The World Around Us- Ken Chenault Zeitgeist Americas 2012

Uploaded by zeitgeistminds on 15.10.2012

>>Eric Schmidt: I thought it would be interesting to start
by saying so this is my Centurion card which I am very proud to have. Explain to me why
I should want this and why everyone else wants it. What's the secret that got this to be
so successful? >>Ken Chenault: Here is what's important about
this card -- >>Eric Schmidt: You can't take it. It's mine.
>>Ken Chenault: I always like to at least feel these things, titanium.
But what's very clear about American Express is when the card was developed in 1958, which
I would add was during a period of a deep recession, and that's the importance of innovation,
and was against the advice of one of the leading consulting firms, which I will not name, that
said that we should not enter the card business because it would cannibalize the travelers
check business, which goes back to the need to disrupt and reinvent yourself. And fortunately
that advice was not followed. But the way I talk about the card in our company
is the card is in fact a platform to deliver services. So the reason why you should get
the Centurion card and one of the reasons why it is one of our most popular products
-- and we in fact set a limit on how many of these cards we will issue -- is because
of the personalized service that we provide. So one is you have your personal concierge,
your travel rep, who is trained to follow what all your personal needs are.
>>Eric Schmidt: I've actually used this. It's actually quite good, so we're clear.
>>Ken Chenault: That's right. Second is, which for you, Eric, is not a big issue, but if
you travel commercially -- I had to get that in.
>>Eric Schmidt: Let's not go into that. >>Ken Chenault: And you are traveling first
class and you have a companion, that companion flies free.
What is important is the service ethic that is involved in the product. That basically
any -- >>Eric Schmidt: Are you saying I get a free
first class ticket for a companion if I just use this card?
>>Ken Chenault: Yes. If you use it with certain airlines.
>>Eric Schmidt: Which? >>Ken Chenault: I'll give you the list.
But what's most important is that we find a good percentage of Centurion members, in
fact, own their own business. And people, in fact, are rational and the reality is that
if you -- and they own medium-size businesses where they don't have all the concierge services.
>>Eric Schmidt: Did this actually start as a small business card and you -- it started
off as a luxury card? >>Ken Chenault: It started off as a card and
I don't call it luxury, I call it meeting the needs of the customer.
>>Eric Schmidt: Because you now offer this to CEO's of medium-sized businesses and you
also provide other financial services for those small businesses.
>>Ken Chenault: That's right, that's right. So I think the important point is that we
really focus on value and service for each segment.
And what I will say is if you're not someone who travels a lot internationally, if you
don't have a high need for a high level of personalized service, our customer service
reps -- and you don't spend at a certain level, our customer service reps are saying this
is probably not the appropriate product for you. Here's another type of product.
So our objective is frankly not to get millions of Centurion cards out there, it's to get
the Centurion cards to the right customer segment.
>>Eric Schmidt: In the sum of the revenue of the firm, where does the segmentation of
revenue come out? Is it mostly the credit card fees, mostly the travelers checks? And
there's a whole interest which maybe you can explain how the money is actually made.
>>Ken Chenault: Here's what's important about our business, and I think it's critical where
commerce is going, is only 15% of our revenues are generated by spread. So the difference
of the cost of funds in the interest charged. That is very different from a traditional
bank card where 75% of their revenues are generated by spread.
So -- >>Eric Schmidt: In fact, you don't charge
interest normally -- >>Ken Chenault: Except on our revolving credit
product. >>Eric Schmidt: What's the name of that?
>>Ken Chenault: We have a range of card products. One of the things we have done are dramatically
since the '80s is literally we have hundreds of different card products from a micro segmentation
standpoint that meet the needs of different customer segments.
We also collect a merchant fee because our customers spend five to six times what someone
on MasterCard or Visa does. So that goes back to the price for value.
>>Eric Schmidt: One of the things that you were talking about as we were walking in is
you are expanding your focus in underserved markets. Again, there's a presumption of American
Express as sort of -- I'm going to use the word high end, high quality, high end, high
service. What's the truth about your broad expansion? What does that actually look like?
>>Ken Chenault: Here's what I think is very important as I've said to the company is,
one, back to some of the points that Doris was making about history, we're a company
that's been around 162 years. The card business has been in existence for 50 years.
We started off as a freight forwarding company, moving goods from east to west and back and
forth, and I think helped -- in many ways helped build this country.
The travelers check business worldwide product did not have any income requirement, but the
service ethic of this company built our brand, and that enabled us to offer the card product.
