recalled, “We pulled about 30 high-level people from every function within the

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company together for our first meeting and talked about what we were doing and how we were doing it.” Herr encountered some initial skepticism, he recalled, “But we’re just not the company where everybody gets in a room and nods their heads yes. We take shots.” The CSR team found an ally in Vice President and Managing Attorney Linda DiSantis, who went on to become city attorney of Atlanta in 2002. “We worked together to build a document we sent to the management committee,” Herr said.

To reduce the impact of issues and tangible effects associated with globalization and natural-resource depletion, Guernsey and the team first looked at the Global Reporting Initiative (GRI) “as an indicator of things that we might report on” (Exhibit 4). Although the managers on the CFT were from corporate staff, as Guernsey pointed out, “Every one of us has probably been in operations. And every one of us can drive a package car. This is part of the culture: We know the business.” The team’s operational experience ensured that any external environmental reporting would be based on how UPS operated its business. Guernsey explained:

We painstakingly went through the GRI and built ideas around what we could use as transportation metrics. A lot of those fit into the GRI, but we wanted to make sure that our metrics were closely aligned with our business. Many of them were already things that we measured, especially on the social side, and some of them were already global. For instance, we developed a gallons-per-package concept, which are all fuels minus the aircraft. That’s feeders, package cars, and the calculations for rail transport, because we are highly intermodal, efficiency.

As Operating in Unison suggested, these metrics stood the test of time. UPS metrics were

shared at industry meetings, and some, such as gallons per package, were adopted by competitors. Concepts such as gallons per package were painstakingly reviewed by the CFT and would become a key performance indicator (KPI) in the report (Exhibit 5). Since the first report, UPS had continued its environmental commitment to reduce a negative that was inherent in its business—its consumption of fossil fuels—with investment in hybrid vehicles and attention to such details as finding routes that minimized left turns and reduced driving miles. Guernsey and Herr thought about the inherent negatives. Herr wondered, “We drive a lot of diesel vehicles. So if you look at class-action lawsuits, it was cigarettes and breast implants. Can those things happen with diesel emissions?”

It is worth noting that Operating in Unison was a corporate sustainability report rather than a corporate environmental report or a corporate-social-responsibility report. At UPS, these terms were interdependent, and were addressed both globally and at the community level. What set UPS apart was that it aligned engineering approaches with environmental and social issues. According to Darden Professor Ed Hess, it was the concept of “creative dissatisfaction”: “The UPS culture is one of relentless pursuit of constant, incremental improvement,” Hess said. “How can we be faster, smarter, and more efficient? UPS people work at it until they get it right. UPS takes a long-term approach.”5

5 Edward D. Hess and Robert K. Kazanjian, eds., The Search for Organic Growth (Cambridge: Cambridge

University Press, 2006), 43.

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For example, building on DIAD technology through package-flow technology, UPS IT added a “preload assist label” [PAL] and a software that monitors fuel efficiency and mileage Automotive Information System (AIS), which led, as of 2006, to a savings of 330 quarts of oil annually. Compliance

In general, the line between compliance and proactive investment in CSR, especially on a global level, could be blurry. Reporting along GRI guidelines, for example, was voluntary, yet pro forma for some European companies. Were environmental standards to be applied mainly in North America and Europe? Environmental laws and regulations could vary widely on a global basis. Should a company strictly comply with local regulations, even if doing so meant operating differently across multiple countries?

When UPS opened in the European markets, it engaged Anna Svard-Thompson, a Swedish national residing in (Exhibit 6). A manager from corporate compliance, she said that UPS was “starting up operations in Scandinavia, so it was a unique opportunity,” but she had initial misgivings about joining a U.S. company that might not share a European mentality on values and ethics. She recalled:

This was in 1988–89. I was impressed, first of all, that even though there were a lot of U.S. nationals at the time in Europe, when we really started up operations in Europe, the policy was to take on local nationals, realizing that you need to understand cultural and regulatory issues in order to be successful. UPS’s emphasis on integrity and ethics is very, very impressive.

