Overview:
CEO Ken Chenault of American Express (Amex) and David Lieberman, media reporter, discussed the economic situation, consumer credit, and Amex’s business approach. Despite the uncertain economic climate, Chenault emphasizes the need for flexibility, competitive advantage, and customer-centricity.

Economic Environment:
Chenault acknowledges the challenging economic environment and focuses on navigating it while gaining competitive advantages. He emphasizes serving customers better rather than solely focusing on surviving the challenging times.

Consumer Credit:
Chenault acknowledges the correlation between falling home prices, credit impact, and reduced spending. However, he highlights the resilience of consumers and Amex’s focus on targeted growth. Chenault points out the importance of evaluating product portfolios for different customer segments.

Amex’s Business Strategy:
Chenault explains Amex’s diverse payments portfolio, emphasizing its leadership in consumer, small business, middle market, and large market segments. He highlights the attractive risk profile and high margins of the business-to-business segment. Chenault discusses the acquisition of General Electric’s corporate cards business as an opportunity to strengthen their leadership role.

Consumer Credit Card Debt:
Chenault acknowledges the record-high consumer credit card debt but emphasizes that write-off rates are still within a tolerable range. He stresses the importance of focusing on high spending, creditworthy customers and maintaining a balanced risk profile. Chenault points out Amex’s revenue mix, driven by transactions and fees rather than spread income, which provides a different economic model compared to banks.

Amex’s Lending Business:
Chenault explains that Amex’s entry into the lending business was driven by customer needs and the desire to accelerate lending progress. He clarifies that the company’s focus is on driving spending and providing a range of products and services to meet customer preferences. Chenault expresses confidence in the company’s ability to manage the lending business effectively.

Credit Concerns and Growth Strategies:
American Express (AMEX) is aware of the economic challenges posed by the mortgage crisis but believes in its ability to generate strong performance due to a diverse portfolio and various business levers. AMEX projected billings growth of 8-10% and write-off rates of 5.1-5.3%, aiming for decent earnings per share growth. Write-off rates are still within a tolerable range compared to historical data.

Customer Segments and Product Expansion:
AMEX’s past focus on teeny spending led to ignoring the demand for revolving credit, resulting in missed opportunities. To capture a broader range of customer segments, AMEX expanded its product offerings to meet personal spending needs and gain share of wallet. The company’s goal is to meet both personal and T&E (travel and entertainment) spending needs of its customers.

Travel Business and Global Growth:
AMEX remains committed to travel services, recognizing the ongoing growth in the sector. The company has successfully shifted its travel business economics to operate at lower costs while providing valuable services to clients. AMEX’s travel business has experienced growth in both the US and international markets despite the weak dollar.

Gift Card Concerns and Transparency:
AMEX acknowledges issues in the gift card sector, emphasizing the need for full transparency and disclosure. The company’s strong position as a trusted brand has contributed to the success of its gift card business. AMEX aims to ensure strong disclosure, transparency, and excellent service to address consumer concerns.

Growth Opportunities and Core Advantages:
AMEX sees growth potential in the credit card market due to the low penetration of plastic against cash and checks in the US and globally. The company’s focus is on driving spending through a spend-centric model, leveraging its core advantages in information management and customer loyalty programs. AMEX recognizes the value of its closed loop system, which provides valuable information about customer spending patterns and merchant data.

Privacy Concerns and Data Security:
Chenault highlights the importance of trust in the use of customer data. American Express does not share individual account data but aggregates and models data, with strong privacy policies. He emphasizes the need for rigorous systems, vigilance, and monitoring to prevent data breaches.

Background and Entry into the Corporate World:
Chenault’s initial interests were in public service and teaching rather than business. He was drawn to law school for its potential to effect change. Chenault had a stereotypical view of businesspeople, seeing them as stuffy, closed, and greedy.

Career Progression and Key Learnings:
He sought out environments with excitement and change, leading him to explore business. Chenault was intrigued by the talent and intellectual stimulation at Bain & Company. He emphasizes the importance of execution, measurement, and accountability in business. Chenault learned to analyze issues, gather perspectives, and formulate clear viewpoints.

