AMEX’s Top Dog Guides his Company Through Troubled Times
By Justin Remus
On September11th, Kenneth Chenault, Chairman and CEO of American Express, was fortunate to be in Salt Lake City, over 2,000 miles away from New York City. But other AMEX personnel weren’t quite so lucky—11 employees were either killed or reported missing due to the tragedy. Hardly surprising when you consider that AMEX’s corporate offices are only 50 feet or so from the Twin Towers site.
But let’s give Chenault credit. He responded quickly and decisively—and not just as a businessman, but as a humanitarian. He personally ordered …
…the evacuation of the AMEX building minutes after the first plane struck, and by afternoon, he’d called a meeting of his top execs to assure employee safety and customer service—in that order.
And he did more. Under his direction, 560,000 stranded cardholders went home on chartered planes and buses courtesy of AMEX. In addition, millions of dollars in delinquent balances and late fees were waived. He even increased credit limits for cash-starved clients.
Nine days later, Chenault called a town hall meeting for grief-stricken employees. He announced that he’d donate $1 million to the families of AMEX’s 9/11 victims. In a moment of spontaneity, he remarked, “I represent the best company and the best people in the world. You are my strength, and I love you.”
AMEX board member Charlene Barshefsky says, “The manner in which he took command, the comfort and direction he gave to what was obviously an audience in shock, was of a caliber one rarely sees.”
He’s certainly proven that he has the right stuff. In Chenault’s short tenure as CEO, he’s had more than his share of problems, but he’s never complained about the pressures or the burden, saying, “It’s been challenging, but I don’t feel that I’ve been put upon. The role of a leader is to define reality and to give hope.”
Indeed, Kenneth Chenault is a leader, but who exactly is he? And how did he get to the top of one of the most prestigious corporations in America, an international conglomerate that employs over 84,000 people, and brought in more than $17 billion of revenue in the first nine months of 2002? How did this native Long Islander, husband, and father of two sons emerge as one of today’s most visible and respected corporate leaders?
Well, his ascension to power hasn’t been easy—it never is when you’re an ambitious man of color. Considering that there are only three black CEOs of Fortune 500 companies (the other two being Richard Parsons of AOL/Time Warner and Franklin Raines of Fannie Mae), Mr. Chenault is a rare bird indeed.
In the past, he’s shown that he’s not comfortable with the media tying his accomplishments to his race, and he will subtly avoid the issue, saying, “When there’s an open playing field, people from different groups can succeed.”
He’s often stated that a CEO’s main function is to make sure shareholders prosper. Still, Chenault acknowledges that his appointment to CEO does come with high expectations—especially from other African-Americans, who project their hopes for social progress onto him.
Whether it’s politics, religion, or education, America is coming to terms with a new black elite. Many of these new black power players may have credentials that have nothing to do with their race, but in the case of Kenneth Chenault, one might ask: Is he a black CEO or a CEO who happens to be black?
The answer, obviously, is both, but Chenault has never been one to back down from confrontation, saying, “To me [differences of opinion] are not personal. I want you to argue with me.”
As a child, there were no early indicators that he was headed for greatness. Both his mother and father graduated near the top of their dentistry classes at Howard University, but young Chenault was a mediocre student, leaving his parents frustrated and disappointed.
By high school, however, he’d cleaned up his act and graduated with honors as class president. He went on to attend Bowdoin College (graduating magna cum laude with a degree in history), where he repeatedly debated fellow African-American students on the topic of whether or not blacks should work within the system to promote reform. During his graduate education at Harvard—where he earned an MBA and a law degree—Chenault continued to explore both sides of this contentious issue.
But there can be no mistaking what side he came down on. One only has to look at his meteoric rise to power at AMEX to realize that he firmly believes blacks should adapt—at least somewhat—to White America and its structural institutions.
To say his job is more than he bargained for is putting it mildly. However, many on Wall Street agree that he’s up to the challenge. His uncanny ability to assume an outsider’s view has proven to be crucial in the rebuilding of AMEX.
Over a decade ago, Chenault emerged as AMEX’s savior by helping to turn around a drifting company. During the 1991 recession, merchants complained about the 4% discount fee that they had to fork over with each purchase, which was more than twice the fee they had to pay for Visa and MasterCard. Chenault successfully reinvigorated the company by finessing AMEX’s relationship with merchants, cutting fees on many occasions.