While UPS at first seemed so much an American company, it engaged globalization in a

way that influenced the whole organization. Svard-Thompson pointed out:

My team had the opportunity of developing our compliance program in the U.S., and taking it a step further and applying it outside of the U.S. We found through benchmarking that a lot of other functions out there were called ethics and compliance. We just call ourselves compliance because we already had ethics baked into everything we do. You work ethically within our organization with integrity and stand behind it, you believed in our policy book and our values. It’s as simple as that. You don’t have to teach our employees ethics. Compliance at UPS began with the Code of Business Conduct, but UPS had larger goals.

In a global company, ethics and compliance required definition and continuous communication. To begin work on the kind of compliance UPS wanted, Svard-Thompson found that “we needed to clearly identify all the regulatory issues as a global company [and then] put the program in place that could be useful for employees globally.” Reflecting the UPS culture to measure everything, Svard-Thompson pointed out the importance of monitoring:

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…taking the temperature of the organization, how are we actually doing, or do we have programs on the shelf and training that are not reaching the targeted goals? If there is a procedure on a bookshelf or on a Web site, but nobody actually knows about it, okay, let’s fix that.

Never far from the core business, Svard-Thompson said, “We transport things in the air,

on water, on the ground, and we need to be able to know that we have identified all the regulatory issues to do things the right way.” But when applied globally, Svard-Thompson believed compliance could quickly become complicated:

In some areas of the world there may not be any minimum requirements on the environmental side, which in other parts of the world may be quite stringent. What’s important for us as a company is to set ourselves a minimum, even if we haven’t identified a regulation in this particular area or law in this particular part of the world.

To check compliance in this global organization, more than 40,000 employees with

management positions annually took a business-ethics questionnaire to provide another way to identify a specific concern. The key, Svard-Thompson said, was “to have mechanisms in place to review and see where potentially the gaps are.” This was plainly a proactive approach in which gathering information for reporting led to diligence.

As Svard-Thompson explained, effective compliance started with making sure that functions had ownership of the regulations to develop procedures that made everyone “own compliance”: “We must always have an open-door policy available, where people can remain anonymous should employees report a concern.” She believed this open-door policy reinforced the understanding that “you’re the functional owner for this.” The functional compliance process of monitoring, measuring, and communicating expanded in other ways to a global level:

If it’s called OSHA in the U.S., okay, in the U.K., Health and Safety at Work Act, okay, but what does that actually say? What are the equivalent regulations? What do we actually need to know here? A year ago [2004], we restructured our function to be more successful in terms of working globally and across the different business units. We created a matrix structure to identify all regulatory issues, whether financial, employee, environmental, product, materials, pharmaceuticals, food; you name it. The transportation and delivery of hazardous materials (Hazmats) introduced another

level of complexity related to compliance (Exhibit 7). For example, in addition to integrating the compliance process functionally and globally for internal UPS staff, the transportation of Hazmats involved upstream and downstream issues concerning stakeholders other than employees. It was a given that UPS had to stay on top of every regulation concerning transportation. “If we put something on the ocean,” Svard-Thompson asked, “what are the

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regulations for that? If we put something in the air, there are stacks of regulations as well as transporting on the ground.”

With business expansion, contractual issues were central. “There are certain things that we don’t transport,” Svard-Thompson explained. But for those things it did transport, UPS extended the reach of its compliance procedures to those downstream and upstream in the supply chain. If UPS was to meet its own compliance standards, it had to articulate the “things that you need to do in order for us to take it,” according to Svard-Thompson.

