Understanding Reality Leads to Success, Says Chenault of Amex
STANFORD GRADUATE SCHOOL OF BUSINESS —A few months after Kenneth Chenault assumed the CEO chair at American Express Co., the Sept. 11, 2001 terrorist attacks destroyed the Twin Towers, damaging the company's headquarters across the street in lower Manhattan. Eleven American Express employees lost their lives, and dozens more lost family members, friends, and loved ones.
The company, along with the nation's banks, brokerages, and investment firms, was further tested in the following months as it struggled with one of the worst financial crises in history. More recently, in the face of the global economic downturn, it sought government aid and slashed its workforce amid rising defaults by consumers.
In a March 1 appearance before Stanford Graduate School of Business students, Chenault talked about how he led the 67,000-employee company through those crises.
"Clearly my tenure has been one of confronting some of the most challenging crises we've seen in the last 100 years," he said. "But I take my motto from Napoleon: Make sure people are grounded in reality, and give them strategies to be hopeful."
Chenault said he learned it was "very important to analyze and communicate what the reality of the situation was, even if the facts were harsh." As for the hopeful part, he said his mantra over the past years was to "stay liquid, stay profitable, and invest in growth."
American Express, known as Amex, is a 160-year-old company best known for its credit card, charge card, and Travelers Cheques businesses. It has one of the most valuable brands in the world and was ranked by Fortune magazine as one of the most admired U.S. companies. About a quarter of all credit card transactions in the United States are American Express.
Chenault said he was proud of the fact that following 9/11 customers did not abandon the company. "People kept their cards and did not trade down," he said. But with limited access to cash, the company set about gathering more than $26 billion in deposits, "which helped a great deal."
The recession of 2008-2009 dealt another blow. Sales of credit card asset-backed bonds plummeted, hindering the company's ability to raise cash to fund new loans. The company was forced to eliminate 7,000 jobs and seek government assistance. It repaid $3.39 billion in Troubled Asset Relief Program funds in June 2009.
Reuters reported Amex said the cost of buying back the government's warrants to buy 24.3 million shares, together with the $74.4 million of dividend payments it made on the preferred shares, gave the government an annualized 26% return on its investment.
Chenault, 58, told the audience that he wasn't seeking an executive job when he joined American Express in 1981. His goal as part of the strategic planning group was to "work with bright people with good values and be allowed to do exciting things."
He said that not making personal ambition part of his career early on helped get him noticed. "I always believed that a focus on ideas that really change the status quo" was important, he said. "I liked changing the paradigm and it helped me."
Chenault, one of three African-American leaders of a Fortune 500 company, became president and COO in 1997, and chairman and CEO four years later. He is a 1976 graduate of Harvard Law School.
His appearance was sponsored by the student-run View from the Top Speaker Series and was part of the school's events commemorating Black History Month. He was interviewed during the appearance by second-year MBA student Roanak Desai.