A Principled Leader
Kenneth I. Chenault, a member of the Bowdoin College Class of 1973, capped a steady 28-year rise to international corporate prominence early in 2001, when he was named chairman and chief executive officer of the American Express Company.
As friends would later tell him, his timing couldn't have been worse
Founded in 1850 as a freight forwarding business, American Express has continually reinvented itself over the years as market conditions and customer needs have changed. In its early days, the company transported cash, securities, gold, silver, beads, brandy and even live alligators across an expanding America. During the Civil War, it delivered packages to and from Union soldiers and their families. In 1891, American Express invented the "traveler's check," on its way to becoming a global travel services company by the 1920s. During two world wars, American Express helped war-stranded tourists and made travel arrangements for Allied war leaders and diplomats. In 1958, American Express introduced the first charge card Ð made of paper. A year later, the company issued the first plastic card. By the 1980s, bolstered by a hugely successful ad campaign featuring celebrities issuing the still familiar "Don't Leave Home Without It" tag line, American Express joined the mergers and acquisitions mania sweeping the country. Criticized for losing its way (as well as a significant amount of money), the would-be expansion into a "financial supermarket" was later undone as the company refocused on its core businesses. Today, American Express is a $62 billion payment, financial services and travel company with more than 75,000 employees.
Like any organization that has endured for over 150 years, American Express has seen its share of ups and downs. For Ken Chenault, the "downs" came hard and fast. Just as Chenault was taking over as chairman and CEO from Harvey Golub in 2001, the economy started to head into a downturn. Almost immediately, Chenault had to deal with write-offs of more than $1 billion of risky junk bond investments at one of its subsidiaries and a downturn in the price of American Express stock as businesses began to scale back on their employee travel plans. Then came September 11th.
Chenault was on a business trip in Salt Lake City when the towers of the World Trade Center collapsed literally across the street from American Express headquarters at the World Financial Center. Eleven American Express employees working in the neighboring towers perished in the terrorist attacks. Meanwhile, thousands of other company employees were still in Lower Manhattan, and hundreds of thousands of American Express cardholders were stranded in airports around the world. Working the phones from Salt Lake City, Chenault instructed security to evacuate the company's headquarters and then organized a meeting of the company's top executives. Within hours, American Express was helping more than a half-million cardholders get home, increasing credit limits for those without cash and waiving late fees. Nine days later, at an emotional gathering of nearly 5,000 American Express employees at New York's Madison Square Garden, Chenault went about personally consoling grief-stricken employees and giving them a sense of renewed hope and confidence. According to Business Week, Chenault that day "Édemonstrated the poise, compassion and decisiveness that vaulted him to the top."
Nearly two and a half years later Ð two and a half years that have been as challenging as any for the travel and financial services sectors Ð things are looking up at American Express. The company's stock, which significantly outperformed the S&P 500 in 2003, has doubled since the days immediately following 9/11. With a recent federal antitrust ruling against competitors Visa and MasterCard Ð which had blocked access to their member banks Ð American Express is poised to enter into card issuing partnerships with U.S. banks. It is also working to give something back to the New York City community it calls home by backing a $5 million campaign to reopen the Statue of Liberty Ð closed to visitors since 9/11.
From Ken Chenault's 51st-floor offices at the World Financial Center, visitors get a sense of the complexities facing this man widely acknowledged as one of America's most skilled corporate leaders. The scene outside the window Ð of New York Harbor, of the Statue of Liberty, of Wall Street, and up the entire bustling island of Manhattan Ð suggests optimism, accomplishment and power, while the lighted crater directly below at Ground Zero is reminiscent of the struggle still underway to move beyond the dark days of the last two years. In December, Ken Chenault sat down amid this backdrop for an informal 50-minute conversation with Bowdoin magazine's Scott Hood Ð a discussion with the Bowdoin graduate and honorary degree recipient who almost never came to Brunswick Ð about his Bowdoin career, higher education, affirmative action, his rise to the top of American Express and the values that make him one of America's principled leaders.
BOWDOIN: How's business?
CHENAULT: Pretty good. In fact, we're very pleased with the financial performance that we've been able to generate over the past couple of years. The external economic environment over the last few years has been challenging, and then obviously post-9/11 has been difficult for anyone involved in the travel sector, but we made a number of changes to develop a flexible, adaptable business model that's given us the opportunity to generate good earnings and invest for growth, even so.
BOWDOIN: American Express has been in the news lately Ð one story having to do with the Statue of Liberty.
