American Express Company Case Study
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American Express Overview
American Express Company (American Express), incorporated in 1965, is a global service company The Companys principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. American Express Company and its principal operating subsidiary, American Express Travel Related Services Company, Inc. (TRS), are bank holding companies. It is principally engaged in businesses comprising four reportable operating segments: U.S. Card Services, International Card Services, Global Commercial Services, and Global Network & Merchant Services. Its range of products and services includes charge and credit card products, expense management products and services, consumer and business travel services, stored value products, such as Travelers Cheques and other prepaid products, network services, merchant acquisition and processing, point-of-sale, servicing and settlement, and marketing and information products and services for merchants, and fee services, including market and trend analyses and related consulting services, fraud prevention services, and the design of customized customer
loyalty and rewards programs. In November 2010, it acquired Accertify Inc., a provider of solutions that help merchants combat fraudulent online and other card-not-present transactions.
James D. Robinson
In 1977, James D Robinson was appointed CEO and Chairman of American Express. He continued to hold this position till 1992. He outlined a vision of a financial empire that would offer all things to all people: charge cards, insurance brokerage services, money management, private banking. It would be unlike any other company ever formed, offering cradle-to-grave financial care for anyone in the world, anywhere in the world. The potential synergies were awe-inspiring: Shearson mutual funds and Firemans Fund insurance offered to American Express card holders; American Express travel planning offered to Shearsons Wall St clients. The combinations seemed endless.
In his tenure he also strengthened the board with 17 new members making the board to become 19 members strong. The corporate governance of the organization was therefore assumed to be mature enough for clients, markets and shareholders to put in their trust.
Success and Failures of Robinson
American Express soon launched a strategy of acquisition in 1980s. It went through enlarging the empire through takeovers to many organizations and big brands in the financial world. Some of examples are:
* 1981 – Shearson, at a cost of nearly $1 billion
* 1981 – The Boston Company
* 1983 – Edmond Safras Trade Development Bank
* 1984 – Investors Diversified Services
* 1984 – Lehman
Brothers Kuhn Loeb
* 1987 – E.F. Hutton & Co.
There were other instances where American Express could not turn the mark the deal successful; examples are:
* 1977 – Philadelphia Life.
* 1987-88 – Disney
* 1987-88 – The Book-of-the-Month Club.
* 1979 – McGraw-Hill.
While all the goals and acquisitions were targeted to increase the profitability of the organization, there were some major setbacks arising due to this:
* AmExs 36 years record of increasing profit broken in 1983, as Firemans fund declared $242m loss bringing down the companys profit.
* Trade Development Bank was sold and an additional $8m penalty paid to Safra because of Robinsons negative campaign against him.
* Boston Company confessed accounting fraud of $30m in 1988.
* The Boston Fee Party campaign was launched by Boston Restaurants by completely boycotting AmEx cards.
* An innovative product called Optima cards caused $112m loss to AmEx.
* Shearson stock fell down to 1/3rd, and AmEx had to buy all its remaining shares. Shearsons CEO Mr. Peter Cohen was fired.
Board Of Directors
In 1992, American Express had one of the largest board in USA. It contained 19 board members and only three of these were company employees. With majority as independent and non-executive directors, AmExs board was also an admirable one. Some of the Directors on the board were:
* Mr. Rawleigh Warner and Mr. Richard Furlaud – 2 most senior board members. (These two members joind board in 1972, before Robinson was appointed as CEO/Chiarman.)
* Mr. Howard Clark (Robinsons predecessor as CEO), was not a board member but was a regular attendee of meetings.
* Drew Lewis, CEO of Union Pacific .
* Henry Kissinger, the former secretary of state.
* F. Ross Johnson, the impetuous ex-CEO of RJR Nabisco.
* Vernon Jordan, the civil-rights lawyer.
Decisions Required
Warner brought to light evidences of setbacks that had befallen AmEx under Robinsons leadership. He pointed out many events proving this, which All this had a cost of billions of dollars to shareholders:
* Attempted takeover of Philadelphia Life Insurance Co. in 1977.
* Aborted mergers
* Problems at Shearson
* episodes involving Safra and RJR Nabisco
* the losses from Optima
* the erosion of the cards market share.
All this was insisting that Robinson should now be moved out from the CEO position. But his left board with questions:
← Who will be the next CEO?