Wall St. and Business Wednesdays: E-Letter To Gregg Farrell and USA Today Re: "A CEO And A Gentleman"

I want you to know that I thoroughly enjoyed "A CEO and a gentleman", your April 25, 2005 Executive Suite profile of American Express CEO, Mr. Kenneth Chenault which I read during a recent airplane flight. I think you did as good a job as any article in touching on personal and professional aspects of Mr. Chenault’s background related to his leadership at one of America’s largest companies. It is no wonder he stands to earn a bonus of $9 million this year and comes as no surprise that American Express' first-quarter net income rose 19% to $946 million. I thought of what your article revealed as it relates to Mr. Chenault, his business strategy and philosophy; the corporate performance of American Express; and the issue of race.

From what I can interpret from your writing I am very impressed with Mr. Chenault’s worldview, which seems to revolve around identifying his company’s most profitable market segment, establishing and supplying new market categories, and responsive and flexible customer service. Certainly, American Express’ focus on relatively wealthier individuals and clients preceded Mr. Chenault, but I am impressed by how he provided even more focus to the company strategy and philosophy in his leadership of the company’s struggling merchandising operations, growing it by $350 million in sales in only two years. Mr. Chenault was able to do so by gaining a deep understanding of the nature of his customers’ demand, dimensionalizing it, and then supplying them with new services. As you write, "The results were eye-opening. Chenault realized that by analyzing the spending habits of AmEx’s customers the company could offer targeted deals to those customers from selected AmEx merchant partners. In two years he grew the business from $150 million in sales to $500 million."

You also describe this same insight and execution in how Mr. Chenault was successfully able to broaden its revenue base beyond a core category. You write, "In the 1990s, Chenault helped get American Express cards accepted at middle market retailers such as Kmart. Because of the new focus, AmEx has been able to shift its revenue base. In the 1990s, approximately two-thirds of AmEx cardholder spending was on travel and entertainment, the company’s bread-and-butter category. Only one-third came from retail and everyday spending. By lowering fees (AmEx now charges merchants about 2.5% compared with 2.15% for Visa and Mastercard). AmEx reversed that ratio. The shift helped prepare AmEx for the crippling effects on travel and entertainment spending that resulted from the terrorist attacks of Sept. 11, 2001."

What I see in what you have written is that Mr. Chenault realized that while the American Express card was a status symbol among its relatively wealthier users who did use their cards for specific purchases, those same users did more than just travel and take in entertainment. There were more dimensions to their lives that he realized American Express could serve, and he made changes that would make the card more appealing to some of the merchants that would see American Express customers in broader aspects of their everyday consumption life.

One of the things that I respect most about Mr. Chenault, from reading your article is his willingness and skill in confronting those within the company who resisted change. You write, "Chenault followed his initial success at American Express by becoming an internal champion of change. The company’s old guard balked at the idea of entering into partnerships with airlines or offering frequent-flier rewards to their customers, but he realized that such programs were the wave of the future and pushed for them. After missing out on deals with American Airlines and United, American Express eventually partnered with Delta Air Lines to issue a rewards card. Chenault also insisted that the company reward customers based on card use. ‘Throughout his career, Ken’s taken bold action,’ says Adam Aron, CEO of Vail Resorts, who, when he was at United Airlines used to deal with Chenault frequently. ‘Ken pushed the company toward the inclusion of loyalty marketing. I’m not sure that was an easy decision at American Express, but he felt it was vital, and he took the risk, and he was right.’

I also recognized this character trait and aptitude in what you describe, of how Mr. Chenault was able to persuade American Express, during an economic downturn, that it would be more productive to be responsive to the concerns and grievances of some of its merchants rather to ignore them in pursuit of high net worth individuals and corporate professionals. You write, “But when the economy turned south in the early 1990s, AmEx’s reliance on high-flying corporate spenders cut into profitability and angered merchant partners. A group of restaurateurs in Boston rebelled against the company’s high fees and dumped the card, causing embarrassment at headquarters. Not surprisingly, some of the old guard at AmEx didn’t want to engage in any dialogue with the rebellious merchants. They just wanted to cut them off. But Chenault headed up the effort at reconciliation."

