ADI IGNATIUS: I’m Adi Ignatius.
ALISON BEARD: I’m Alison Beard, and this is the HBR IdeaCast.
ADI IGNATIUS: Alison, this is of course a tough moment for senior leaders. In addition to handling all of the uncertainty out there, they also have to deal with this backlash against some of the values that have defined thoughtful and inspirational personal leadership in recent years. Things like diversity, like sustainability, like paying attention to a range of stakeholders.
ALISON BEARD: Yeah, it’s been actually weird to see how quickly many businesses have pulled back from some of those issues based on prevailing political winds.
ADI IGNATIUS: Well, today’s guest has a lot to say about exactly that. He is Ken Chenault, who was CEO of American Express for 18 years, and his belief is that business has a fundamental responsibility to society. And while he certainly does not advise CEOs to speak out on every issue, he urges them to identify the company’s core values and to stand up for them no matter what is happening externally.
ALISON BEARD: Well, that is certainly music to my ears, but I also think that the data shows that employees and customers value businesses that are guided by clear principles like that.
ADI IGNATIUS: Absolutely. So Ken Chenault now sits on several corporate boards and he’s Chairman and Managing Director at General Catalyst. He’s also the author of the new book, Equal to the Task: A Life Forged Between America’s Promise and Its Truth. Here’s our conversation.
We’re in an age of uncertainty, right? You were the CEO of American Express from, I think it was 2001 to 2018, that took you through 9/11, through the 2008 financial crisis. I’d love to ask you, what did those experiences teach you about making decisions when the stakes are high, when information is incomplete, when there’s no obvious right answer and when it’s a crisis?
KENNETH CHENAULT: Where I’d start off with is my leadership maxim, which is that the role of a leader is to define reality and give hope. One of the things that’s really important is to understand what your framework needs to be. What I tried to do, whether it was 9/11 or the financial crisis, I’ll give you an example from the financial crisis.
I came up with three objectives and they were really simple. Stay liquid, stay profitable, and selectively invest in growth. The first two were all about trying to deal with the reality of the situation. And staying liquid when the commercial markets, some of them were frozen for a period of time, that was very challenging. But what we were able to do was to galvanize the organization around what are the steps that need to be taken to ensure that we can stay liquid.
The second was staying profitable. Some people on my leadership team said, “Ken, that feels like a short-term objective.” And I said, “No, you’re missing the plot here.” If we are able to demonstrate that the American Express business model can stay profitable in what is an occurrence maybe one every 100 years, that is going to demonstrate the durability of our business model.
And the third was to use the crisis to come out stronger. And that meant that even though we were under severe strain, we needed to figure out how we could invest in the business to grow in the moderate term. And that enabled us to come out of the crisis even stronger.
So I think what’s critical in times of uncertainty is you have to say, “What are my core objectives?” You don’t have to have the answer to every question, but what you do have to figure out is what are going to be my core priorities that I’m going to focus on?
ADI IGNATIUS: So I want to ask about when you entered the business world, you write that you entered business believing that it could be a vehicle for social progress. What would you say to a CEO who shares that conviction but fears, particularly in this moment, that speaking out or acting on that could hurt them or could jeopardize their future or even hurt their company?
KENNETH CHENAULT: So I think, Adi, we’ve got to talk about that challenge, which is really multilayered. Again, I start with the first principle, in my belief, that business exists because society allows it to exist. And therefore, I believe business has a fundamental responsibility.
What I don’t believe is that business needs to speak out on every issue. I don’t think that’s appropriate. I think what is clear is if we take the United States, for example, our democracy is vital. Democracy has been core to capitalism. And if democracy is being threatened, i.e. the right to vote is being threatened, that is an issue that I believe people in business need to speak out on.
The second reason to speak out is on an issue that affects the mission of the company and goes against the core values of the company. So if, for example, a specific group is being discriminated against, and at the same time the company is saying, “We are open to all people,” I think that the CEO would need to speak out because they’re trying to create a community and a culture that is welcoming to all types of people.
