>>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. ]
