|
At the spring annual meeting of shareholders in 1977, James
D. Robinson III was elected chairman of American Express,
the New York-based financial services company known for its
travellers cheques, and its unique charge now, pay now credit
card. His ambition was to take the splendid cash flow that
the card and cheques business generated and use it to create
a giant “financial supermarket.” According to Business Week,
Robinson “set about transforming American Express into a financial
empire of unequaled proportions.”[i] Financial diversification
was all the fashion in the early 1980s (witness Sears, Roebuck’s
acquisition of Dean Witter, or General Electric’s of Kidder
Peabody), and Robinson was determined that American Express
would be the biggest, the best and the brightest. As reporter
and author Bryan Burrough notes:
Jim Robinson 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 Fireman’s Fund insurance offered to American Express
card holders; American Express travel planning offered to
Shearson’s Wall St clients. The combinations seemed endless.[ii]
To this end, American Express acquired:
in 1981, Shearson, at a cost of nearly $1 billion – “Era
of Financial Conglomerate May Dawn on Wall St.” said Wall
Street Journal headline;
in 1981, The Boston Company;[iii] by early 1982, regional
brokerages Foster & Marshall and Robinson Humphries;
in 1983, Edmond Safra’s Trade Development Bank;
in 1984, Investors Diversified Services;
in 1984, Lehman Brothers Kuhn Loeb; and
in 1987, E.F. Hutton & Co.
Robinson pursued other targets with less success.
In September 1977, he tried to buy Philadelphia Life, which
was already the subject of a takeover bid from its largest
shareholder, Tenneco Inc. When American Express launched an
unsolicited $230 million bid, Tenneco upped its offer and
swept AmEx aside.
In 1987–88, Robinson wooed Disney and The Book-of-the-Month
Club, but these overtures were rejected out of hand.
Then came McGraw-Hill in January 1979, when AmEx launched
a “friendly” $830 million bid. The ensuing fight was far from
friendly. McGraw-Hill responded with a series of aggressive
newspaper articles, letters to shareholders, even a libel
suit. At a press conference, Harold McGraw told of a letter
he had sent to Robinson accusing him of a lack of integrity
and cor-porate morality.[iv] AmEx withdrew. Bryan Burrough
comments, “It was the low mark of Robinson’s career.”[v]
Later in 1979, AmEx engaged in a joint venture with Warner
Communications to form a cable TV company called Warner-AmEx.
The operation continued to lose money until Robinson sold
out in 1985, shortly before the business became spectacularly
profitable.
Robinson’s travails
Aborted mergers weren’t Robinson’s only headaches. Other
events damaged AmEx’s bottom line, as well as the company’s
prized image and integrity.
In 1983, an AmEx-owned insurance firm called the Fireman’s
Fund posted a $242 million pre-tax loss for the year, dragging
AmEx’s overall earnings to barely $30 million. The crisis
came to AmEx executives as a big surprise. The loss also spelled
an end to AmEx’s cherished 36-year record of annual profit
increases. “With virtually no warning, the myth of American
Express’s financial supremacy had ended.”[vi]
Also in 1983, Robinson merged the troubled American Express
Bank with the Trade Development Bank owned by Edmond Safra.
Lebanese by birth and one of the world’s richest men, Safra
was the embodiment of exclusive, private banking. Robinson
envied his franchise, and felt that Safra’s name could boost
AmEx’s reputation. The relationship between Safra and AmEx
was a disaster. Safra withdrew from the company in 1985 and
later resigned from the board. In 1989 he accused AmEx of
leading a smear campaign against him. Robinson made a public
apology, and agreed to pay $8 million to Safra’s chosen charities.
Robinson ended up selling Trade Development Bank in 1990.
In December 1988, The Boston Company admitted “accounting
errors.” The President confessed to overstating 1988 pre-tax
earnings by $30 million. He was fired, and two other senior
executives promptly retired.
In 1988, Shearson became embroiled in the battle for control
of RJR Nabisco on the management side, which eventually lost
the high-publicity battle to Kohlberg, Kravis & Roberts.
Shearson’s role was savaged in a bestselling 1990 book about
the contest.[vii]
In 1991, Boston restaurateurs cut up their American Express
cards, and declined to accept the card at their establishments,
in a highly public campaign against AmEx’s high merchant charges.
The incident became known as “The Boston Fee Party.”
In 1987, AmEx introduced its own credit card called “Optima.”
Known as “Pessima” in financial circles, the charge card cost
the company $112 million.
In March 1988, Shearson’s Mergers & Acquisition department
figured they could merge Koppers, a Pittsburgh chemicals manufacturer,
with Beazer Plc, a British construction firm. Shearson would
kick in $50 million, and provide a $200 million bridge loan.