There are some people in business who have said to me, “Ken, I understand your belief that business exists because society allows it to exist. I don’t believe we have any responsibility to society.” That to me is a problem. And it’s also a lack of recognition that if you want to build an enduring company, you should have in fact a selfish incentive to have a healthy society.
ADI IGNATIUS: So it got complicated, obviously. 10 years ago, if we were having this conversation, there might be a consensus that yes, yes, yes, this is an era of stakeholder, not shareholder capitalism, that Milton Friedman’s theory of the case held sway for five decades and something else is being created.
Now we’re in a different place. I think CEOs… there has been a backlash. The U.S. government in particular has caused a lot of businesses to just want to keep their head down. And again, I think it’s difficult to navigate this. And I think companies, they have maybe their internal cardinal principles, but they exercise them sort of quietly and almost secretly. Where do you think we’re headed? What’s the next great theory of capitalism and stakeholder versus shareholder relationships?
KENNETH CHENAULT: We could really push on that issue. I think if you have core principles, whether it is in your personal life, whether it is your responsibility in running a company, it’s hard to exercise core principles silently or to take the position, I have these core principles, but the consequences of me exercising those core principles might damage the company. So therefore, I’m not going to follow those core principles.
I think at the end of the day, as I said, I do not advise CEOs to speak out on a range of issues, but I do think that we’ve reached a point where core principles need to be followed. And it takes a few CEOs who have the courage to stand up. And I think we’re in a environment where the failure of business to speak up is having and will have a damaging impact, not only on business, but our society more broadly.
But I believe that we will have some CEOs speak up. And I also believe that there will be a reassessment on the part of CEOs and on the part of different constituencies and stakeholders who will really reflect on the failure of business to appropriately speak out.
ADI IGNATIUS: Well, let’s talk about diversity specifically. You mentioned, not in these words, but that DEI, this sort of DEI industrial complex maybe got too big or maybe there were excesses. But that’s an area where I think there are companies that would like to retain a commitment to diversity, but they’re genuinely worried that doing so in name could cost them government contracts. There’s serious repercussions. And it’s crazy. 10 years ago, we all would’ve agreed the data is clear.
Diversity is a positive thing for a company. But again, we’re in this weird position. And what’s your advice specifically in that area for companies that want to do the right thing, but are genuinely skittish about how to proceed?
KENNETH CHENAULT: For me, diversity is core. And to stop having a focus on diversity is abandoning a core commitment that companies have made. There are some companies who have continued to focus on diversity. I’m very proud that my successor, Steve Squeri at American Express, has maintained the commitment to diversity.
And I was actually just speaking to the leadership team and employees at American Express about my book. And one of the things I said with respect to diversity is you’ve got to fashion the argument. No one can deny that historically, some groups were denied opportunity. No one can deny that people rationally understand that it’s useful to have individuals who represent different perspectives. Most companies would not argue that you should not just hire from within. You should have a balance of hiring from within and making selective external hires. No one argues that that is wrong. But when it comes to race or gender, it’s a more emotionally charged subject.
I think what CEOs have to do, as they would on any other core business issue where the government might disagree with them, they would develop the rationale to defend that core business. And if companies believe that having a diverse workforce is important, for me, that would be one of the core issues that they need to articulate the rationale and they need to keep their commitment. Because if they’re going to change their emphasis depending on who is in elective office, then from my standpoint, they don’t really have any core commitments. And there, I don’t have any sympathy at all.
ADI IGNATIUS: Yeah, I like that. All right, so let’s switch gears a little bit. I want to talk about innovation. I’m interested in what you can share: How does a big company, sprawling company innovate and be perpetually innovative?
KENNETH CHENAULT: Obviously you need to put in and demonstrate that you want to create a culture of innovation. And the way you create a culture of innovation is you need to have leaders in the company who can both come up with ideas, but also identify ideas in the company and will take the risk to try out those ideas.
What I find in many large companies, and really American Express was no exception in the early days when I was there, that your hardest adversary was generally someone in the company that was protecting the status quo. And what you have to do is to in fact support people who are willing to challenge the status quo.