CHENAULT: Yes. As you know, the Statue of Liberty has been closed since 9/11 because of security concerns. American Express has a very long history supporting the Statue of Liberty, going back to 1885 when we provided money to help fund the Statue's pedestal. In 1976, we donated money for restoration work and underwrote a documentary film about the history of the Statue. American Express also developed a cause-related marketing program in 1986 to fund restoration work on the Statue for the centennial celebration and raised close to $19 million. So when we heard that the Statue could not be opened because of the cost of putting in more security, we decided to step forward. Every time you use your American Express card we will make a donation to the Statue of Liberty, up to $3 million, and if the campaign does not raise the full $5 million needed, we've made a commitment to make up the difference.
We believe that the Statue of Liberty is an important symbol of freedom for our country. And as [film director] Martin Scorcese, who is involved in the StatueÕs latest fundraising campaign, said, what is most impressive is not just what the Statue of Liberty represents for Americans but really what it represents to the whole world.
BOWDOIN: The other news was that you prevailed in court regarding a legal action against Visa and Mastercard.
CHENAULT: Yes Ð but what's important is the government prevailed. The focus of the case is really about freedom of choice. My personal view is simple: one of the things our Constitution stands for is freedom of choice. ThatÕs really all thatÕs being sought by the government in this case Ñ for banks to have the opportunity to work with us and the opportunity to choose freely.
If that happens, there will be increased competition, and consumers will benefit. We think the ruling is a major victory for consumers. We obviously also think it's beneficial for our company, but the reason the government brought the lawsuit was not to help us but to help the consumer. I believe the legal machinations will be over by the second half of 2004 and we will then be able to work with banks to issue American Express cards.
BOWDOIN: You see that as a pretty important step for the future of the company.
CHENAULT: It's very important. If you look at the top 25 global financial services firms by valuation, we have the highest price earnings multiple. In addition, most of our growth has been driven organically. The reality is that the American Express network does not need to be open for us to achieve our financial objectives. However, certainly the opening of the network will provide substantial growth opportunity for our businesses. It will give us the opportunity to increase our scale and relevance in the marketplace, and enable us to introduce a wide variety of new products with our bank partners.
BOWDOIN: Let me ask you about your Bowdoin experience. I understand that you began your college career in Springfield.
CHENAULT: Right. I went to Springfield College.
BOWDOIN: So, how did you end up at Bowdoin?
CHENAULT: When I was in school I was very interested in sports and played soccer, basketball and track. Springfield offered me an athletic scholarship to go there, so I did. Eventually, I decided that I wanted an institution that had a very strong reputation in the liberal arts. One of my mentors at the time was the headmaster of my [secondary] school, Peter Curran, who was a graduate of Bowdoin [Class of 1946] and a strong supporter of the College. Peter brought me up to Bowdoin to spend a weekend. I liked the campus and I liked the people.
BOWDOIN: So you had a positive reaction?
CHENAULT: Very positive. Bowdoin was clearly more isolated, but I felt it was a microcosm of our broader society. At that time the College had made what I thought were some very good steps in [increasing] diversity. We had a fairly sizable African-American population on a percentage basis with a large number of international students. My sense that weekend was that Bowdoin was a very eclectic environment, so I didn't feel I was going into a narrow, highly parochial environment.
BOWDOIN: Yet Bowdoin was then and is now in a very homogenous state Ð today Maine is supposedly the "whitest state in the Union." Was it enough just to have an eclectic environment on the campus?
CHENAULT: I was more focused on the overall college experience. I also liked that Bowdoin was not in an urban setting because I thought that would provide less temptation for me and I could focus more on my studies.
BOWDOIN: You've talked previously about the many hours you spent at the [Afro] Am debating the issues of the day with [fellow student] Geoff Canada [Class of 1974] and others. Did you consider yourself an activist when you were in college?
CHENAULT: Was I a raging radical? No. Was I someone who enjoyed arguing about ideas and concepts and was very aware of the issues that we all faced in the '60s and '70s? Yes. I was very aware and very involved.
BOWDOIN: But you had a different approach than some of your peers.
CHENAULT: My view was that it was important to try to bring about change within the system. I was a history major at Bowdoin and as I looked at different movements in different stages in history, it was clear to me that it was important to have some segments of any particular group work within the system. These people could bring an enlightened view or a different set of perspectives. I thought to work totally outside the system was destructive and counter-productive in the long term.
BOWDOIN: Did some of your friends butt heads with you about that?