Koppers launched a fierce public campaign against both Shearson
and AmEx, accusing them of siding with a British firm at the
expense of American jobs. Pennsylvania Senator John Heinz
threatened to introduce legislation in Congress to block the
takeover, while the mayor of Pittsburgh joined in a public
cutting-up of AmEx cards. The negative publicity for American
Express was devastating.
The biggest headache of them all, however, was Shearson.
The company had been in a slide ever since its record year
in 1986. 1989 profits were running 88 percent lower than at
their peak. The stock was trading at roughly half the $34
high it had reached in April 1987.
By 1989, Shearson’s president, Peter Cohen, was pleading
with AmEx to infuse more capital. In late 1989, Moody’s placed
Shearson on credit watch.
By the start of 1990, Shearson shares had fallen to as
low as $10, one-third of their high.
Talks in 1990, to merge Shearson with Primerica, run by
former AmEx president Sandy Weill, deadlocked. Weeks later,
Cohen was fired. When a second round of talks with Weill failed,
as did a new issue of Shearson equity, AmEx announced it was
going to purchase the remaining shares in Shearson that it
didn’t already hold at a cost of $1 billion. Howard Clark,
Jr., the son of Robinson’s predecessor as CEO, was named the
new Shearson boss.
By 1992, Robinson had served as chairman and CEO for 16 years,
one of the longest tenures of any American corporate chief.
The year was not a good one for American Express. The company
was on its way to posting a $243 million profit, but that
was down 39 percent from the previous year. Shearson lost
$116 million for the year, while other Wall Street firms were
showing record profits. These results set the stage for a
battle inside the American Express boardroom.
Inside the boardroom, 1992–93
In late 1991, American Express director Rawleigh Warner asked
CEO James Robinson to allow a new boardroom procedure: as
a matter of regular policy, the outside directors should meet
alone once or twice a year. Warner had joined the board in
1972, along with Richard Furlaud. They were the two most senior
members of the 19-person board, and were the only ones elected
before Robinson’s appointment as CEO in 1977.
Warner requested the meeting of outside directors “to protect
ourselves against a charge that all we did was sit around
and play patty-cake for Jimmy.”[viii] Robinson agreed and
scheduled two such meetings for February and September 1992.
Before leaving the room to the outside directors at the February
meeting, Robinson raised the question of his successor. Robinson
said he wished to remain at AmEx for about two more years,
until age 60. He identified Harvey Golub, AmEx president and
the chief of the core Travel Related Services (TRS) division,
as a replacement. The timing, he added, was perfect. Golub
was relatively new to American Express and was unfamiliar
with many parts of the sprawling AmEx empire. Golub was a
man of prodigious talent, Robinson said, but he would make
a better CEO given a couple more years’ seasoning.
The succession issue was raised more forcefully at the September
meeting. As the outside directors gathered prior to an informal
supper meeting of the board, Warner asked if he could make
a statement. What followed was a biting 20-minute critique
of Robinson’s tenure as CEO. He read out a detailed list of
setbacks that had befallen AmEx under Robinson’s leadership,
going back to the attempted takeover of Philadelphia Life
Insurance Co. in 1977. He described the aborted mergers, the
problems at Shearson, the embarrassing episodes involving
Safra and RJR Nabisco, the losses from Optima, and the erosion
of the card’s market share. Terrible mistakes had been made,
he argued, mistakes that had cost shareholders billions of
dollars. Worse, the future wasn’t looking any brighter. American
Express was in a mess, he concluded, and James Robinson was
not the man to bring it out. His proposal: Robinson should
be asked to retire immediately, and a successor found forthwith.
The board’s reaction was mixed. Some were shocked by the
sheer volume of evidence Warner had brought to bear against
Robinson. At least one director was angry at Warner’s tactics,
saying that Robinson was being made the victim of a boardroom
cabal. Drew Lewis, CEO of Union Pacific, defended Robinson,
saying that many of the problems that Warner had described
were the result of industry-wide downturns and were not attributable
to poor management. Henry Kissinger, the former secretary
of state, said the issue of Robinson’s ouster was difficult
for him because Robinson was “a good friend of mine.”[ix]
But the weight of Warner’s argument was compelling. Fortune
wrote, “Says one source close to the proceedings: ‘Jimmy was
cooked.’”[x] A compromise was reached. Robinson would be asked
to retire, but not immediately. A committee would be set up
to search for his successor and report its findings to the
board; when the board had made its choice, Robinson would
relinquish his post.
Robinson was informed of the decision. At the meeting of
the full board the next day, the search committee was appointed.