Defining Reality and Giving Hope as a Leader:
Chenault quotes Napoleon’s definition of leadership as defining reality and giving hope. A leader must navigate competing forces and articulate a clear understanding of reality. A winning mentality involves acknowledging challenges but inspiring hope with pragmatic and aspirational reasons.

Aspirations for Company Success:
Chenault aims for American Express to be one of the most successful and respected companies globally. He defines success with specific financial metrics and measures progress over a 10-year period. The second aspiration is to be a highly respected and admired company.

Importance of Trust and Emotional Mastery (EQ) in Leadership:
Trust is crucial in an uncertain world, as leaders ask followers to take risks. Leaders must exemplify integrity, values, and behaviors that align with the company’s aspirations. Chenault believes good leaders can be trained through extensive leadership training programs.

Teaching Leadership and Aligning Values:
American Express has a comprehensive leadership training program, with business leaders directly involved. The program clarifies leadership behaviors and values tied to company aspirations. Alignment with company values is essential for engagement and success.

Leadership Qualities and Measurement:
Leadership is crucial for success and requires understanding qualities and gaps in one’s leadership abilities. Judging people in the company should include assessing their followership, as it reflects their leadership effectiveness. Leadership can be taught, measured, and requires focus from all levels of management.

Global Perspective on Gen Y:
Differences exist among Gen Y, but a global perspective is necessary to fully understand their characteristics. Gen Yers in China and India are highly driven and hungry for success, creating global competition for talent. Gen Y values alignment of their work with their beliefs and engagement in their roles beyond financial compensation. Feedback and connecting with Gen Y’s values and interests can lead to a highly motivated workforce.

Innovation and Avoiding Complacency:
Innovation is key to success, and companies must constantly challenge the status quo and reinvent themselves. Staying with the status quo can lead to complacency and stagnation, as seen in American Express’s experience in the 1980s and early 1990s. Innovation should be a key theme in a downturn, as it offers opportunities to gain competitive advantage.

Investing in Innovation:
American Express established a $50 million fund to encourage employees worldwide to come up with innovative ideas and proposals. Balancing short-term and long-term considerations is essential, and leaders must focus on both while addressing current challenges.

Kenneth Chenault’s Personal Motivation:
Chenault emphasizes that his primary motivation is driving success, not maximizing personal compensation. He believes that the best CEOs are motivated by achieving success and not solely by financial incentives.

Alignment of CEO Interests with Shareholders:
Chenault’s latest compensation package is designed to align his interests with those of the shareholders. The performance criteria for his compensation are challenging and require the company to achieve exceptional financial results. The package includes a significant component tied to the stock’s performance, ensuring that his rewards are linked to the company’s overall success.

Criticism of Executive Pay:
Chenault acknowledges that executive pay has sometimes gotten out of hand, but he believes that focusing solely on the level of pay is not the main issue. He argues that the emphasis should be on aligning compensation with performance and ensuring that incentives drive the right behaviors.

Compensation Structure at American Express:
Chenault highlights American Express’s compensation structure, which allocates 25% of incentive compensation to employee surveys, 25% to customer metrics, and 50% to shareholder returns. This structure is designed to motivate employees, focus on customer service, and align incentives with shareholder value.

Shareholder Involvement in Compensation Decisions:
Chenault discusses the concept of “say on pay,” where shareholders have the opportunity to express their opinion on executive compensation packages. He believes that while shareholders should not determine compensation directly, their input can be valuable in assessing the fairness and alignment of compensation practices.

Corporate Governance:
Chenault believes that shareholders should have the right to influence corporate governance but opposes micromanagement by shareholders. He emphasizes the need for a balance between short-term and long-term objectives in managing a company. Chenault cautions against expecting millions of shareholders to understand all aspects of a company’s strategy, as it may not lead to real shareholder value.