So part of what I said to our company is what has changed dramatically in commerce, certainly
by companies like Google, is the definition of scale has changed in a major way, and as
a company our purpose, our higher purpose, is to serve. And it's to serve different customer
segments. So what we recognized is as we were moving
into digital that we had to increase our scale and we had to increase our relevance.
And one of the statistics that is pretty amazing to me in the United States, 28.3% of the households
are unbanked or under banked. Bretton Woods did a study that the average cost to someone
in that category of having a checking account is $259 per year.
>>Eric Schmidt: This is a new fact. Why is this the case? Is this because the cost structure
is too high? Are these people being exploited? >>Ken Chenault: I think it's a combination.
I think at the end of the day what has happened -- and I've been a proponent of this over
the last several years -- is the lower middle class and the underclass are in fact being
taken advantage of and are having less access to services. If you look at the fees on prepaid
cards and on checking accounts, they are substantial. So we in fact announced a product last week
that I'm very excited about with Wal-Mart. And it's called Bluebird, and it's a product
that is off of a digital platform. It really recognizes the convergence of online and offline.
It's geared to the under banked and the underserved. It has -- you can use it on your phone. You
can use it offline. And in fact, we've taken off almost all the fees. So if you compare
it to a prepaid checking account, we've taken off all the fees.
Our economics allow us to do that because we can charge the prepaid rate that we charge
to merchants allows us to get economics that are satisfactory to us, but the value proposition
we think is an exciting one. And so we see this as helpful in, in fact, driving our progress
in our digital transformation, but very importantly we see this as meeting the needs of people
who really need a product, who need a product that, in fact, can work offline and online.
And we do not think it's going to dilute our brand at all because we have a range of products
that meet the needs of different customer segments. And I believe that's the future.
>>Eric Schmidt: You said 15% is in the traditional spread. What's the other 85% composed of?
>>Ken Chenault: It's different. It's our card fees, because we actually charge a fee for
a number of our cards except for some of our lending products. And it's also our merchant
fees. >>Eric Schmidt: If you fast forward a few
years from now what do you think the structure looks like? Sort of the pride and name recognition
of the high end cards I think will obviously continue, and let's assume that this -- the
under banks thing is better solved by you. What happens after that? What do you do after
that to broaden the base? >>Ken Chenault: Here's what I think is very,
very important is what we do after that is what we have tried to do in the company over
162 years. We continue to reinvent ourselves. We shake up the status quo. And we innovate
and we go back to the historical positioning of the card and the company, which is that
we're going to be more involved in services. And I think what you will see, and are already
seeing, is a company that in fact has embraced the digital transformation.
Online spend, we have over $130 million of online spend on our cards. More than Pay Pal.
We're growing at 20% in online spend. Mobile, we are very aggressively pursuing.
You look at the number of different AmEx apps that we have not just for life-style services,
but offers where we're bringing together merchants and the end user customer. So what you're
going to see is in fact a company that is not dependent on a form-factor, which was
the other point I had made inside our company is I frankly could care less if someone uses
a piece of plastic, someone clicks, someone waves a phone. What I want is mine share.
And mine share I get from developing personalized relationships with our customers by offering
the best service, no matter what customer segment I'm serving, and by offering the best
services. >>Eric Schmidt: What's interesting is the
strategy is working. This is the defining customer service strategy, it actually works.
What I'd like to do is talk about a couple of episodes in your service as CEO, which
I was with you or near you when it was happening. The first, of course, is 9-11 and your offices
are literally right next to the World Trade Center. And you -- you literally, your office,
because I've been with you in it, is literally right there.
>>Ken Chenault: Right. >>Eric Schmidt: If it's possible, take us
back to how you responded to that crisis. Of course, you are have a large operation
here in Phoenix, which is helpful. What did you do, how did you deal with sort of the
-- these are unexpected challenges obviously. Obviously a terrible tragedy.
>>Ken Chenault: You're absolutely right, Eric. We lost 11 employees who worked in the World
Trade Center. As you can imagine, it was emotionally gut wrenching.
I was actually not in our building. I was in Salt Lake City and it was a surreal experience.
I had got up early in the morning to have a conference call with our people and had
the TV on. I didn't have the sound on. And I had the team that was meeting in the conference
room right across the street from the World Trade Center. So instantaneously I heard the
screams on the phone and the plane going in. And our employees were on that floor that
was hit. They were the first ones that perished. So you can imagine the emotion in the room,
the emotion that I felt personally. And what I said to the group at that time was, "First
we have to evacuate the building." >>Eric Schmidt: You had to take everyone out
of Battery Park. >>Ken Chenault: Right. "Is that process in
place?" Fortunately we had had a dry run that was
just fortuitous several months ago, and that went flawlessly.