Five directors, including Robinson, were named to the committee,
with Furlaud appointed as its chair. In a retrospective story
covering American Express, the Washington Post wrote, “Both
the Robinson loyalists and the Warner-led insurgents wanted
to prevent the other side from seizing control of the search
committee, sources said.”[xi]
The board’s decision was not made public, though in any company
as closely watched as AmEx, secrets seldom stay secret for
long. Fortune reported in December that Robinson had been
pushed out by the board. The company responded by announcing
that Robinson had decided to retire, but that he would only
step down when the search committee had reached a decision.
The suggestion that Robinson was the victim of a boardroom
putsch was strongly denied. Warner said in a statement, “This
is an orderly succession process initiated by and managed
by Jim Robinson. To characterize it in any other way is totally
inaccurate. Clearly, this is not a coup.”[xii] Richard Furlaud
commented, “Prompted by Jim Robinson’s discussion of his own
plan for retirement before age 60 . . . the board at its September
meeting asked Jim to lead an orderly process to identify a
successor CEO.”[xiii] Robinson himself said, “I did not feel
any pressure on the succession issue coming up to the September
meeting. I told them that the time was right. The momentum
was there.” When asked whether the board had pressured him
to leave, Robinson said: “I think that would be a gross exaggeration.”[xiv]
The semantic difference between “coup” and “orderly succession
process” was lost to investors. The news that AmEx was to
have a new CEO gave a 6 percent bounce to the stock. Shares
rose $1.38 to $24.75 on the news of the succession plan, raising
American Express’s market value by $667 million.
The media speculated as to possible candidates to succeed
Robinson. An obvious front-runner was AmEx’s own Harvey Golub.
Golub had moved to TRS after a spell as chief of IDS, the
Minneapolis-based fund management group bought by AmEx in
1984. He achieved stellar performance at IDS and was a lead
figure in TRS’s renaissance, responsible for a $1 billion
cost-cutting plan and a more flexible approach to merchant
charges. He was known to be Robinson’s first choice. The press
suggested that possible outsiders included Sir Colin Marshall,
president of British Airways, and Frito-Lay chairman Roger
Enrico.
As the search committee continued its deliberations, it became
apparent that that the Golub-versus-outsider issue had become
a bone of mighty contention. “Outsider Gains in American Express
Search” reported the Wall Street Journal in January 1993.[xv]
Three days later, it carried a different headline: “Decision
Nears on American Express Search, Clash Looms as Robinson
Seeks Support on Golub, Others Back an Outsider.” The story
continued:
According to one person close to the situation, Mr. Robinson
believes he has enough support on the board to make Mr. Golub
chief executive under an arrangement that would let Mr. Robinson
remain chairman for an indefinite period. “Jimmy thinks he
has between 12 and 14 votes and all he needs is 10 votes,”
the individual said. “Throughout the [search] process, he
has been working like hell to line up [board] votes” for Mr.
Golub. Mr. Robinson’s goal has been “to make sure that it
isn’t an outsider” who succeeds him as chief executive, the
individual added.
The same story reported that Enrico had issued an internal
staff memo denying any interest in the job at American Express.
Pundits also suggested that a recent scandal at British Airways
– in which the airline had admitted a “dirty tricks” campaign
against Richard Branson’s rival Virgin Group – had harmed
Sir Colin Marshall’s chances. There was no indication that
Marshall had been involved in the misdeeds, but it was thought
that AmEx, still smarting from the Safra affair, would want
to avoid even the whiff of scandal to restore its image of
cast-iron integrity.
But while no clear outside candidate emerged, doubts also
circulated about Golub. They were not questions about his
ability, but about his lack of experience as a senior AmEx
executive and his unfamiliarity with large parts of the sprawling
AmEx empire. The Wall Street Journal reported:
An alternative to Mr. Golub is being sought, the person close
to the committee said, because “Harvey is like the sophomore
at West Point who is getting all As. But such a great company
as American Express needs a general who has already fought
a few wars.”[xvi]
Another difficulty was the need to cater to Golub’s own ambitions.
Having been groomed for the top job, he would be unwilling
to remain at AmEx under another CEO. The company did not want
to lose Golub’s talents, but if American Express did not offer
Golub the top job, another company surely would.
On January 21, the search committee met to make their choice.
Robinson brought two advisers with him – investment banker
Felix Rohatyn of Lazard Frères and lawyer Joseph Flom. Both
men advised the appointment of Golub as CEO but suggested
that, given his lack of experience, and for the sake of continuity
of leadership, Robinson should be kept on indefinitely as
chairman. Flom and Rohatyn argued that it was no use waiting
for the perfect candidate to arrive. A decision had to be
made, and made quickly; the continuing speculation over the
succession was harming morale and damaging the company’s reputation.