The operational side of the company developed procedures to identify Hazmats; it also trained and coordinated the staff. Operations worked with the health and safety group to identify potential problems. Compliance, safety, and ethical standards drove business decisions both internally and externally (Exhibits 8, 9, and 10). As Svard-Thompson concluded, “Our prevailing thinking is, if we are good, the company has built up a defense for when things are bad. That’s why we want to build up relationships with third parties that can talk about labor issues or environmental issues.” Community

It was through relationships with stakeholders that UPS moved beyond compliance. One of the largest employers in the United States, UPS had thousands of “brand ambassadors.” Although new businesses such as logistics consulting, and technologies such as satellite communication were not in plain view, UPS was very much in the community, and on an increasingly global scale. The sound of the distinctive brown truck usually meant something you wanted had arrived, or that business could proceed as planned. Maintaining a corporate culture that would lead to reliably positive encounters with customers and suppliers was no small task. The growth of catalog and online shopping had been a significant contributor to UPS expansion. A customer’s ability to track a package gave a sense of security, but reliability was mandatory and was the heart and soul of the delivery business. Customers often failed to recall the impressive behind-the-scenes enabling technology when a Christmas present arrived a day late because of a snowstorm, or because a catalog company had not hired enough extra people for the season. It was axiomatic that reputations took a long time to build, but were harmed unless risk was proactively managed.

As Peggy Gardner, a manager in the UPS corporate communication group specializing in reputation management, pointed out:

When you are the third-largest employer in the United States, when you’ve got almost 400,000 employees, you have to ask the right questions. What is the employee’s role, the management’s role? We spend a lot of time working with the regions and the districts helping them understand how to create a strategy locally. What are the issues in your community?

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At first, UPS deliberately did not introduce measurements in such activities as employee community involvement, even though, as Gardner stated, “We measure everything.” In 2005, however, UPS introduced the Community Scorecard where districts were asked to enter the number of volunteer hours their employees had contributed and how they developed strategic relationships in the community (Exhibit 11). The highest-ranking district was recognized at the annual meeting of the top 350 company executives.

Just as UPS founder Jim Casey had used the word “united” when he expanded from Seattle to San Francisco, UPS continued the legacy of operating in unison, even down to the community level. Guided by CEO Mike Eskew, UPS managed CSR globally, and employee volunteerism was no exception. UPS viewed its global expansion as an opportunity to unite corporate values, and employee volunteerism provided an apt example of putting this practice in action. Gardner explained Global Volunteer Week: “Our people marry human capital with financial capital. It’s been very well-received for instance, in Latin America. At UPS, when everybody jumps in, everybody jumps in all the way, that’s the way we work. In Asia, we got great response, too.”

Like Svard-Thompson, Gardner emphasized the value of employing people from the global regions in which they worked: “We have 40 expats in the world. These are local people adopting management styles and beliefs and applying them in their communities.”

UPS’s community involvement also extended to the local community businesses. UPS

Capital, for example, became the nation’s largest Small Business Association lender. UPS worked to persuade affiliated businesses to take a stakeholder approach. Gardner optimistically concluded that a stakeholder approach was “part of our DNA, because we are in every community every single day.” She continued:

Our drivers are part of those communities. Our thing is in the community. And we can’t survive without the support of the business community. We can’t survive without the support of the politicians where we operate. We can’t survive without the support of the moms and pops. That is our business.

Through employee engagement with stakeholders in the community, the company

created a highly in-touch and comprehensive feedback loop. Operational Management Drives Reputation Management

Community activities expressed, in part, a commitment to environmental sustainability and consistently contributed to strong showings in “most admired” polls appearing in the Wall Street Journal and Fortune. As Gardner explained, UPS operated from its core business to upstream and downstream operations, and all operations intersected to create multiple factors that drove the company’s reputation. “There are lots of issues we are constantly monitoring to see how we’re doing,” she said. Safety issues, for example, intersected reputation and risk

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management, and how are you going to deal with issues that you know are going to arise? Gardner asked:

Do you have plans and people ready who you can talk to? How are you going to protect your reputation and what are you going to do, should an accident happen or occur? We’re almost a hundred years old, so we’ve seen most every situation arise that we’re going to see.

