American Express Rallies Under Golub; Battles Loom : Management: The new CEO came to power when market loss and other problems toppled his predecessor.
Make no mistake. The Harvey Golub era is under way at American Express Co.
Consider these changes since the gruff-talking native of Brooklyn took over American Express earlier this year from James D. Robinson III, aristocratic scion of a Georgia banking family:
*American Express sold its Shearson Lehman Brothers brokerage to Primerica Corp. for $1 billion.
*The company’s trademark green and gold charge cards, once a badge of prestige, are now accepted at Kmart.
*Advertisements that once wooed customers with testimonials from the likes of Mikhail Baryshnikov and Thomas P. “Tip” O’Neill now bluntly attack American Express’ main rival, Visa International.
*New management is in place, including the promotion of an African-American executive to one of the company’s most powerful positions, a rarity on Wall Street.
Just last year, American Express was suffering a torrent of bad publicity under Robinson, the former chairman and chief executive who was forced to resign in January after leading the company for 15 years.
A large slippage in market share, an embarrassing merchant revolt against high charge card fees and poor earnings figured into Robinson’s ouster.
Golub has brought stability to American Express, according to 20 executives and industry observers interviewed for this article. Known for a brusque manner and strong managerial skills, Golub has impressed stock market analysts, many of whom recommend American Express as a turnaround prospect. The company’s stock has risen more than 30 percent this year, to around $34 a share.
Golub even has won respect from the enemy.
“I certainly give Harvey credit for going in and taking out the costs,” said Bradford W. Morgan, a Visa executive vice president. “They seem to be looking at the market more realistically, rather than viewing life through their own press releases.”
The change in tone is readily apparent at American Express, a company that once spent millions to craft a corporate culture of class privilege. Its board of directors still reflects that eliteness, with luminaries ranging from Henry Kissinger to opera singer Beverly Sills.
Golub has taken aim at the snobbery in the company’s charge card and travel business, known as Travel Related Services, and is focusing on customers’ needs.
“There was, in fact, an exclusional arrogance in TRS and there was a culture that made it very difficult to face reality, face facts,” Golub said in a gravelly baritone as he smoked a cigarette during an interview. “I would not say that all of the changes from those perspectives are due to me. But they were certainly added to by my being there.”
Despite the positive reviews, American Express still faces a tough battle against a rapidly growing army of new credit cards from banks and corporate titans like General Motors and Sears.
Consumers continue to drop the American Express charge cards -- 2.5 million defections since 1990, while Visa added 49 million cards in the same period. The card’s $55 annual fee may be too expensive for today’s consumers, who favor plastic money with spending-linked incentives such as discounts on a new car, analysts say.
“American Express has had a lot of bumps in the road and I think they are starting to turn around,” said Michael Auriemma, managing consultant at Auriemma Consulting Group in Westbury, N.Y. But, he adds, “I wouldn’t call it a drastic turnaround.”
Many analysts say Golub, 54, is up for the challenge. His rise to the top of one of the world’s best recognized financial services companies, however, was atypical.
At 19, he flunked out of Cornell University, where he was studying veterinary medicine. He then attended New York University and obtained a bachelor’s degree in management in 1961.
Golub’s career rise began in earnest when he joined a well-regarded consulting firm, McKinsey & Co., in 1967. He worked there for 16 years, except for a break in the mid-1970s to run an air freight company.
While working with American Express as a consultant, he recommended the company purchase Investors Diversified Services Inc. of Minneapolis, now known as IDS Financial Services, a money management and financial planning firm that specializes in retirement investment plans.
American Express acquired IDS in 1984 and installed Golub as president and chief executive officer. He quickly made his mark.
IDS grew at a 22 percent annual rate from 1984 to 1992 and now accounts for 27 percent the company’s profits. In 1989, Robinson asked Golub to spend more time in the New York headquarters to work on finance and strategic planning and spread his ideas generated at IDS throughout the company.
The IDS experience gave Golub another advantage: a geographic and emotional separation from the growing problems in the New York headquarters, which helped him push reforms.
“He could go in there with a clear eye and no prior commitments from a personal part,” said K. Shelly Porges, a former American Express marketing chief for Canada who runs Porges-Hudson Marketing Inc. in San Francisco.
In October 1991, Golub gained more prominence and was promoted to chairman and chief executive officer of Travel Related Services. The charge card, traveler’s check and travel consulting businesses generated more than half the company’s profits in the second quarter.
One immediate issue was to stem the enormous losses at the Optima Card, a credit card American Express launched in 1987 to more effectively compete with Visa and Mastercard. By late 1991, Optima was suffering from deadbeat customers so badly that its uncollectable debts were double the industry average.
Under Golub’s watch, the Optima card was redesigned with an innovative pricing formula, quickly copied by others. It gave the most creditworthy customers the lowest interest rate, creating an incentive for card members to pay their bills.
“They’ve done a better job of picking the people they want to keep and getting people who won’t stiff them on the bill,” said Bruce Brittain, an Atlanta-based credit card consultant.
Throughout the year Golub brought in new senior management. Jeffrey Stiefler, 46, formerly chairman of IDS, now is president of American Express and Kenneth I. Chenault, 42, has been elevated from the consumer card group to oversee the main U.S. travel, charge and credit card units. Jonathan S. Linen, 49, was elevated from TRS to vice chairman.
Golub’s new management team perhaps best differentiates itself with a clarity of purpose.
“We are not trying to be all things to all people,” said Richard Furlaud, chairman of the board. “We are not trying to be a financial supermarket. We are going to focus on those things that we do better than anyone else in the world.”
The results are beginning to show. Despite the market share erosion and the slow economy, card members are spending more, pushing up worldwide billed business to $59.2 billion in the first half of 1993, up $2.5 billion from the same period in 1992. Travel Related Services has achieved annual, net savings of $700 million.
For better or worse, American Express is responding to the competitive challenge from other cards by aggressively attacking them. The latest example came earlier this month in a combative two-page newspaper advertisement that accused Visa of “seducing” merchants into dropping the American Express card at the U.S. Open Tennis Tournament. Visa denied the accusation.
Is the strategy working? Golub smiles.
“That has changed the nature of the dispute with Visa. Instead of their solely being on the offensive, they’re more on the defensive. They can’t just go out and find a merchant who doesn’t take the card. They have to pay a merchant to drop a card,” Golub says.