According to accounts of the meeting, members of the search
committee were reluctant to accept this advice, knowing that
a recommendation for Robinson as chairman would be rejected
out of hand by some members of the board. The argument was
persuasive, however. There was no outside candidate better
suited than Golub, and there was no point running the risk
of losing Golub to another company by appointing an outsider
just for the sake of it. Furthermore, there was the concern
that Golub, while exceptionally talented, had little experience
in AmEx’s global operations and was unfamiliar with AmEx’s
problem-child, Shearson Lehman Brothers. Keeping Robinson
on as chairman, ran the argument, would give Golub the chance
to grow into the job under Robinson’s experienced supervision.
A Robinson–Golub team appeared to solve all problems, except
one: the outright opposition of three to four members of the
board to Robinson’s continued presence at the top of the company.
No one believed, however, that they would carry a majority
of the 19-member board. The search committee voted unanimously
to recommend Golub as CEO and keep Robinson as chairman.
But the committee did not end its decision making there.
They also addressed the question of who should lead the company’s
troubled Shearson operation. Since the departure of Cohen
in 1990, Shearson’s CEO had been Howard Clark Jr., the son
of legendary AmEx chairman, Howard Clark Sr. The elder Clark
had been Robinson’s predecessor and was primarily responsible
for Robinson’s rapid progress to the executive suite. But
having groomed Robinson for the corner office, Clark had become
increasingly disturbed by his protégé’s performance. By 1992,
he was one of Warner’s closest allies in the bid to replace
Robinson. Clark Sr., while not officially a member of the
board, attended virtually every board meeting as a non-voting
participant.
But while Clark Sr. had become disenchanted with Robinson,
so Robinson had become disenchanted with Clark Jr.’s performance
as CEO of Shearson. Nor was Robinson alone. Senior director
Furlaud told The Economist that Clark Jr., “seems to have
got lost a little bit.”[xvii] Clark’s tenure at Shearson had
not been auspicious. In the first two years of the 1990s,
Shearson was the only business of its kind that wasn’t turning
out record profits. Hamstrung with bad debts and high costs,
the once-promising unit lost money hand over fist. In 1990
alone, Shearson reported a loss of $996 million, the largest
ever for a US brokerage firm. The picture did not improve.
Shearson lost $166 million in the last quarter of 1992 alone.
The continued losses contributed to downgrading from the credit
rating agencies.
AmEx had attacked Shearson’s problems in a number of ways.
It had “deconsolidated” the firm, reducing AmEx’s holdings
to 51 percent in 1988. Later, Robinson engaged in talks with
Sandy Weill, Shearson ex-boss, to sell the operation to Weill’s
Primerica Co. The talks broke down twice before they were
abandoned. Finally, in 1990, AmEx had bought back all the
shares to inject further capital into the brokerage firm.
Robinson did not want to leave a troubled Shearson as his
legacy. Shearson, perhaps more than any of the other businesses
AmEx had bought under his tenure, represented Robinson’s pursuit
of financial diversification. It epitomized Robinson’s entire
acquisition strategy. If Shearson continued to drag on the
earnings of its parent, nay-sayers would continue to criticize
Robinson’s empire-building. On the other hand, if Shearson
started to reap the kinds of profits that Merrill Lynch and
Goldman Sachs were making, Robinson could be credited with
making the “financial supermarket” work.
Robinson told the search committee that he wished to head
Shearson. Not only did he feel personally responsible for
the firm’s success, but he believed Shearson had the kinds
of problems that he, with his experience as an investment
banker and undoubted might in the Wall Street ring, could
solve. As it stood, Howard Clark Jr. was out of his depth.
Business Week quoted a source close to the situation: “Jim
feels a personal obligation to get this done. He is in a do-or-die
situation with Shearson.”[xviii] All told, Robinson’s pitch
was a bold one. He wished to remain as chairman in order to
provide stability and leadership to his hand-picked successor
and protégé, Harvey Golub, and he would take over day-to-day
running of Shearson Lehman Brothers, replacing the son of
a fierce Robinson critic. Such a resolution would leave an
awkward hierarchy. Robinson, as Shearson’s chief, would report
to Golub as CEO. Yet Golub would be accountable to the board,
chaired by Robinson. Both Robinson and Golub said they were
happy with the set up, and agreed to share an “office of the
chief executive,” which would be the senior management decision-making
body
If the other members of the search committee were uncomfortable
with this prescription, they weren’t for long. They resolved
to offer such a solution to the board when it met four days
later.