UPS monitored these diverse factors through KPIs, which were measured, of course, and

documented in its sustainability reports. Safety, for example, was a central category of the KPIs and an essential component of the sustainability report. It was organized through UPS’s Comprehensive Health and Safety Program (CHSP). Teams included local management and nonmanagement and met regularly to talk safety and make recommendations. That improved safety measures by 60%.

Even with UPS’s comprehensive approach to operationally managing its impact on stakeholders—from upstream through its core business to downstream—the company recognized that some issues were beyond its direct control. As Herr pointed out, individual companies also had to deal with industry issues. For example, organized public opposition to the double and triple tractor trailers on the road had emerged, even though these forms of transportation had proven to save fuel and reduce emissions. Herr explained:

When you’re thrown into an industry, you’re thrown in with everybody. So [one industry company could have] an old, beat-up truck that’s been on the road for 50 years with a driver who’s not even qualified to have a driver’s license, against a professional driver [from a different company] who has a very good driving record—and we’ll compare our driving records and our equipment and our equipment maintenance to anybody. Unfortunately, everybody’s put into the same pool of truckers. The only way we can overcome it is just by say, talking about our driving record, accident reduction, and then the efficiencies to the natural resources and all sorts of emission reduction, as well.

In addition, actions that enhanced operational efficiency could also have potential

negatives that had to be addressed. New technology and new businesses brought new risks such as privacy. UPS, for example, had one of the world’s largest DB2 databases. How did you make sure your network was secure, and the data that you had wasn’t compromised? As Herr said, “If you look at what we are, we’re a transportation company first and then we’re a technology company, we’re a mover of goods but then also money and information flow.” An example of an emerging inherent risk in this business was information security. Herr continued:

We have over 2 million customers and 14 million packages we pick up every day. There’s a lot of information, a lot of databases, and keeping that secure from somebody who could use it for some bad things, or just getting the database

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contaminated with all these viruses and things that go out there, that’s a huge responsibility for our IT people.

Recognizing and managing the potential inherent negatives in information security was

strategically critical to UPS as it extended the value proposition of being the best in the business in delivering goods to leveraging that capability to improve customers’ supply-chain efficiency. For UPS, Operating in Unison was not simply a slogan. It was fundamental to its business model, which was built on a single, highly integrated network structure that allowed the company to institutionalize its business practices throughout the entire enterprise. Distinct from the business model of a competitor such as FedEx, this model allowed UPS to both increase the beneficial impact of its actions on its own operations as well as synchronize its operations with customers to improve their supply chains. As a result, UPS helped customers manage their own capital by managing their supply chains better. Peggy Gardner described how synchronizing commerce added value in newer stakeholder relationships:

If you can reduce the time inventory sits in your supply chain, you are freeing up capital. If you take inventory and get it off your books, you are freeing up the balance sheet. There is a direct correlation between managing your supply chain and your financials. And that’s the concept that we’re talking about in terms of synchronizing the supply chain and good information and funds.

Operating in Unison

Triple-bottom-line reporting had become a way for companies to connect financial reporting with environmental and social reporting. Dave Barnes, UPS senior vice president and CIO wrote in the first UPS sustainability report in 2006 that “in the spirit of creative dissatisfaction, we continue to push ahead on these sorts of programs. The alignment of our technology investment with business strategy is more than a slogan.” In fact, in UPS’s 2003 report, environmental actions that would improve operational efficiency, reduce cost, and mitigate inherent negatives in the package-delivery business became more comprehensive, evolving into strategic imperatives for the company as it sought to “synchronize commerce.”

