Chenault, Kenneth I. 1952–

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Kenneth I. Chenault 1952–

Business executive

Faced Challenges in the 1990s

As president of American Express (Am Ex) Consumer Card Group, USA, Kenneth I. Chenault occupies one of the most prestigious positions in the world of American business. American Express is a widely diversified company with holdings in the areas of finance, brokerage, real estate, and travel services; but its strongest and most profitable unit has always been the famous American Express charge card, and it is Kenneth Chenault’s job to see that that tradition continues into the twenty-first century. A graduate of Harvard Law School, Chenault has enjoyed a remarkably rapid ascent of the corporate ladder at American Express, where he was named president of the Consumer Card Group when only 38 years old.

Chenault was born in 1952 in Hempstead, New York, an affluent suburb of New York City. His father, Hortenius Chenault, was a dentist and his mother, Anne, a dental hygienist. From the time Kenneth was a small child, his parents encouraged him to excel in intellectual as well as athletic pursuits. As a boy, Chenault eagerly read the biographies of great men, both black and white, and he grew up with similar expectations for himself. While attending a highly regarded private school in Garden City, New York, Chenault excelled academically and was elected president of his class in high school. He then enrolled at Bowdoin College in Maine, one of the country’s finest liberal arts institutions, and from there went on to Harvard Law School, where he earned his degree in 1976.

As a recent graduate of Harvard, Chenault had his choice of many employment opportunities and at first followed the expected path by joining the New York corporate law firm of Rogers & Wells. It was not long, however, before he was tempted by the theory and practice of business, and in the late 1970s Chenault accepted a position at the Boston-based business consulting firm of Bain and Company. There he was involved in the research and design of business strategies for some of the largest corporations in the country, thus acquiring an extensive knowledge of all aspects of the business world while also making important contacts with business executives. During his tenure at Bain and Company, Chenault apparently decided that he was more interested in the business of business than in the abstract complexities of business law, and in 1981, when he was offered a job at American Express, he accepted the challenge and began a new career at the company’s headquarters in New York City.

At a Glance…

Born in 1952 in Hempstead, NY; son of Hortenius (a dentist) and Anne (a dental hygenist) Chenault; married; wife’s name, Kathryn (a lawyer and director of foundation programs for the United Negro College Fund); children: Kenneth, Jr. Education: Bowdoin College, B.A., c. 1973; Harvard Law School, J.D., 1976.

Attorney, Rogers & Wells, New York City; consultant, Bain & Company, Boston, MA; American Express Company, New York City, 1981—, vice-president of marketing for merchandise services division, 1983, general manager of merchandise services division and senior vice-president of American Express Travel-Related Services Company, 1984-87, executive vice-president and general manager for American Express Platinum/Gold division, 1988, president of American Express Consumer Card Group, USA, 1989—.

Addresses: Office —Office of the President, American Express Consumer Card Group, USA, American Express Tower C, New York, NY 10285-0001.

American Express has been a leading financial and travel services business for more than a hundred years, with a well-established reputation as one of the classiest and most profitable companies in the world. From its origin as an express freight service for banks and other dealers in valuables, American Express evolved into the world’s travel companion, providing traveler’s checks and international banking services for its customers around the globe.

Am Ex’s 1958 introduction of the famous “green card,” a charge card for the well-heeled traveler, greatly extended the reach of the company’s business and set the scene for later forays into a range of financial services. When Kenneth Chenault took a position with American Express in 1981, it had just completed the most significant expansion in corporate history with the acquisition of the New York brokerage house of Shearson Loeb Rhoades, Inc. Chenault joined American Express at a more favorable moment in the company’s history, as the decade of the 1980s would bring tremendous growth in every department of Am Ex’s constantly widening sphere of business.

The Merchandiser

Chenault was originally hired by the merchandise services division of American Express, at the time a relatively obscure part of the Am Ex empire. Merchandise services was in the business of selling such exclusive goods as leather luggage, computers, and gold watches to Am Ex members via direct mail solicitation. Though Chenault had no hands-on experience in merchandising, he quickly made his presence felt, and in 1983 he was named vice-president of marketing for the division.

The following year, at the age of 34, Chenault assumed the role of general manager of merchandise services and senior vice-president of that division’s corporate umbrella, American Express Travel-Related Services Company. As general manager, Chenault saw his chief responsibilities as twofold: to sell goods efficiently and profitably to American Express members and to protect the unusually high degree of trust that members had come to enjoy with Am Ex.

American Express had a unique status in American marketing, its name and logo associated almost without exception with the highest quality of goods and services. The company represented itself as something of an exclusive club, and its members expected to be treated as such—“membership has its privileges” was for many years the company’s advertising slogan. Chenault therefore tried to ensure that the merchandise offered to members with their monthly bill was of luxurious quality and that customers received prompt, reliable, and courteous service. The American Express name was really the company’s most salable commodity, and Chenault capitalized on that by moving the range of merchandise further upscale and emphasizing the relationship of cardmember to club, rather than merely presenting a lot of goods for purchase. Under Chenault’s direction, the merchandise services division made sure its customers were aware of the uniqueness of American Express compared to other mail order companies.