The second was to make sure that we had a way to communicate and identify all the employees
who were operating in the tri-state area because we had people coming in to work who were impacted,
so we set up that process. The third thing that I said to my team and
my leadership team, which everyone knows is a quote that I really try to follow everyday,
and it comes from Napoleon, that the role of a leader is to define reality and to give
hope. And I said in that situation what we've got
to do is define the reality of the situation that we're in, the impact -- I'll give you
some practical things that as I was concerned about the emotion, I also thought about from
a pragmatic standpoint, I said, "Unfortunately there are going to be people who will take
advantage of this situation. You need to go out immediately and try to get space in the
tri-state area because the rents are going to go up and we need to find a way to house
our people." >>Eric Schmidt: Roughly how many people?
>>Ken Chenault: It was around 4,000, 5,000 people.
>>Eric Schmidt: Lots of buildings. >>Ken Chenault: So lots of employees. And
so we actually had to leave our building for around 11 months.
We were in a three-state area, and it took me a day and a half to get back. We actually
had to charter a plane. We couldn't use our own company plane. And we got back to New
Jersey where we were set up on a temporary basis, and I remember just standing up on
a table and talking about the fact that this company was going to survive, that they were
going to survive. I immediately that day went to the victims'
families and met with them, which was a really incredible emotional experience.
And what was also very important is I decided that I would have a meeting with around 10,000
employees who were in the tri-state area and we had that in Madison Square Garden.
And that's a meeting that really defined the company because I talked about what were the
values of the company, what was important about our country, and the responsibilities
that we had to each other, to our colleagues who had perished and to our country overall.
And I think what is important about this lesson is one I think every leader in every company
has to have a core set of values. And what I stressed was our company was built on trust,
integrity and service. So even though our building had been damaged,
the core of the company was still very much alive. Even though we had lost 11 people,
our company was going to survive. And I will tell you, all the business experts
had started to write off the company, and in fact, said it would be very difficult for
us to come back. We came back stronger than ever as a company.
>>Eric Schmidt: So I want to sort of use that to bridge to 2008. So you're in Manhattan,
you're in the center of all of this, and -- and Austan can help with the timing. Basically
what happens is you have a series of real estate bubble crashes. You have Bear Stearns
and so forth. And there's a point in September where -- I'll
get the technical term wrong, but the dollar settlement market stops working.
>>Ken Chenault: Right. Commercial paper market collapsed.
>>Eric Schmidt: Is that correct, Austan? So at that point you face another possibility
of the entire company literally going into a black hole basically.
>>Ken Chenault: Right. >>Eric Schmidt: You can't do your daily work.
>>Ken Chenault: That's right. >>Eric Schmidt: So take us through what happened
and then I want to explore your view today's world, but what did you do then? Maybe you
were sort of practiced with these terrible crises.
>>Ken Chenault: No. People have said going through 9-11, which emotionally was one of
the most challenging leadership or personal experiences that I've ever had, the financial
crisis was one where you didn't know what was going to happen next at all.
And what I believed post 9-11 that if we kept our focus, if we dealt with our issues, there
was some light at the end of the tunnel. Very frankly, at that time period, and I think
Austan would agree, it was hard to see the light.
And as you know Eric, Warren Buffett owns 13% and he's become a very good friend and
is a terrific investor, but I think clearly Warren was concerned.
And that is guy when you call him, the first thing he always says is "Never been better."
He didn't say it that day. [ Laughter ]
>>Ken Chenault: And so the reality is that what I focused on, and I think this is important
from a leadership standpoint, is I came up with a mantra for the company almost immediately
that day. Pretty straightforward. "Stay liquid." And people say, "Boy, that's pretty basic."
Yeah, that was basic. Staying liquid was a big deal.
Stay profitable. Now, the hope part was, I still said, "We're going to selectively invest
in growth." Even though I had no idea if we were going to be around, my view was that
we should never lose focus of that objective to grow.
>>Eric Schmidt: So what was the low point in this? Your volumes went to --
>>Ken Chenault: Oh, yeah. Volumes went negative. Credit losses went up. So you talk about the
affluent segment. Well, there were a lot of people in Florida and California, very wealthy
people, who had no credit problem -- >>Eric Schmidt: The formerly affluent.
>>Ken Chenault: That's right. Who had serious problems.