Robinson further strengthened his hand by informing Clark
Sr., who, as a board advisor, customarily attended board meetings,
that he would not be welcome at this one. Clark was told by
Robinson subordinates that his presence would be inappropriate
since his son’s performance would be one of the topics under
review. Clark was incensed. He believed he was being kept
away for one reason: that he would oppose Robinson as chairman.
The question remained: would the board accept the recommendation
of the search committee There was no doubt that Robinson’s
opponents, now numbering three – possibly four – and led by
Warner, would vehemently oppose both Robinson’s continued
chairmanship and his appointment to Shearson. They believed
that, after 16 years as CEO, Robinson had served his time
and now should leave. They would settle for nothing less.
It was harder to predict the reaction of the remaining members
of the board. Would they reject Robinson’s gutsy power play,
or would they side with the man who appointed them to the
board in the first place
With 19 members, American Express had a big board by Fortune
500 standards. Of these, only three were employees of the
company: Robinson, Golub, and Aldo Papone, a senior adviser
to the company. But the presence of a large majority of outside
directors did not free American Express from charges that
its board was management’s patsy.
The board of AmEx had a reputation as one of the least independent
minded around. In the words of one board member: “The general
belief was that the board was in Jimmy’s pocket because he’d
appointed 15 of the 17 outside directors.”[xix]
As well as 19 regular directors, AmEx board meetings were
regularly attended by four advisory members, selected by Robinson.
Rawleigh Warner says the advisers “engaged in the dialogue,
argued points, and made proposals just as if they were board
members. The only thing they could not do was vote, and sometimes
they forgot this caveat.”[xx] Christopher Bryon wrote in New
York magazine, “In a sense, Robinson had created American
Express’s board for just this emergency. Since every board
member except Furlaud and Warner had been hand-picked over
the years by Robinson himself, there was no question as to
where its allegiance lay: the American Express chairman had
instant rapport with – and could count on the support of –
virtually every director ringed around him at the table.”[xxi]
AmEx was attacked for “stunt casting” in the boardroom. Henry
Kissinger, the former secretary of state, had served as a
director since 1984. And President Gerald Ford was a special
adviser.
Moreover, American Express paid nearly $500,000 in consulting
fees to Kissinger’s foreign affairs advisory firm in 1991.
Ford received a further $100,000. Both Ford and Kissinger
were known to be close personal friends of Robinson’s, as
was F. Ross Johnson, the impetuous ex-CEO of RJR Nabisco,
and Vernon Jordan, the civil-rights lawyer who sat on the
board of Revlon with Robinson’s wife.
Other directors received substantial consulting fees for
advice to Shearson and other AmEx units. Rawleigh Warner commented
that these directors “seemed to me to be clearly under Mr.
Robinson’s wing.”[xxii]
Byron describes a network of interlocks that added to a sense
of “clubbiness.” Furlaud sat on the board of American Express,
and Robinson sat on the board of Bristol Myers Squibb, Furlaud’s
old company, where Furlaud was still a director. And, at meetings
of the Business Roundtable, Robinson would often bump into
Drew Lewis, Frank Popoff and Joseph Williams, all directors
of AmEx.[xxiii] Lewis, former secretary of the Department
of Transportation, was now the CEO of Union Pacific Corp.
He is described in media accounts as one of Robinson’s staunchest
defenders in the whole succession affair. Not only did Robinson
serve on the board of Union Pacific, he also served on the
compensation committee, directly responsible for setting Lewis’s
pay. Kissinger also sat on the board of Union Pacific.[xxiv]
Other interlocks existed. Kissinger served on the International
Advisory Committee of Chase Manhattan Bank, along with Furlaud.
And the Council on Foreign Relations featured not just Kissinger
and Furlaud, but Robinson and Charles Duncan as well. Kissinger
also sat with Beverly Sills on the board of Macy’s, and with
Armstrong at the Center for Strategic and International Studies.
Byron concludes, “The effect of all these interlocks was to
develop a cozy sense of belonging to a kind of corporate in-crowd
– an arrangement that no one who was already ‘in’ would want
to disrupt with something so unseemly as a vote to oust one
of the insiders.”[xxv] Rawleigh Warner later wrote, “It’s
quite obvious that most of the American Express directors
were under Jimmy Robinson’s thumb.”[xxvi] The board met on
January 25, four days after the search committee had reached
their final decision. News of their likely recommendation
filtered out to directors over the weekend, and as the board
met at 10 on Monday morning, Robinson’s opponents knew that
they had failed in their bid to bring new management to American
Express.[xxvii] Before the meeting had even been formally
opened, Warner asked Robinson to leave so that discussion
of his future would not be compromised. Robinson, with Lewis
coming to his defense, said that he was a voting member of
the board and would therefore stay.