Political Contributions:
Chenault cannot endorse or contribute to presidential candidates due to a board resolution, but he can contribute to Senate and Congress candidates. He declined to comment on specific proposals by Hillary Clinton and Barack Obama for the credit card business, citing the importance of considering unintended consequences.

Credit Card Reforms:
Chenault acknowledges that the credit card sector has issues and supports transparency and disclosure reforms. He emphasizes the need to address certain practices in the industry that need to be changed. Chenault expresses concern about risk-based pricing potentially leading to segments of the population being denied credit and access to certain products. He calls for a dialogue and discussion on public policy issues related to credit cards to understand the trade-offs and unintended consequences of proposed reforms.

Advice for Young Entrepreneurs:
Chenault advises young entrepreneurs to close gaps in their leadership style by: Seeking feedback from colleagues and mentors. Developing a strong understanding of their strengths and weaknesses. Continuously learning and improving their skills.

Introspection through Upward Feedback:
Kenneth Chenault highlights the value of upward feedback in identifying areas for self-improvement. Early in his career, he received upward feedback that revealed a need to improve his listening skills.

Becoming a Better Listener:
Chenault recognized the importance of active and conscious listening to gain insights and build trust. He shifted his focus from solely relying on his ideas to considering others’ perspectives and ideas.

Integrity and Consistency:
Chenault emphasizes the significance of integrity in entrepreneurship, defined as the alignment of words and actions. Consistency in maintaining integrity is essential for building trust and confidence with investors and customers.

Customer-Centric Perspective:
Entrepreneurs should always prioritize understanding the customer’s needs and desires. Focusing on improving the customer’s performance or life is crucial for business success.

Analyzing Competitors:
Chenault stresses the need to analyze competitors’ strategies and identify gaps in their offerings. Understanding competitors’ weaknesses can help entrepreneurs develop innovative solutions that appeal to customers.

Key Points:
To stand out, companies need to have a unique proposition that resonates with customers.

Humanitarian Initiatives:
The Red Card program combines philanthropic objectives with profit-making goals. It aims to address societal needs while achieving financial success.

Balancing Profit and Social Impact:
Striking a balance between profit objectives and social needs is crucial. Clear communication and understanding among stakeholders are essential.

Market Evaluation:
American Express is assessing the Red Card program’s performance in London before expanding to other markets. Profitability is a key consideration in determining the program’s rollout.

Bloggers’ Interest in the Red Card:
There is demand for the Red Card in the United States, as evidenced by blogger discussions.

Market Sizing and Profit Opportunity:
American Express is evaluating the market size and profit potential for the Red Card in the United States.

Serving Diverse Consumer Segments:
Managing a strong brand while expanding and innovating without diluting the target market is a significant challenge.

Three Operating Principles:
Provide superior value to customers. Achieve best-in-class economics. Support and enhance the brand.

Maintaining Brand Value:
No compromises on brand value. Focus on enhancing brand value through partnerships and product expansion.

Customer Focus:
Understanding customer needs and the competitive environment. Tailoring products and services to meet customer demands.

Brand Measurement:
Regularly evaluate the strength of the brand. Measure the value of the brand to prevent dilution.

Avoiding Brand Stagnation:
Resist becoming overly protective of the brand, leading to stagnation. Expand the brand while maintaining its core values and identity.

Partnerships for Growth:
Collaborate with partners to provide increased value and expanded scale. Utilize partnerships to reach new markets and customer segments.

Growing the Brand:
Use the brand to drive growth and expansion. Treasure the brand as a moat around the company’s castle.

Brand as a Competitive Advantage:
Warren Buffet’s concept of a moat refers to a brand’s competitive advantage. Content and brand management are crucial for building a strong brand.

Conclusion:
Kenneth Chenault emphasizes the importance of managing by principles rather than rules. He highlights the significance of providing superior value, achieving best-in-class economics, and supporting the brand. Chenault stresses the need to measure and enhance brand value continuously. He advocates for collaboration with partners to expand scale and reach. Chenault concludes by emphasizing the importance of brand growth and protection as a competitive advantage.