Now, what's important is to look for what were the signs that we would survive and get
that out to the company. So the first thing that we decided, literally,
in a matter of days, is that we were going to have to go out and take deposits.
Here's where the experts came back in, and they said, "Look, you used to be a full-fledged,
diversified financial services company," which I did not want to be. I was not a believer
in financial supermarkets. That's why we divested in a number of companies. But I said that
we have no choice. The reality is, in a very short period of
time, in a matter of months, we raised around 10 to $15 billion of deposits. And in 12 months,
we raised over 25. >>Eric Schmidt: Where did it come from?
>>Ken Chenault: We basically did CDs. We did not have time to do any advertising. We went
to third-party brokers. But the name, our name, American Express, people trusted, despite
the fact that everything was tumbling down. >>Eric Schmidt: And you needed this cash from
a liquidity perspective? That is life in your business.
>>Ken Chenault: Absolutely. Is king, is king. As I explained at the end of the day to our
organization at all levels, if you don't have the money to pay the bills, you've got a big
problem. >>Eric Schmidt: I know this as DNROC, do not
run out of cash. >>Ken Chenault: That's right. So that was
absolutely critical. The second thing, after two or three months,
is we looked to see if we were losing customers. And, in fact, we weren't. Spending had dropped
dramatically. Spending was in negative territory. But even though Centurion, platinum customers
were staying with us, they were not leaving the franchise.
So I, in fact, went out to the organization and said, one is, look what's happened. We've
been able to raise deposits. The stay liquid is working.
What's also happening is, our customers are loyal to us, and they are staying with us.
But what we also had to do was very quickly reduce the level of expenses.
>>Eric Schmidt: Of course. >>Ken Chenault: Explain that to the company
of why we were doing that. But also say that we're not just reducing the expenses to meet
a bottom-line number and just to stay profitable. Here are several areas where we're going to
invest in the business. And so we in fact did invest in the business.
And that gave people a level of confidence that we were going to --
>>Eric Schmidt: And the firm has done spectacularly since then.
>>Ken Chenault: So I think we are the only firm -- and as I said, I look at us more than
as a services company than a financial services company. But we are the only firm that has
done better post-financial crisis than pre. If you're a major bank, there's no way you're
doing better than you did prefinancial crisis, because the whole world has changed.
>>Eric Schmidt: Let's finish up and talk a little bit about your view, because you see
globally, global activity, and obviously a lot in America, do you agree with Austan's
sort of structural comments about the economy? Growth rate? Are you more optimistic than
he was? About the same? Do you have a difference in view? How do you see Europe?
From your position, you see it every day. >>Ken Chenault: Yeah, I would make two or
three points, both building on what Austan said and Doris. And when I would share your
praise of Austan's role, because I saw that firsthand on the jobs council, spent a lot
of time with him over the years. And Doris I've been a big fan of.
I would say that from an economic standpoint, the reality is, it's hard to come up with
some of those reasons for hope, particularly in Europe.
But here's what I would say from my standpoint. And I think it came out with Doris.
On both sides of the political aisle around the world and in the business sector and in
the public sector, what we really need is leadership. And we need leaders, in fact,
who can put together a galvanizing vision. I would say that's what we're missing.
We need leaders who really desire to be creative change agents.
And, you know, I look at business, and I often say this in our company. I'm a child of the
'70s. And I don't believe that people who grew up in the '70s forgot about the civil
rights movement, forgot about the Vietnam War, don't care about what happens in society.
I think, at the end of the day, the whole reason why I got into business is, it was
really a choice at that time when I was growing up, one of my best friends still is Geoff
Canada, founded Harlem Children's Zone. >>Eric Schmidt: And you're on the board, and
you're doing a lot of stuff there. >>Ken Chenault: Yes.
And what Geoff and I talked about was, I said, "I think, actually, business for me is the
next frontier for the civil rights movement. Politics is one, but business can make a change."
And so I think what needs to happen, and the term that I don't hear a lot by anyone, is
shared sacrifice. The view, Eric, that you started off in your remarks that I agree with,
on one hand, as I say to people, despite the economic picture and despite the view of experts,
I'm more optimistic about what can be accomplished in the world and what can be accomplished
in business. But we've got to have leadership. >>Eric Schmidt: The reason that I wanted you
all to meet my very good friend Ken is that he exemplifies the best leadership that I've
ever worked with. His company is one of the top ten most admired brands in the world.
And I think you can see why. And this is the kind of leadership that I
would hope all of us, and certainly I, aspire to.
So thank you very much. >>Ken Chenault: Thank you very much. Thank
you for your kind words. [ Applause. ]