And one of the things that I did and encouraged throughout the organization was creating small teams that cut across functions in the organization, that had an idea, and give them the resources and the capabilities to drive that idea. And one of the things that I would talk about is that we should run the risk of cannibalizing an existing business. And I would tell the story of the company that where American Express was most successful was when it took the risk to cannibalize an existing business.
And what’s important is who is in charge? To me, the customer is in charge. And the first focus should be, I need to meet this customer need. You can certainly have the question, what will the impact be on this business, on the preexisting business? But you’ve got to have the willingness to say, “I’m going to take the risk.” Obviously I’ll do some things to try to mitigate the risk, but what’s most important is I’ve got to continue to innovate and you’ve got to be relentless. At any moment, I would always have at least 25 new product initiatives in the organization. And to me, the best innovations that we did at the company actually threatened an existing product.
ADI IGNATIUS: You pushed American Express to become an everyday spending card…
KENNETH CHENAULT: Right.
ADI IGNATIUS: challenging some of the assumptions about what made the brand special. So I’m really interested if you have thoughts on how do you distinguish the essence of the company from the habits that might be holding it back?
KENNETH CHENAULT: Most people look at American Express as a payments company. That is too confining. What I looked at, going through the history of the company, the through line was American Express is in the service business. Starting from its history as a freight forwarding company, it was a service, taking goods from point A to point B.
So what I talked about in the company is one, we are a services company at our core. And the card business at the time, the payments business, I said, was a platform that allowed us to provide services to our customers. So one is you’ve got to understand what is at the core of what the company does. And for American Express, the core was we were in the service business, not that we were tied to a form factor of a plastic card.
And people would say to me when mobile came, “Oh, you guys are going to be in trouble.” And in fact, we had significant growth with mobile payments because of this concept that we would use mobile payments to provide services to our customers. So I think you’ve got to understand what your core business is. Second, what you have to do is you need to have people both in established businesses and in new businesses, in some cases competing with each other because you don’t want your established business to stay the same. You want them to continue to innovate.
ADI IGNATIUS: So if you’re trying to affect strategy, if you’re trying to affect change, part of it obviously is truly understanding what’s happening in the company, which means ensuring that bad news trickles up to the leader early enough that you can do something about it. Are there specific questions that you ask or meetings that you hold or management practices that you’ve used to make sure you’re getting the most accurate picture of the business you can?
KENNETH CHENAULT: I think it’s a real problem with companies at any size is how do you encourage an environment where people are willing to share bad news right away? First and foremost, you’ve got to create an environment where there’s real trust because people are not going to share news if they don’t trust the leadership.
I think second, what is very important is that you have a culture, and what we called it at American Express was I talked about constructive confrontation because American Express was a great company, but the culture was passive-aggressive. There was a phrase that I called the deadly phrase, which was, “I don’t mean to disagree, but…” That meant I totally disagree with you, in Amex speak.
So I said, “Look, we have to move fast in the marketplace. We’ve got to create an environment where people speak their mind and confront each other.” They can do it respectfully, but I think what you have to do is throughout the organization, you need to, from a business standpoint, identify what are some of the leading indicators.
Second, in meetings, I would actually role play with people. Even though I might have agreed with them, I would intentionally debate them because I wanted to demonstrate and role model and have my leaders do that, that they were open to feedback. They were open to debate. And to say to people right in the beginning, “If you see the following, you need to raise it as an issue,” to give people examples, because it’s not enough to make a broad statement to say, “Look, feel free to give me bad news.” You need to tell people, “Here are the types of things that you should be telling us and they should go through the organization and you should feel very comfortable and confident that you can do that.” Having that level of transparency has been critical and there is nothing more important.
ADI IGNATIUS: But it was difficult, right? I mean, you write at one point that your colleagues confronted or told you that you interrupted people or would disappear into the Ken zone, which it’s nice to have a zone named after you. But it’s not a compliment. So how did you change a behavior that you probably didn’t even know that you had before it was pointed out?
KENNETH CHENAULT: So Adi, what you’re alluding to is I had in the book, and I think one of the things from a leadership standpoint, leadership is an ongoing journey. And at American Express, my predecessor, Harvey Golub, introduced leadership training in the organization. And I think what was important is it was mandated throughout the entire leadership team and all the way through the company.