Furlaud announced the decision of the search committee: Golub
would assume the role of CEO, Robinson would remain chairman
as well as taking over the top job at Shearson from Clark
Jr. Joseph Williams said that the board had manifestly failed
in its duty and that the directors had lacked independence
in the face of Robinson’s determination not to leave.
Kissinger spoke in favor of the motion, noting that the proposal
had been supported unanimously by the search committee. Others,
including Byrne and Bowen, were troubled by the bundled nature
of the proposal. They were happy with Golub as CEO, but did
not want to see Robinson remain as chairman. A vote to separate
the issues was defeated.
Golub was brought into the room for a final vote. Fifteen
directors voted in favor of the search committee’s recommendation.
Three directors – Warner, Williams and Armstrong – voted against.
Bowen abstained on the basis that he could support Golub but
not Robinson. Warner immediately announced his resignation
in light of his fierce opposition to the result. “I fought
the good fight,” he told a Journal writer, “and I lost.”[xxviii]
The next day two other directors resigned.
One director told the Washington Post that the would-be insurgents
had underestimated Robinson: “We had been arrogant. We thought
the facts were so much on our side that we turned out backs
while Robinson was lobbying the rest of the board constantly.
That’s how he beat us.”[xxix] Another source, quoted by Byron,
said, “What everyone missed in this situation is that Jim’s
job was never really in jeopardy at all.”[xxx] Another said,
“In October not one director was ready to support Harvey.
But in January they were. There had been a very, very well
run campaign, a PR campaign, with Harvey leading dinner meetings
with key directors. I realized, and other directors did too,
that we were being spun by Robinson. He is an absolute master.”[xxxi]
Robinson responded to the charge: “There was a campaign to
make sure that the directors had full knowledge of the strategy
in place and Harvey’s grasp of it. . . . If that is a PR campaign,
I accept full responsibility.”[xxxii]
The new management structure might have been approved by
the board, but it did not sit well with the market. “American
Express Lineup Strikes Out with Investors,” reported the Wall
Street Journal. On the day following the news, AmEx stock
dropped 5 percent on five times normal trading. The stock
slid $1.25 to $23.87 in the first full day’s trading, and
the company’s market value dropped $835 million in two days.
The dissatisfaction stemmed from a belief that AmEx was badly
in need of a radical shift in strategy, and that Robinson’s
“counter-coup” meant that no such shift was likely. Wilson
Davis, analyst at Gerard Klauer Mattison & Co., told the
Wall Street Journal, “Arrogance and self-absorption won out
over the interests of shareholders. Mr. Robinson is a big
negative. Whatever the P/E ratio is, it’s less with Jim Robinson
in the company. Period.”[xxxiii] Observers doubted that the
shake-up represented much of a power loss for Robinson at
all. Indeed, some thought Robinson had actually increased
his influence by taking over day-to-day responsibility of
Shearson. “Curiouser and Curiouser at AmEx,” said a Business
Week headline. “The newly drawn lines of power seem to be
at cross purposes.” A graphic accompanying the story showed
how Golub and Robinson would report to each other under the
new structure, and asked the question: “Who’s Really In Charge”[xxxiv]
Other investors criticized the board for not being more aggressive
in its stance towards Robinson. Paul Ehrlichman, partner in
Brandywine Asset Management told the Journal that his group
planned to sell its million share stake in Amer-ican Express.
“This was very disappointing,” he said. “When you see politics
win out over shareholders, once again it makes you think that
Mr. Robinson is unique in his disregard for shareholders and
control over the company.”[xxxv] In the same vein, The Economist
carried a cartoon of Jim Robinson with the AmEx board wrapped
around his little finger. “It’s incredible,” said one of AmEx’s
largest institutional investors to Byron. “Think of just how
out of touch that company’s board really was. Here was all
of Wall Street expecting Robinson to be tossed out on his
ear, then suddenly here was the board of directors saying
he wouldn’t be going after all – and expecting investors to
feel as if nothing had happened.”[xxxvi]There was trouble
inside the company as well. On the day following the announcement,
Robinson addressed a group of about 400 Shearson branch managers.
He was not greeted favorably. “The reception was glacial,”
one attendee told the Wall Street Journal. Another account
reported that Robinson had walked out of the meeting early
after some hostile remarks from the audience. The Journal
also reported that Lehman Brothers bankers were complaining
that winning clients had become harder because Robinson gave
the firm a credibility problem.[xxxvii] The Washington Post
described another meeting on January 28, in which Robinson
discussed some of his ideas for Shearson with the firm’s executives.
