American Express CEO Kenneth Chenault: Valuing EQ over IQ

When Kenneth Chenault first came to American Express more than 30 years ago as a young executive just off a two-and-a-half year consulting stint at Bain & Company, he looked around and saw an opportunity in the corporation’s struggling merchandising group. The person overseeing that group and the rest of Travel Related Services at the time was Louis V. Gerstner, Jr., who later went on to become CEO of RJR Nabisco and then IBM.

Gerstner advised Chenault against getting involved with the offshoot business selling jewelry, stereo equipment and other odds and ends by direct mail to American Express customers. In fact, said Gerstner, he was ready to shut the whole enterprise down.

“‘Do not take this job,’ Lou told me over and over,” Chenault, now the chairman and CEO of American Express, said during a recent Wharton Leadership Lecture. ”But I said, ‘Lou, I want to take on a challenge.’ I never shied away from taking a risk, and I felt this was the way I should go.”

As Chenault started work, he looked around for what he called “the best and the brightest” available to him at American Express. He realized that because the division was a neglected part of the corporation, he would get experience in all aspects of that business, “something they would never have let some 33-year-old just out of the consulting business do otherwise. My view is often to take on the assignments that no one else wants, particularly early on in a career. Everyone wants to be in the glamorous part of a business. I wanted to learn.”

In the two years that Chenault ran merchant services, it went from an albatross to a profit center, its revenues more than tripling from $150 million to $500 million. Gerstner finally insisted Chenault join the credit card side of the corporation, and a leadership star was born. “Leadership takes many forms, but one thing that is most important is to realize that change is inevitable, especially in the age we live in now, and that you always have to be adaptable to change,” noted Chenault.

He emphasized that American Express itself was hardly a glamorous company when it started in 1850. It was the original company Henry Wells, William G. Fargo and John Butterfield founded to move freight. “Moving freight [was] not a business with a lot of glamour,” he said. “But they instituted core values that we still hold 163 years later in our day-to-day operations — integrity and customer commitment…. It is pretty extraordinary that a freight company founded in 1850 established a brand that remains relevant in 2013 in the digital age.”

Chenault took over as CEO in 2001 after a series of jobs that he held for 20 years at the company. It was unusual for an African American to reach the top of an American corporation, but Chenault has never felt his race either qualified him for a position or prevented him from getting it. He said he just had confidence in himself as a leader and went about his work methodically, never back-biting and always seeking advice even from executives who might have been competitors.

Identifying Good Leaders

“I really did not focus on becoming a CEO until around 10 years before it happened, but I worked with people who could be viewed as competition and worked well with them,” he stated. ”I had straightforward conversations with them and said, ‘Let us focus on what is best for the company.’ I thought by doing that, everything would work out for the best.” When he became CEO, the top 10 executives in the 70,000-employee company all stayed on although over time, some left for other positions.

Chenault described his leadership style as both simple and complex. The simple part, he said, is that he feels he has kept his integrity, that he has never tried to fool anyone and that he has been consistent in his goals: to serve that traditional triumvirate of customers, employees and shareholders.

He is constantly looking for good leaders in his company. He does not evaluate whether someone is a leader until he sees who that person’s followers are. “Who is listening to them? How many people respect him?” said Chenault, referring to the questions he asks of young leaders in particular. Mostly, he added, that is demonstrated when someone is both decisive and compassionate.

Chenault oversaw a restructuring of American Express’s business in 1995 as vice chairman. When it became clear he would have to eliminate nearly 16,000 jobs, he said decided to tell people up to 18 months before their actual departure date so that they would have time to adjust to the layoffs. “You do what you can to be compassionate, even when the news is bad,” Chenault said, which leads to another of his leadership principles — that the leader himself has to be a team player. ”The point is not to just be a nice person, but be effective, too. Sometimes being a team player is using what I call constructive confrontation. Be courteous, but push forward on what needs to be done.”

Although Chenault said he does not devalue intellect — after all, he went to Bowdoin College, one of the nation’s best liberal arts schools, and Harvard Law School — what he values more than IQ is EQ — Executional Quotient. ”A good leader wants to get it done,” he said. “EQ is the most important thing — to have the focus to get whatever the job at hand is completed.”

He believes leadership can, indeed, be taught, and while American Express does not have formal leadership training, Chenault hopes to teach by his own example. For instance, he likes to not only get consultations from his higher executives, but values feedback from every part of the company. “I reach down to all levels. Any employee who sends me a question, I respond. It may not be 100 lines, but something, and if people know you can be approached, they will come to you. That creates a positive attitude about the company.” Several times a year, he will go to different parts of the country and world and hold brown bag lunches with about 25 employees, none of them senior executives. “The physical presence of a leader is important. It shows the organization, no matter how large, cares about its [employees].

“I ask them only one thing, that when they leave the meeting, tell 20 people about it,” he said. ”I don’t care if they say, ‘Ken is a jerk,’ because at least it brings a connection. It is impossible to maintain a relationship with 70,000 people, but I don’t believe in the imperial CEO. The best organizations create thousands of leaders.”

Two Role Models

Chenault admires a number of leaders, but pointed to two favorites: Nelson Mandela and Warren Buffett.

The most important thing he has learned from Mandela is that even when you are in a crisis, you have to think about the future. “Here was someone in prison who came out a stronger person,” noted Chenault. “It was not just about survival. He thought about the vision of what he wanted the country to become. It is hard to see anyone in modern history who came out from prison” such a hero.

He said he doesn’t admire Buffett just because he owns 14% of American Express through Berkshire Hathaway. “He is someone who has an intellectual curiosity and is also incredibly genuine as a person,” said Chenault. ”He admits that he loves business, but he also engages with people. He can walk down the street in Omaha or New York and will talk to people, tell a joke, sign a dollar bill for them. He has humanity and a steel trap mind. He has a nice swift way to say, ‘No’ — not in a harsh way, but [in a way that] does not waste people’s time.”

Chenault’s favorite quote about leadership is one he attributes to Napoleon: “The role of a leader is to find reality and give hope.” It is really difficult, he said, to find out the facts of a situation and to understand the ultimate implications. “You have to be open and honest to find reality, to get the right answers to your questions. But then you have to tell the people you lead what the reasons are to be hopeful, to tell them why you should inspire them.

“This is all easy in good times, but it is a deal-breaker during challenging times, and that is when you find out who the leader is,” he noted. ”The reputations of individual leaders are truly made or lost in times of crisis. You must gain loyalty by being decisive and compassionate. Otherwise, your reputation will vanish.”

Knowledge@Wharton