CHENAULT: Some did. But what I think was unique about Bowdoin Ð and maybe it was the size of the school and its environment Ð is that you couldn't isolate yourself. We had real discourse, real debate on the issues. At the same time, there was also respect. As a result, people saw you on a personal level, not just as a representative of a certain group or of certain ideas. And I think that was quite important.
BOWDOIN: You actually wrote a paper while at Bowdoin that took issue with one of the ways the College was promoting itself.
CHENAULT: A number of colleges started to claim that they had graduated the first black in American higher education. At the time, Bowdoin was out in front with this claim [John Brown Russwurm, Class of 1826]. (It later turned out that [Russwurm] was not the first) I decided to do a paper on blacks at Bowdoin from the time Russwurm graduated through the 1960s.
I found that Bowdoin had some exceptional black graduates. It was incredible reading about their trials and tribulations and successes coming into an environment that was sometimes hostile, or at the very least mixed in its reception. I also learned that there were a few people in the local community and faculty members who played important roles for these individuals. Writing that paper gave me a sense of awe at the level of talent that had come to Bowdoin over the years.
You asked me how I ended up at Bowdoin. Frankly it is far more interesting to find out how these people wound up at Bowdoin and what sustained them, what got them through. What Bowdoin can be, and should be proud of, is that it had some incredibly illustrious and impressive blacks who went there during some very challenging times. Also, I didn't just focus on Bowdoin in my paper. I looked at other graduates of New England colleges. While there were similar experiences across the colleges, 80 to 90 percent of the blacks at Bowdoin at that time graduated with high or highest honors. So it was a very accomplished group.
BOWDOIN: You majored in history. Did Bowdoin's Civil War connections with Brunswick interest you at all?
CHENAULT: Yes, absolutely. I was fortunate to have developed close relationships with a number of professors. In history I had Jim Bland and Dan Levine, who were both terrific. I also enjoyed Professor Karl's European history course. The College's breadth and depth of talent and its very history were impressive. Also, the fact that the Afro-Am was a site for the Underground Railroad was very poignant and very meaningful to me.
BOWDOIN: Let me just shift a little bit and talk about higher education in general. Higher education Ð and particularly highly selective liberal arts colleges like Bowdoin Ð seems to be under fire these days for our cost, for questions about accountability and for worries about outcomes Ð whether we are preparing students properly to enter the workforce. From where you sit as the head of a Fortune 500 company, how do you view what's going on in higher education today, and do you still believe in the value of a liberal arts education?
CHENAULT: I am a strong believer in liberal arts education. It's important both from the standpoint of our company as well as for society at large. Just think about the world today Ð about globalization, about the need to understand different cultures and perspectives, the ability to be intellectually curious. One of my concerns is that our young people must make choices very early in life about what they're interested in. If they don't, people think they will be pushed by the wayside. But what we really need today are people who have broad perspectives, people who are willing to take some chances intellectually and learn about subjects that they may not be the best in the world at. We need people who are going to be intellectually curious. In our society, some people don't have the courage or don't have the curiosity to explore even though they have the opportunity to do so. A liberal arts education enables you to develop a very broad perspective and to have an increased willingness to embrace the unknown.
BOWDOIN: These days, some people think of college as vocational school, that you're supposed to specialize in something and stick to it.
CHENAULT: A liberal arts education is critical in providing people with broad perspectives and helping them to ultimately become effective leaders. Now, is it useful to have technicians in a range of fields? Absolutely. That's part of what educational choice is all about. But the liberal arts institution has a very special role. It's not an either/or situation at all, but I think more than ever in my view, liberal arts education is critical.
BOWDOIN: Yet there are a lot of skeptics who question the ultimate value of a liberal arts degree. There's the apocryphal parental question: "What are you ever going to do as an English major?!" Plus, colleges like Bowdoin are said to educate fewer than two percent of the population these days.
CHENAULT: If we analyze the leadership that has come out of liberal arts institutions and the impact these leaders have made on broader society Ð not just in the U.S. but around the world Ð you can't go by the numbers. This is the unique role of liberal arts colleges, and particularly colleges like Bowdoin. The point I make is the same in business Ð there is a role for scale. And that's critical. But there's also a role for very poised and focused competitors. The impact of graduates of liberal arts colleges is disproportionate to the percentages and size of their population.
BOWDOIN: Let me take you back to the issue of diversity for a moment. It's thirty years since you graduated, and Bowdoin still struggles with creating a diverse campus community, although it's been reasonably successful in recent years. Some argue that the process of building racial, socio-economic, ethnic and other forms of diversity on campus is nothing more than unnatural social engineering or pandering to political correctness. I assume you truly believe in the need for a place like Bowdoin to become more diverse.