It is not easy for a company to change, particularly those individuals within it who have grown accustomed to a way of doing things, and whom receive benefits and compensation from maintaining the status quo. That is what makes it especially hard for an agent of change inside of a company to produce a new way. Usually it is not reasoning and persuasion alone that prevails, but rather that reasoning and persuasion combined with an internal or external 'shock' – recession, new competition, legislation, scandal, or catastrophe. One can see from reading your article that in the economic downturn of the 1990s and the events of September 11, 2001, Mr. Chenault has found fertile ground, and even a recognition of a need for change at American Express. Many can argue about the broader effects of 'change', for example, his difficult decision to lay off 16% of the company's workforce - 14,000 people - but that discussion should include the subject of the maximization of shareholder value and the high place it garners in corporate decision making.

While I think that producing change in a corporate culture and business strategy is hard enough for anyone, I think it can be relatively more difficult or easier for Black agents of change working inside of companies. This ultimately depends upon two factors: the constitution of the Black agent of change, and the intensity of resistance to change due to racial prejudice and discriminatory practices. It can be more difficult if the latter is stronger than the former and relatively easier if the former is greater than the latter. I honestly believe that many Black American professionals and CEOs are potentially better prepared, on average, than those who come from other groups – perhaps even very intelligent and skilled immigrants (they know a great deal and may have endured much, but lack an nuanced understanding of Americans that can only come from experience) - to produce change in corporate culture and business strategy in American companies because in a great many cases they have more experience in facing adversity; persuading and negotiating with others; and dealing with rejection – characteristics, aptitudes and experiences that are essential to operating, managing and leading large organizations. I saw this in your account of how Mr. Chenault handled and balanced the interests of Black students seeking change, and those of an entrenched White establishment at Bowdoin College in the early 1970s. You wrote:

Geoffrey Canada, a college friend who now runs the Harlem Children's Zone, recalls that Chenault was one of the only members of his circle who excelled in academics while remaining politically active. More important, Chenault distinguished himself as someone who could wrest concessions out of the leadership of the overwhelmingly white institution.

"Ken was always someone who could broker the demands of some of the ones, myself included, who were more radical, less patient and sometimes more foolhardy in our demands," Canada says. "We would come up with a list of impossible demands for the college to meet, and Ken would bring back a list of what we really needed."

As an example, Canada says, Chenault focused on Bowdoin's impending decision to appoint its first African-American professor. He led the drive to make sure that the new professor wasn't going to be a symbolic appointment in a field such as African studies. The bid succeeded when Bowdoin named an African-American professor of science, biology and chemistry.

Few deal with it directly, choosing to focus more narrowly on the immediate debate regarding the merits and imperfections of affirmative action. But the deeper impact of slavery and discrimination, in my view, as it relates to the currency it has given the heart and mind of Black people, and how that relates positively to their everyday professional behavior and performance has not really been adequately addressed. And I believe that Blacks themselves do not even feel comfortable addressing it. Perhaps one could see that in a quote, in your article, from a friend of Mr. Chenault’s, Geoffrey Canada, "If there's one thing Ken is concerned about his legacy, it's that someone will think he got where he got to because he was African-American and not because he was better than everyone else. If someone said he was the best African-American CEO, he would be miserable. He wants to be the best CEO."

Perhaps, I offer, we might one day see that Mr. Chenault is the best CEO and better than everyone else because he is ‘African-American’.

Who knows?

Maybe you will be the one to write that article.


Sincerely,
Cedric Muhammad
Publisher
Blackelectorate.com
http://www.blackelectorate.com

Wednesday, May 11, 2005

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