The meeting ended in turmoil according to a source when one
of the Shearson managers stormed out of the room having threatened
to physically assault Robinson.[xxxviii] Golub, meanwhile,
faced some difficult meetings of his own. On January 28, he
attended a breakfast meeting with a dozen of AmEx’s largest
institutional investors. The shareholders were not interested
in Golub’s plan for the future – they just wanted to know
how Robinson had managed to cling to, even increase, his power.
Investors mostly approved of Golub’s assumption of the CEO
post; it was just that with Robinson holding positions both
above and below, it was doubtful how much power Golub would
actually be wielding. As a plan for forging a bold new strategy
at American Express, it looked like a non-starter.
In an unprecedented display of concern, even the traditionally
least active Wall Street funds registered their displeasure.
Funds such as Alliance Capital Management, Putnam Management
Co., and J.P. Morgan Investment Management pointed out the
decline in share value since the announcement, and expressed
reservations about Robinson’s continued tenure at the company.
In just over a week since the search committee had made its
decision, American Express’s value had dropped 13 percent.
It was clear to members of the board that more needed to be
done. Robinson’s counter-coup was damaging American Express
in the market place, harming the company’s valuable reputation,
and causing a collapse of employee morale. Three senior directors,
the chairmen of various board committees, gathered to discuss
what should be done. Later, Furlaud told Golub that Robinson
should consider stepping down. Golub later discussed the issue
with Robinson and Joe Flom over dinner. Golub suggested that
Robinson step aside for the good of the company. In an interview
with the Post, Robinson insisted that he was still undecided
about leaving. He considered giving up the Chairman role but
remaining CEO of Shearson, an idea that received short shrift
from Golub. Robinson continued to vacillate through Thursday
night and Friday: “I went through a whole series of permutations
in my own mind about what would be most helpful to Harvey
and the company,” he told one journalist. A source close to
Robinson told the Post: “Jim’s mood was on again, off again,
sometimes bitter and mad, sometimes conciliatory and realistic.”[xxxix]
Finally, on January 29, Robinson concluded that his position
was untenable. He would resign from all positions at American
Express. In a statement he denied that pressure from the board
had forced his hand: “A combination of things led me to the
conclusion that it’s nuts to leave confusion over whether
Harvey is really boss; so I decided to pull up stakes and
get out of town.”[xl] Robinson’s withdrawal gave the AmEx
board the opportunity to appoint a non-executive chairman,
a measure designed to salve the discontent of the company’s
largest shareholders. Richard Furlaud was selected. Mindful
of his aggressive turnaround of Squibb Co., observers believed
that Furlaud would be forceful in advancing a clear strategy
for American Express. “The company’s mission,” said a Morgan
Stanley analyst to the Wall Street Journal, “has become a
bit muddled. The mission needs to be made clear. Maybe someone
of [Furlaud’s] stature can do that.”[xli] But Robinson’s ouster
still rankled with certain members of the board. At a board
meeting, held by telephone, to appoint Furlaud as chairman,
a motion was made and seconded for Robinson to rescind his
resignation, since he had been pushed out by outsiders. As
Warner comments, “The outsiders, in this instance, only happened
to be shareholders.”[xlii] The motion never went to a vote.
American Express stock rose $1.37 in the two trading days
following Robinson’s resignation and Furlaud’s appointment.
Later in 1993, Rawleigh Warner was elected “Director of the
Year” by the National Association of Corporate Directors.
Warner shared the lessons he had learned from the AmEx experience:
The size of the board does make a difference. The American
Express Board had 19 members and four advisors to the board.
That large a board, I believe, makes for an unwieldy number
and prevents an opportunity for each member to speak freely.
It is extraordinarily difficult to mount an attack on a CEO
who has been in the job for a long time and who has appointed
a majority of a board’s directors.
A small group of dissenting directors with a split board
has very little capability to do batle with a CEO who is determined
to hold on and has access to the full apparatus of the corporate
public relations department.
It is imperative to have directors who are not only independent
but who can tell the difference between a company that is
having some difficulties but moving to correct them with reasonable
chance of success, and a company that is in serious and potentially
harmful trouble and under attack from the shareholders, media,
and analysts for extended poor performance.
Directors unable to distinguish between such different situations
tend to circle the wagons around the embattled CEO rather
than represent the owner shareholders. This, I believe, was
the case with Mr. Robinson and the majority of American Express
directors.[xliii]
What does this case tell you about the relationship between
management and the board?
“In the final analysis a board of directors can only be as
effective as its chairman wants it to be” (Hugh Parker). Do
you agree with this comment?
