Transcript: FedEx Founder and CEO Fred Smith on 'FNS'

WASHINGTON – The following is a partial transcript of the Dec. 2, 2007, edition of "FOX News Sunday With Chris Wallace":

"FOX NEWS SUNDAY" HOST CHRIS WALLACE: We continue our ongoing series "American Leaders" now where we reach out beyond the Beltway to talk with some of the country's most interesting and innovative people.

We're joined by Fred Smith, the founder and CEO of FedEx, the company that radically changed how the world ships packages.

And, Mr. Smith, welcome to "FOX News Sunday."

FEDEX FOUNDER AND CEO FRED SMITH: Thank you very much.

WALLACE: Let's start with a clip from Republican presidential candidate Mike Huckabee who, on the campaign trail, brings up FedEx in the context of the government's failure to track the 12 million illegal immigrants around the country. Take a look.

(BEGIN VIDEO CLIP)

MIKE HUCKABEE, FORMER GOVERNOR OF ARKANSAS: We've got a government that says we don't know what to do and how to keep up with people. If necessary, we ought to outsource this whole issue to FedEx and UPS. They seem to have a better way of keeping up with packages than our government does with people.

(END VIDEO CLIP)

WALLACE: Now, I don't know if you consider that a serious proposal or not, but when you look at the government as a business executive, do you see practices and principles that you think could be applied to government to make it run more efficiently?

SMITH: Well, of course. I think that the industry of the United States has proven, just like Governor Huckabee mentioned, that using information technology is possible to handle very large problems.

There are structural issues inside the federal government that prevents it from doing so, but technologically, it's very feasible.

WALLACE: I mean, are there things that as you sit down there in Memphis and you look at here in Washington that you just shake your head and go, "Man, if I were running that agency or that operation, I could change it?"

SMITH: Well, I don't think that I'm that...

WALLACE: I'm not asking you if you're running for office today.

SMITH: Yeah, but of course. I think anybody that's in the private sector understands that there is a lot of built-in inefficiency in government, and that perplexes a lot of people.

WALLACE: Give us an example.

SMITH: Well, the procurement system in the Department of Defense is built around not making a mistake, not having someone make money from the federal government that shouldn't and so forth. It's very risk averse.

And I think in the private sector, you would see a structure that's much more cost-effective rather than trying to prevent error. And those end up with having radically different results.

WALLACE: FedEx handles, and I was amazed when I read this yesterday, more than 6 million shipments around the world every day.

As you chart that these days, can you get a sense of how the U.S. economy and the world economy are doing?

SMITH: Of course. I think FedEx is a very good indicator of the economy around the world. We have this enormous global system. And we do have a very good insight on that.

WALLACE: So tell us what you see, because you've cut your profit forecast for FedEx recently. How much trouble is the U.S. economy in? And how much are you depending on increased growth from countries like China and India?

SMITH: Well, the U.S. economy has clearly slowed down. In 2002, the country spent about 3 cents out of every dollar on petroleum. And this year, it will be well over 6 cents.

That means we're sending about $400 billion a year offshore that we weren't before. That's clearly cut into the ability of the American consumer, particularly the paycheck-to-paycheck consumer, to buy products in this country.

So the economy is slower, but I don't think that it's going to go into some precipitous decline. FedEx is a global company, as you mentioned, and we are seeing robust growth in other parts of the world.

WALLACE: When you talk about — I mean, I think we all know that high oil prices, energy prices, are bad for the economy. But do you see it as the CEO of FedEx? I mean, is there — what do you see slowing down in this country? Are there fewer shipments of packages?

SMITH: Well, there are growth rates that are not as strong as they were before. I mean, we're still growing, but just not to the same degree that we were before, which points to the strength of the American economy.

But the financial crisis around housing and the automotive decline — they'll sell about a million cars less in this country over the 12 months that we're in than the year before. That's a lot of production and economic activity because of the run-up in fuel prices.

WALLACE: I want to talk with you — and it's the whole point of the "American Leaders" series, to pick your brain and the brain of people like you — about how you create a corporate culture.

You started FedEx as the world's first overnight express delivery system in 1971. You show up regularly now on lists of the world's most admired companies.

You have something that you call the "purple promise" to try to get maximum effort by your 280,000 workers. What is that? And how do you make that work every day?

SMITH: Well, the "purple promise" is very simple. It simply says I will make every FedEx experience outstanding.

We're trying to get all of those 280,000 team members to focus on the customer, to do their part of our daily job exactly the way the customer would like to have it done.

And on the other side of the coin, we spend an enormous amount of time trying to look after our folks. We are routinely noted as being a wonderful place to work, and our philosophy of putting our people first is integral to meeting those customer expectations.

WALLACE: But give us a couple of specifics. How do you do that? I mean, everybody has — we want everybody to have a good experience in our company. But how do you do that to make sure that the employee is invested in that mission?

SMITH: Well, we do it in a lot of ways. First of all, virtually everyone has some of their compensation related to how well the company is doing, either directly related to the number of shipments that we are carrying or the company's profitability.

Secondarily, we offer promotional opportunities to all of our employees. The heads of many of our business units started off as package handlers, you know, years ago, and now they're corporate executives.

We try to instill a sense of equity and fairness in the workplace. We try to communicate with our folks and keep them involved. We spend a lot of time working on that culture to keep that "purple promise."

WALLACE: You also say — and you mentioned before that one of your problems with government is you think it's too conservative in its business principles.

You say a successful company has to engage in constant change. Don't be afraid of risk and even of some failures. Explain.

SMITH: Well, in business, the record is very, very clear. The riskiest strategy is to try to avoid risk altogether.

Two thousand years ago, the Romans were talking about the inevitability of change, and the private sector in our country has been able to embrace change. That's been one of the strengths of our economy.

Government finds it very, very difficult to change in accordance with changed circumstances.

WALLACE: And don't be afraid of change?

SMITH: Well, you cannot be afraid of change, because if you are afraid of it, then inevitably, something bad will occur because you didn't change.

WALLACE: Finally, you are — and this is not as well known — a co-owner of the Washington Redskins football team.

On a personal level, your thoughts about the tragic death this week of football player Sean Taylor. And as an executive, how do you manage an organization, an enterprise, that is rocked by this kind of senseless tragedy?

SMITH: Well, it's been an enormous burden on the team. Sean was a wonderful young man, beloved by his teammates.

I think Dan Snyder, the majority owner, has expressed that, has done a wonderful job. And Coach Gibbs has tried to deal with this tragedy in the best possible way. It's just enormous, the loss of such a fine young man.

WALLACE: But I'm sure you've had tragedies with a huge worldwide company at FedEx. How do you keep a company going? How do you keep people — help them deal with grief, but also keep moving when you have this kind of tragedy that rocks an organization?

SMITH: Well, I think the most important thing is to focus on the fact that the individual, like young Sean Taylor, was dedicated to the Washington Redskins.

In fact, his father was gracious enough to come up and talk to the team and tell them how committed he was to the Redskins and how much he enjoyed being in Washington, being a Redskin.

And that's what you've got to focus people on when there is tragedy, you know, to go forward, just like President Reagan did after the Challenger disaster.

I mean, you've got to focus on what the people gave their lives to and focus on the future.

WALLACE: Mr. Smith, we want to thank you for coming in today and giving us a perspective we don't often get. Thank you so much, sir.