CHENAULT: Absolutely. American Express was a strong supporter and actually filed an amicus brief on the University of Michigan's affirmative action case. I would cite some of the work by one of our board members, Bill Bowen, former head of Princeton and head of the Mellon Foundation, who speaks in a very eloquent way in several of his books about the importance of having a diverse student population. First, it's reflective of the world in which we live. Second, and we see this every day, the inability to understand different perspectives comes at a great cost to our society overall, both on a domestic and international basis. It is essential for educational institutions that are preparing their students to function in a wider world to have a diverse environment. In addition, it is wrong to assume that historically all the problems are solved. There are a number of groups who have been denied opportunities over time. Affirmative action is an important way to redress these inequities and provide opportunity. What society needs now are people who understand other cultures, who have broad perspectives, and who don't just accept but embrace differences because they understand how it's beneficial to do so.
BOWDOIN: In the University of Michigan cases, the Supreme Court essentially set a time limit for affirmative action programs, saying it expects the use of racial preferences to be unnecessary in 25 years. Is that enough time?
CHENAULT: I was very pleased with the Supreme Court's decision. Social change sometimes doesn't come in step function. Who would have thought the Berlin Wall would have come down in the timeframe that it did? Who would have thought that Mandela would have gone from prison to being prime minister of South Africa? Although I think twenty-five years sounds optimistic, hopefully I'm proven wrong.
BOWDOIN: You are frequently featured in magazines and newspapers listing America's top African- American executives. Is there a disadvantage to being perceived not as a top executive, but as a top "African-American" executive? How do you react when you see those lists?
CHENAULT: A point my parents worked to impress on me is that while African-Americans were denied opportunity in this country, they historically had the capabilities to perform. It would be incorrect to take a view that all of a sudden someone was qualified to do the job. However, the reality is that, given who I am and what I am, I'm going to be scrutinized, so I think there is a responsibility that I need to give back to society and that I need to perform. So I don't feel that IÕm in a disadvantaged situation as an African-American CEO because part of what one recognizes early on in business is that results and outcomes are what are most important. Of course you want to be in an environment where that's acknowledged. Fortunately at American Express I've benefited from being in an environment where not only results and outcomes make a difference but also how you achieve those outcomes matters Ð what are the leadership traits that you displayed, what are the values that you try to manage by to motivate and inspire the organization? That's what's most important.
BOWDOIN: But do you acknowledge a certain responsibility as someone on one of those lists?
CHENAULT: Yes. I'm not one for lists in general, because you don't know the criteria they use or how they construct the rankings. But I clearly recognize that there are few African-Americans in my position and that I do have a responsibility and an obligation to give back. I think it would be a mistake to distance myself and say, "I'm in this position so therefore I'm not going to have any involvement at all." That's just not my make-up. And like it or not, I don't think I can take the position of some people who say, "Look, I'm not a role model." I am a role model, and I've got a responsibility and an obligation to live up to that.
BOWDOIN: American Express, though Ð what one might say is the epitome of an old school, establishment company Ð is it ironic or strange that this would be the Fortune 500 company where an African-American person would become CEO?
CHENAULT: What's interesting about American Express is clearly the card itself was originally targeted to business people, and in those days most of those business people were white men. The reality is that the company has been a global company much of its history. Because we're in the service and travel business, which is a very strong part of the heritage here, we've had to cross borders, we've had to understand different cultures, and we've had to be far more open. Our culture is so grounded in that service orientation and openness, that American Express is a terrific fit for me.
BOWDOIN: You became CEO here at the start of 2001, and you had a pretty shaky first year. First the economy, then the attacks on the World Trade Center right across the street.
CHENAULT: A challenging first year. Absolutely.
BOWDOIN: 9/11 aside for a moment, were expectations too high for you, for the company, given what was going on in the national economy?
CHENAULT: No. If you think about 2001, we had a very difficult economic environment even before 9/11, and if you think about how a number of companies fared in that period, certainly post 9/11, it was incredibly challenging. A point I make to the organization, however, is that when you've got a company that has strong values and a clear understanding of what its strategy needs to be, we can surmount those challenges. Since 2001 we've made fundamental changes to make our business model more flexible and adaptable so we can deliver solid financial results without robust economic conditions. We've improved our growth prospects, and we've gone from a situation where some people were worrying about the future of the company to now having the highest price earnings multiple of the top 25 financial services companies in terms of valuation.