Time and time again, he stuck by his guns, even when his ideas were strongly opposed by the old guard. During the 90s, AMEX continued to get pounded by Visa and MasterCard. Chenault fought for credit cards that targeted the general public. Many within the company feared that would tarnish AMEX’s upscale image, but Chenault prevailed.
He was on a roll. As president of the domestic consumer card division, he aggressively signed on retailers such as gas stations, supermarkets, and discounters, while simultaneously launching a frequent flyer program. His firm convictions won him not only great admiration, but also resulted in huge gains in terms of customer loyalty.
In an effort to attract a younger clientele, he also oversaw the issuance of the Optima card, which no longer required full payment each month. This, too, did not come without a struggle. Many company execs feared that this would erode AMEX’s standing with high rollers.
They needn’t have worried: Chenault’s plan worked. As the economy soared, so did AMEX’s charge-card volume, which jumped from $111 billion in 1991 to $297 billion in 2000. Chenault was consequently tapped as vice chairman in 1995. In 1997, he was promoted to president and Chief Operating Officer, and then to CEO in January 2001.
“He was the only senior executive who had the courage to express issues we faced in the credit card business and had ideas to help solve them,” says Harvey Golub, the former AMEX CEO who handpicked Chenault as his successor.
Despite his rapid climb to power, Chenault’s career as CEO hasn’t been one success after another. His first stumble was opting to cut the company’s losses by writing off only $182 million worth of risky high-yield junk bonds that had plummeted in value. When AMEX’s bond portfolio continued to hemorrhage money, shareholders wanted to know why he hadn’t cut more of them.
He tried to reassure them that the worst was over, but it wasn’t. The bond-portfolio problems continued to plague the company. After the $182 million write-off, Chenault cut the junk-bond portfolio fro 12% to 8% to decrease risk, but then he announced there would be even bigger losses—a whopping $826 million.
Investors were furious. They wanted to know why these high-yield junk bonds (which are so risky that they are often referred to as “toxic waste”) were even included in the company’s portfolio, but Chenault was surprisingly vague.
“I don’t know,” he replied. “This strategy was embarked upon seven or eight years ago. I don’t know all the rationale or philosophy.” That gave the impression that he wasn’t on top of the problem, and the business community started to believe that he didn’t thoroughly understand the risks involved.
Compounding matters were the events of September 11th—a disaster for many businesses, but especially for AMEX. Its stock fell almost 27% the first week after the attacks, resulting in a $12 billion hit for the company.
At that time, money generated by travel and card businesses accounted for three out of every four dollars of AMEX’s total revenue. Therefore, the decrease in airline travel and corporate entertainment inflicted severe damage on the company, which is still struggling with today’s economy, not to mention the enormous losses from the junk bond write-offs.
But Chenault does have a strategy. By maintaining a high level of service, aggressively building AMEX’s business with major and mid-size corporate clients, and running the travel and entertainment departments on an outsource basis, he believes AMEX is gaining market shares by doing what they’ve always done: selling “value and service” rather than just “price.”
He’s probably right. AMEX’s fortunes now look brighter, but Chenault is a realist, admitting that the company’s success is partly linked to the ups and downs of the economy. He doesn’t foresee a solid recovery coming until the second half of 2003.
Chenault’s not panicking, though. Of AMEX’s future, he says, “[We’ve] been around for 151 years. We’ve dealt with a wide range of crises and, at the end of the day, I think I’m up to the challenge.” Investors are keeping their fingers crossed.
No matter what happens in the immediate future, Chenault probably has another decade to guide American Express’s recovery and position it for even greater growth.
But his most enduring achievement goes far beyond the increased revenue, the methodology, and the vision that has marked his tenure. He has become an exemplary role model for all Americans, and is in inspiration to black youth in particular.
The way he reacted on September 11th is just one small indication of his character. His compassion for others, his integrity, and his willingness to take risks have made him a remarkable leader who cracked not only the glass ceiling, but the class ceiling, opening doors for minorities in the exclusive world of high finance. Kenneth Chenault’s phenomenal success is further proof of how the concept of black power has been redefined for the 21st century.
Copyright Star Media Spring 2003