In fact, the real question is whether American Express can ever again be a dominant force. Many of the company’s businesses are troubled, but the news is worst for the company’s lifeline, the card business. The company lost $205 million in the third quarter of this year; the card division accounted for $187 million. And for the first time, the number of Americans holding an AmEx card has dropped, by more than a million in the past year. Clearly, AmEx will be a smaller company in the post-Robinson era. It is likely to sell its Shearson Lehman Brothers division, giving up dreams of becoming a “financial supermarket.” Company culture, too, may change, from an aristocratic and bureaucratic empire to a company that is more down to earth. But many observers aren’t optimistic. “Even at best,” says Michael Lewis, a Dean Witter Reynolds analyst, “they will never be what they were.”
With American Express in decline, many expected chairman Robinson to be gone long ago. “The mystery of the century, the most-asked question,” says a former Shearson executive, is how Robinson held on. The answer lies mostly with AmEx directors. Firing a CEO is a board prerogative, and the handpicked collection at AmEx has been almost a caricature of the board as social club. It’s “a Hollywood board,” shareholder-critic Dale Hanson of California once complained to Robinson. “Lots of star quality, but does it do the job?” On the marquee, among others, are Henry Kissinger, Beverly Sills and Vernon Jordan, now the transition chairman for President-elect Clinton. The AmEx board is very well paid and unusually large-an unwieldy and expensive 19 members.
But this year even these directors got restive, largely because investors were turning up the heat. If Wall Street had tolerated major strategic stumbles, it wasn’t going to stand for a plummeting stock price, down from a high of around $40 in 1987 to as low as $18 this year. Robinson had delivered a seemingly endless list of surprises and embarrassments. A year ago, for instance, AmEx announced a surprise $155 million hit against earnings because of problems with its Optima card. This year, while other Wall Street firms racked up record profits, the Shearson division took $245 million in pre-tax write-offs on a $500 million loan to Prime Computer (now known. as Computervision). And this spring, two new books attacked Robinson personally. The 500-page “Vendetta” detailed Robinson’s feud with former partner Edmond Safra, chairman of Republic National Bank, which ended in AmEx apologizing to Safra for slander and paying $8 million to his favorite charities.
By September the directors and advisers who met with Robinson in New York’s St. Regis hotel, were impatient. According to sources close to the board, Robinson, now 57, raised the issue that he might leave-perhaps by the age of 60. But, they say, the board surprised him by demanding a more rapid departure. Under pressure from Robinson loyalists, they did agree to a graceful exit: Robinson would head the search for his successor, leave when it was wrapped up and explain that he had initiated the whole thing. “You can smell the compromise,” said a source close to the directors. “They didn’t want to see Jimmy roughed up.”
But the exit turned out to be less graceful. Fortune magazine reported last weekend that director Rawleigh Warner Jr., former Mobil Corp. chairman, had led rebellion. The decision had been made in such secrecy that even some of Robinson’s closest confidants say they were in the dark. Robinson himself acknowledged in an interview that he is almost certain that a board member or adviser went to the press. He disputes the story that he wasn’t in control. But according to sources close to the board, the rebels included Howard L. Clark Sr., who had preceded and handpicked Robinson as chairman; John Byrne, chairman of Fund American, and two directors who supported the GM coup.
The question now is who will pick up the pieces. The inside candidate, AmEx president Harvey Golub, is far from a sure pick. Golub, who built up IDS Financial Services, one of AmEx’s best businesses, couldn’t have a style more different from that of the highly coiffed Robinson, who has always paid keen attention to his image. Making a major presentation recently, Golub appeared in his trademark shirt sleeves and suspenders. Employees find him credible and refreshing; a recent survey inside found that since Golub took over, management’s low rating for “integrity” has improved. But for the board, Golub’s shirt sleeves-and limited general management experience-may be a turnoff. “They’re still the aristocratic organization expecting polish,” says Lewis. “Golub doesn’t fall into the genteel mold.”
Whoever gets the job will have to focus on reviving AmEx’s once mighty card business. “I like to think of great businesses as economic castles, with big moats around them,” says Warren Buffett, the legendary investor who, betting on a turnaround, bought $300 million worth of AmEx securities in 1991. As Visa and MasterCard have gained on AmEx, says Buffett, “the moat has narrowed, or they’ve taken a few crocodiles out. The point now is to widen the moat.” Critical to that strategy, he says, is to ensure “universal, enthusiastic acceptance” of the card by merchants. Clearly, some progress has already been made. After a rebellion among merchants kicked off in Boston in 1991, AmEx has lowered fees and added incentives. It will soon roll out a major initiative designed to make retailers even happier. And AmEx recently reversed a very visible mistake. In October it returned the green card’s advertising account to Ogilvy & Mather, which had created winners like the “Do You Know Me?” campaign but had lost the account a year ago. Finally, some expect AmEx to put a new emphasis on its Optima card, which just launched its first national-ad campaign.
Still, AmEx has a long way to go. And Jim Robinson may get little credit for any recovery. A few years ago, he told an audience in New Orleans that he wanted to have the word QUALITY inscribed on his gravestone. Right now, many people are writing a different kind of epitaph.
After acquiring Fireman’s Fund, one of Robinson’s diversification moves, AmEx reports its first earnings decline in 36 years.
Robinson apologizes to former AmEx executive Edmond Safra for a smear campaign. The book “Vendetta” revisits the scandal.
AmEx is forced to bail out its Shearson Lehman Bros. unit by buying $750 million of its stock.
Restaurants revolt against AmEx’s high fees by dumping the card.
AmEx’s card unit posts its first loss, largely because of rising delinquencies at Optima, AmEx’s first shot at the revolving-credit business.
AmEx is in the midst of producing a $205 million third-quarter loss. The board, led by Rawleigh Warner Jr., pushes Robinson to begin the search for a successor and to step aside in 1993.