In an interview with the Washington Post, Robinson commented
on Warner’s damning indictment of Robinson’s leadership. “I
am amused at Rawleigh listing all this,” he said, “since he
was on the board during all of this.”[xliv] Who should we
blame for long-term under-performance – management or the
board?
Should Warner have acted sooner? Could he have done?
Most shareholders did not register their discontent with
Robinson’s tenure until after the board elected to keep him
on as chairman. Should they have acted sooner?
Compare the roles played by the public pension funds and
the other institutional investors. How and why did they differ?
In 1993, at the annual meeting, shareholders re-elected a
board of directors whose rearrangement of executive functions
had five months earlier been utterly repudiated by these same
shareholders. What does this tell you about the ultimate significance
of the board? What does it tell you about the board’s accountability
to the shareholders? How meaningful is the electoral process?
Notes
--------------------------------------------------------------------------------
[i] John Mehan and Jon Friedman, “The Failed Vision,” Business
Week, March 19, 1990, pp. 109–13.
[ii] Bryan Burrough,Vendetta (HarperCollins, New York, 1992),
p. 75.
[iii] One of the authors of this book, Robert A.G. Monks,
was the chairman of the Boston company at the time of its
purchase by American Express. He can attest to both Robinson’s
competence and integrity.
[iv] Robert Slater, The Titans of Takeover (Prentice Hall,
Englewood Cliffs NJ, 1987), p. 156.
[v] Burrough, supra, p.74
[vi] Id., p. 103.
[vii] Bryan Burrough and John Helyar, Barbarians at the Gate
(Harper & Row, New York, 1990).
[viii] Brett D. Fromson, “American Express: Anatomy of a
Coup,” The Washington Post, Feb. 11, 1993, p. A1.
[ix] Id.
[x] Bill Saporito, “The Toppling of King James III,” Fortune,
Jan. 11, 1993, p. 42.
[xi] Fromson, supra, p. A1.
[xii] Steven Lipin, Peter Pae and Fred R. Bleakley “Robinson
to Resign at American Express, Denies Receiving Pressure from
Board,” The Wall Street Journal, Dec. 7, 1992, p. A3.
[xiii] Id.
[xiv] Id.
[xv] Fred R. Bleakley, “Outsider Gains in American Express
Search,” The Wall Street Journal, Jan. 18, 1993, p. A3.
[xvi] Id.
[xvii] Editorial, “Don’t Leave Home Without Me,” The Economist,
Jan. 30, 1993, p. 67.
[xviii] Leah Nathan Spire, “Curiouser and Curiouser at AmEx,”
Business Week, Feb. 4, 1993, p. 109.
[xix] Fromson, supra, p. A1.
[xx] Rawleigh Warner, “ ‘Always Do Right’ – Observations
From a Retired Director,” Director’s Monthly, 17, 12, Dec.
1993, p. 1.
[xxi] Christopher Byron, “House of Cards,” New York, Feb.
15, 1993, p. 28.
[xxii] Warner, supra, p. 1.
[xxiii] Byron, supra, p. 28.
[xxiv] Id.
[xxv] Id.
[xxvi] Rawleigh Warner, “A Lead Director . . . The Practice,”
Speech to conference on “CEO and Board Relationships: Towards
Common Ground” sponsored by Booz, Allen & Hamilton, J.L.
Kellog Graduate School of Management, and SpencerStuart, Northwestern
University, April 28–29, 1993.
[xxvii] Fromson, supra.
[xxviii] Steven Lipin, “Three Directors at American Express
Resign After Failing to Oust Chairman,” Wall Street Journal,
Jan. 28, 1993, p. B8.
[xxix] Fromson, supra.
[xxx] Byron, supra.
[xxxi] Fromson, supra.
[xxxii] Id.
[xxxiii] Steven Lipin and Craig Torres, “American Express
Lineup Strikes Out With Investors,” The Wall Street Journal,
Jan. 27, 1993, p. C1.
[xxxiv] Spire, supra, p. 109.
[xxxv] Lipin and Torres, supra.
[xxxvi] Byron, supra.
[xxxvii] Fred R. Bleakley, Peter Pae and Michael Siconolfi,
“Robinson Quits At American Express Co.,” Wall Street Journal,
Feb. 1, 1993, p. A3.
[xxxviii] Fromson, supra.
[xxxix] Id.
[xl] Bleakley, Pae, and Siconolfi, supra.
[xli] Peter Pae and Michael Waldholz, “Furlaud is Likely
to Play Pivotal Role in Shaping American Express Strategy,”
The Wall Street Journal, Feb. 3, 1993, p. B10.
[xlii] Warner, supra, p. 1.
[xliii] Id.
[xliv] Fromson, supra.
|