Sales at the merchandise division jumped 20 to 25 percent annually during the mid-1980s, reaching approximately $400 million in 1986. The U.S. economy was generally good, and Chenault’s team of marketers had found the proper niche for their products, dramatically improving results at the bottom line. In recognition of his leadership, American Express promoted Chenault in 1987 to general manager and executive vice-president of the Platinum Card/Gold Card division of the Travel-Related Services Company.

In this role, Chenault was in charge of over 5,000 employees providing services to some four million wealthy holders of gold and platinum American Express cards, which entitled their owners to a number of exclusive financial and travel services in addition to those granted to all Am Ex members. His promotion to head of the Gold Card division reflected Chenault’s success as a marketer of the American Express upscale appeal, but his tenure there would be brief. Still in his mid-thirties, polished, and personable, Chenault was clearly a man on the rise.

Green, Gold, Platinum, and More

In 1989 Chenault was named president of American Express Consumer Card Group, USA, thereby becoming, in the words of American Express chief executive officer (CEO) J.D. Robinson III, “the quarterback of the corporation, responsible for all card operations in North America.” In his new position, Chenault assumed control of the mainstay of the company’s Travel-Related Services division, which is the oldest and most profitable segment of the Am Ex family of companies. Travel-Related Services generates approximately 40 percent of the parent company’s $25 billion in sales, and the cream of the division’s business is “in the cards,” as American Express executives like to say.

Chenault thus found himself in a position of enormous responsibility at a time of rapid change in American Express’s role in the credit/charge card market. Ever since the introduction of its “green card” in 1958 to compete with Diner’s Club, Am Ex had always remained at a safe distance from the furious battles waged by credit card companies such as Visa and Mastercard. American Express provided a charge card—requiring that items charged be paid for in full at the end of every month—that was widely used by business people for their travel and entertainment. Visa and Mastercard, on the other hand, were credit card companies, offering a line of credit to a much wider range of customers who could choose to delay payment of their bills by agreeing to pay a high rate of interest on the outstanding balance.

For several decades, American Express was the card of choice among wealthy travelers and business people, although it could be used only at a select number of airlines, restaurants, hotels, and retail stores, all of whom paid American Express roughly three percent of the amounts charged for the privilege of displaying the prestigious American Express logo. Participating merchants also had the assurance of knowing that their American Express customer was a member, and hence of a certain financial stability.

During the 1980s, however, American Express’s dominance of the high-end card market was challenged by the credit card companies, which made inroads among retailers and merchants by offering services at a much lower fee than American Express. As the world’s largest distributor of credit cards, Visa could justifiably point out to merchants that nearly every holder of an American Express card also owned a Visa card. The customer did not care which card was used, but the merchant stood to gain more than one percent of sales by taking the Visa over the American Express card.

By implementing such a strategy, the credit card companies had chipped away at the loyalty of American Express members and merchants during the 1980s, and it was into this difficult situation that Kenneth Chenault was thrust when he took over the reins of American Express Consumer Card Group, USA, in 1989. Of the several possible responses to the credit card challenge, American Express had already made a momentous decision before Chenault arrived on the scene. In 1988 the company issued its own all-purpose credit card, known as the Optima card, while continuing to rely on the cachet of the American Express charge cards. Chenault and his fellow American Express executives believed that Optima would perfectly complement the traditional green and gold cards; accepted at all the major retail outlets, Optima would stop the encroachment of the credit card companies upon American Express’s clients. In addition, because only American Express members could obtain the Optima card, the company anticipated a low ratio of default among its customers.

Faced Challenges in the 1990s

Initial results of the Optima card were not promising, however, and it was not long before Chenault and his staff found themselves at the center of a potentially disastrous situation. As the economy soured in 1990 and 1991, Chenault discovered that his Optima cardholders were proving a bad bet: their default rate was twice as high as expected, resulting in a particularly poor financial performance by the card division in the second half of 1991. Major financial publications such as Business Week and Fortune played up the poor results, which included an apparent attempt on the part of employees at Chenault’s Jacksonville, Florida, branch office to cover up the full extent of their losses. Wall Street analysts were not pleased by the sudden revelation of trouble in the card division, and the entire debacle tended to raise once more the question of American Express’s position in a charge/credit market bursting with new competitors and services.

Adding to Chenault’s headache was a minor rebellion on the part of Boston-area restaurateurs, who, with encouragement from Visa, had banded together and declared that they would no longer accept the more costly American Express card. This “Boston tea party,” as it was called, also generated the sort of adverse publicity American Express had already experienced.

In response, Chenault, hoping to pull the Am Ex Consumer Card Group through its early 1990s crisis, promised a new era of customer and merchant support at American Express, with special attention paid to the company’s wealthiest and highest-spending clientele. He also agreed to selective cuts in merchant fees but hoped to retain most of his merchants by emphasizing the traditional advantages of dealing with American Express’s wealthy membership.