In the 2005 report, for example, the environmental section reinforced the concept that “the sophistication of our network allows us to use environmentally efficient modes of transport and still make on-time deliveries for customers.” It also advanced an ambitious goal of reducing fuel consumption and emissions. Describing the ground fleet, the report began with EPA compliance and moved on to such innovations as package-flow technology and UPS’s proprietary Automotive Information System (AIS), which tracked vehicle maintenance and need for upgrades. The report described in detail the existing alternative-fuel fleet and plans for expansion. It listed the KPI of gallons per package (Exhibit 12) and addressed concerns over diesel-fuel emissions. The UPS goal for 2007 was to decrease gallons per package, the measurement described by Guernsey, to 0.1008. KPI data was presented for the air fleet, domestic and global, as well as for energy consumption, greenhouse-gas emissions, recycling

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and waste management, water consumption and conservation, environmental inspections, and incidental spills (Exhibit 13). Each KPI, environmental and social, was followed by ongoing plans for improvement and goals. Goals for 2007 were, overall, to reduce accidents, maintain environmental management controls, and educate customers on proper packaging techniques.

Beyond the benefits internal to UPS through these actions, however, the company recognized that its business model of a single, highly integrated network put it in a position to be a key element in its customers’ supply chains, allowing UPS to synchronize commerce through a network that was the industry’s most efficient.

Collectively, UPS’s approach to identifying and addressing potential negative impacts inherent in its business model had allowed the company to convert those actions into a source of competitive advantage and build a consistent track record of recognition. For example, in 2004, UPS was recognized as a top company for diversity by Diversity Inc., and ranked number one for customer respect, brand excellence, customer service, and supply chain in other specialized publications. And the actions Guernsey, Herr, Svard-Thompson, and Gardener had described contributed to UPS being named Fortune’s most admired in its industry and number one in social responsibility; it also appeared in the Dow Jones Sustainability Index. In the July 24, 2006, edition of the Wall Street Journal, in an article featuring Senior Vice President Barnes, Corey Dade wrote that UPS technology such as preload assistance labels “trimmed 1.9 million miles from UPS delivery routes, a 3% reduction from February 2005. Shorter distances mean savings on fuel and vehicle maintenance, which is critical as gas prices rise.”6 Farther afield, a July 2005 article about the same technology in Cleveland Business said that “between now and 2007, UPS expects to save $500 million to $600 million through a combination of fewer miles driven, less fuel consumption, and less delivery miscues.” Even Maine Today reported in May 2007, that the UPS next-day envelopes designed to be used twice saved 12,000 trees and eliminated 440 tons of waste annually (Exhibit 14). So, from Wall Street to Main Street, UPS remained part of the fabric of everyday life.

One member of UPS’s corporate communication team recalled that when author Tom Friedman came to UPS to research his book and observed the things the company was doing globally in terms of innovation and sustainability, he described UPS as the “most under-branded company I’ve ever dealt with.” The roots of the company’s modest heritage can be traced back to founder Jim Casey’s philosophy that UPS was an agent for those for whom it delivered. Yet, even before Friedman’s visit things had been changing. With the introduction of the new shield logo in March 2003, UPS rebranded in the traditional sense of visual identity. In April 2003, 3,000 Mail Boxes Etc. stores were rebranded as UPS stores, adding yet more consumer touch points. In addition to the ad campaign “What Can Brown Do for You?,” the corporate brand had been aligned under the brand promise of “Synchronizing the World of Commerce,” a slogan that appeared on package carriers, jet aircraft, and uniforms. The award-winning campaign earned UPS second place in the 2003 Harris Interactive/Reputation Institute Corporate Reputation survey. In the same year, the “What Can Brown Do for You?” campaign won the New York Marketing Association’s Gold EFFIE award. In 2004, UPS was number four in CoreBrand’s

6 Corey Dade, Wall Street Journal, July 24, 2006.

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“Corporate Brand Power,” as well as ranked 9th out of 25 in Forbes’s “Most Valuable Corporate Brands.” Conclusion

There was little question that UPS had become a global brand with an enviable reputation. Stakeholders continued to expect corporations to take responsibility for environmental and social issues, and as nongovernmental organizations used the Web to keep the spotlight on corporate actions. As a result, the ability of corporations to understand their impact on stakeholders—from upstream supplier, through the core business, to downstream product usage and disposal—inevitably increased. Aligning corporate culture, heritage, and demonstrable action aligned with strategic goals were becoming requirements of operating successfully, as “transparency” translated to new and quickly changing contexts.