Leadership is also obviously very important during challenging times. When I talk about leadership, I often think of something Napoleon said: that the role of a leader is to define reality and give hope. Now, I don't want to wind up like Napoleon, but this is the most simple definition of leadership. In 2001 I tried to communicate to the organization the reality of the situation we were in. You've got to tell people the hard truth, that there are difficult actions that you must take, and what the consequences are of those actions. However, you must also provide reasons for why people should be hopeful. A reason for hope that I communicated to our employees during 9/11 was that American Express has been around for more than 150 years and we'd faced many crises during this time, including wars and natural disasters. Every time, the company dealt with the crisis head-on and emerged even stronger, more resilent.
The mistake some people make is that they use short-term data to come up with long-term conclusions. Clearly 2001 was very challenging but I was convinced, based on the history of the company, that our strategies, and the leadership direction that I was taking, would enable us to effectively deal with the challenges and issues. It would not have been helpful if I simply said, we don't need to do anything, somehow things will work. But we probably brought about more change in this company in a two-year period than we brought about in decades, and that's positioned us very well going forward. Overall, we succeeded, building on our values, not compromising them. That's essential, especially in these times.
BOWDOIN: What are those values?
CHENAULT: First and foremost is integrity. I believe in that very strongly. I will not tolerate a lack of integrity in the organization. It's not just about honestyÐ that's critical, but it's also about consistency of actions with words. We also have a very strong value in service. That service orientation is critical because I think it's a privilege to serve. A point I've made to the organization is that we are here to serve our shareholders, our customers and our employees. We are not a not-for-profit institution, but if we serve our employees well, they're going to serve our customers very well, and the shareholders will reap the benefits of that.
In 2001-02, we had to take some very tough actions, and reduced our workforce by over 15 percent. Very, very difficult actions. At the same time we were putting in programs for growth. What I tried to communicate to the organization was what I saw as the future of the company and why these difficult actions were necessary in the short term. These were a very tough set of decisions that I had to make, and while we didn't hesitate as far as the need to make them, I made sure not to compromise the values that we think are important in implementing those actions.
At American Express, 25 percent of the compensation for our leadership group is derived from how well they meet their employee-oriented goals. One component of that is an employee evaluation survey. Some years you get marked down on your compensation if the survey results decline. In 2001, 2002 and again this year, however, we achieved some of the highest scores. In fact, the scores improved year over year during this time. So with all the challenges that we face, we have a very highly motivated workforce that's in line with the direction that we're going, and that's critical. I feel good not just about the company's financial success, but also that our growth is sustainable because we have a highly motivated workforce and we have strategies and tactics in place that enable us to give value to our customers. That's how we'll generate consistent and good returns for our shareholders.
BOWDOIN: Overcoming periodic economic challenges is one thing, but no one could have predicted the events of 9/11 here in New York when the World Trade Center was attacked and collapsed directly across the street from your offices. You were described in the media as having handled that situation with a great deal of "compassion." That's not a word typically associated with a hard-charging corporate leader.
CHENAULT: After 9-11, I told our senior management team that this was a tremendous leadership challenge that each of us was facing and I wanted them to be courageous. I wanted them to be decisive, to not shirk away from taking tough actions. I also told them to be compassionate. If the organization believed that they were not compassionate, particularly in these times, they would lose their privilege to lead. I wouldn't be the one to take away their leadership Ð the organization Ð the people Ñ would. Compassion can be offered without sacrificing a sense of urgency or a strong will to win. That's one of the values I believe in very strongly, and I talk about it in the organization. I want to win the right way. I'm very competitive. I've got a strong will to win, but I want to win the right way. That's my focus.
BOWDOIN: One last question. You're a relatively young man at the top of a major company. You've worked hard your whole life, and have achieved this at a relatively young age. How do you sustain that drive into the future?
CHENAULT: I think, at the end of the day, that it is a mistake simply to pursue a job. Instead, you should pursue a way of life. The opportunity for me is to make a fundamental difference in people's lives, both inside and outside the company. To lead a very successful enterprise that is not just focused on achieving business success. That's a consequence of doing the right things for our employees and our customers. The challenge of operating a global company is a terrific, terrific opportunity. You cannot be successful as a CEO in the short, moderate or long term if you don't have a passion for what you're doing. Because the challenges and the issues are so substantial that if you don't have that passion, you're going to wilt. Fortunately, I think I've got that passion.