As businesses expanded into new areas, with new technology, and globally, the ability to

recognize and proactively mitigate the inherent negatives in upstream and downstream risks became ever more complex. How well a company systematically recognized and mitigated the inherent downside risks of its business could be the first step in converting those risks to a competitive advantage and, as a consequence, moving the trajectory to the upside building of brand and reputation. For UPS, separate CSR reporting was a way of connecting with multiple stakeholders. But fundamental to operating in unison was that it tracked and reported substantive goals and actions.

In 2007, public opinion seemed to be trending in the direction of recognizing corporations for their environmental and social responsibility, but the extent to which capital markets would reward CSR remained to be seen. What remained certain, however was that globalization, new communication technology, and the extension of UPS into new relationships as it extended its business model would offer new risks that required proactive management and new opportunities to build brand and reputation.

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Exhibit 1

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Letter from the Chair  

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 1.

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Exhibit 2

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Results of Electronic Content Analysis of Media Coverage in 2001

Net effect represents a composite of prominence, tone, and number of impressions. Source: Adapted from Charles J. Fombrun and Cees B. M. Van Riel, Fame & Fortune: How Successful Companies Build Winning Reputations (New York: Financial Times Prentice Hall, 2004), and Delahaye Medialink/ Reputation Institute.

0

50

100

150

200

250

300

350

FedEx UPS

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Exhibit 3

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Full- and Part-Time Retention Global Work Force

As a result of the career and company ownership opportunities created for our employees, turnover in our full-time workforce is at an industry low of 8 percent.

Part-time Part-time employees are a critical part of our workforce—46 percent of our employees hold part-time positions. The nature of the package delivery business—periodic bursts of activity throughout the day—requires carriers like UPS to use part-time employees. While meeting the needs of the company, our part-time jobs also meet the needs of thousands of people, like students, retirees and others who want flexible hours, competitive wages and benefits.

Managing turnover in a large part-time workforce is a challenge industry-wide, and UPS shares that challenge. In 2005, turnover in our part-time workforce totaled 50.8 percent. However, it is also true that our average part-time employee in the U.S. is with us for more than three years before pursuing full-time opportunities within the company or pursuing opportunities elsewhere. In order to address turnover in key locations, we provide education and development opportunities for our people. We offer a wide range of tuition assistance programs to help us recruit and retain college students. In the U.S., college students made up more than 57.4 percent of our new part-time hires in 2005. It’s an ideal match—we pay for a significant amount of their college tuition plus an hourly wage and full benefits. Reducing turnover reduces hiring and training costs significantly, creating a worthwhile return on our tuition assistance investment. Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 24–25.

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Exhibit 4

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Global Reporting Initiative (GRI)

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 14.

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Exhibit 5

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Key Performance Indicators

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Exhibit 5 (continued)

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 15–16.

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Exhibit 6

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Work Force Diversity  

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 27.

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Exhibit 7

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Hazardous Wastes

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 61, 65.  

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Exhibit 8

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Automotive Accident Frequency  

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 35.  

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Exhibit 9

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Lost-Time Injuries  

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 34.  

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Exhibit 10

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Environmental Inspections  

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 64.  

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Exhibit 11

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Global Community  

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 36, 38.  

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Exhibit 12

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Fuel Consumption

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 48.  

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Exhibit 13

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Energy Consumed  

        Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 53.  

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Exhibit 14

UPS AND CORPORATE SUSTAINABILITY: PROACTIVELY MANAGING RISK

Greening the Supply Chain

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 44.

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Exhibit 14 (continued)

Source: UPS 2005 Corporate Sustainability Report, Operating in Unison (July 2006): 58.  

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