And in my case, I had a really strong reputation from a strategy, business results standpoint, had moved up the organization very quickly. One of the pieces of feedback I got, which frankly was surprising to me, is that I was not a good listener. And the feedback was Ken is not mean in his dealings with people, but what we really feel is if he doesn’t think we’re saying something that really is particularly insightful, he sort of zones out. And I feel disrespected because I really do like him and I want to perform well, and he just zones out.
I was horrified. And I went through all this feedback and put together a developmental plan to try to become a better listener. And one of the things I found I realized I was doing, sometimes my mind was racing so fast, I thought I was at the idea. I wouldn’t let someone finish. I would interrupt them. And I saw that was actually damaging the effectiveness that I could have, and certainly the effectiveness of people working with me. And I just took it on myself to really become a really strong listener.
It, frankly, Adi, took me two years before people really recognized that I was improving in that area. And over time, one of the strengths that people would cite was that I’m a very strong and engaged listener, but that was not the case. And I think I tell that story because one of the issues sometimes in leadership and with successful people is they stay with their bad habits and practices because they say, “Look, I’ve been successful.” And at the end of the day, if I had not made that change, I think I would’ve been a far less effective leader.
ADI IGNATIUS: What are some of the maybe unexpected skills that you think effective leaders need now that maybe you wouldn’t have thought about five, 10 years ago?
KENNETH CHENAULT: So I think there’s several, and I don’t know if, Adi, they’re unexpected, but maybe a few of them are. I think that, let’s take AI. What some CEOs are doing is they’re delegating AI to someone else. I don’t think a CEO in this environment can just delegate AI to someone else. They have to become proficient enough to be able to make the judgments that are going to be so important with respect to AI. And then you have to understand the trade-offs relative to operationalizing the transformation that needs to come about as a result of AI.
I think second, I don’t care what size company you are running, the ability to create both formal and informal partnerships is going to be very important. And what I find is that the core competencies required to develop those partnerships is often lacking. This goes to intellectual curiosity. I think CEOs have to be more outward facing and to identify, again, who were some of the people out there that they need to form relationships with, because the learning curve and the pace of change is so rapid that you’ve got to be very thoughtful about how you are learning, who are individuals, who are groups that you need to connect with, and you’ve got to ratchet it up tremendously.
And I think thirdly, the interconnections and the cross-industry impacts, I think are far greater than people realize. So it used to be in some cases you could just stay in your lane. I think you got to think across industries to understand what are some of the implications and impact on your business and your company.
ADI IGNATIUS: So if you were advising a newly anointed, appointed CEO today, what management habit, what practice would you urge them to establish in, let’s say the first 90 days?
KENNETH CHENAULT: The first 90 days – and it depends whether you’re an internal versus an external person coming in. If you’re an internal person, I think it’s important that you reset the priorities. What are we going to continue from the previous CEO? And it’s not an issue of saying, “I think the CEO was just wrongheaded.” It could be the company’s doing very well, but I think what you need to do is to establish and reaffirm what are the key values that you want to reinforce, that you want to personally reinforce? What are the key behaviors that you want to see in the organization? What are three or four key priorities that you’re going to be working on? Because when you’re the new CEO, it’s not that you have to make wholesale changes, but the organization is taking a measure of you and they want to know how are you going to steer the ship? What’s important to you?
So I advise, whether you’re an internal CEO or an external CEO, an external CEO generally should not come off that they understand all the issues. But what they should do is they should introduce themselves to the organization. “Here’s what’s important to me as a leader. Here are the behaviors that I think are critical.” I think a new CEO, because part of what you need to do in that first 90 days is you need to build connections with the organization. And it’s hard to build connections if people don’t have an idea of what you stand for and what are some of the key priorities for you.
ADI IGNATIUS: So you were involved in two big successions, one on your way in, the other on your way out. How do we do successions the right way? What does that look like?
KENNETH CHENAULT: In general, and I, frankly, haven’t done the empirical analysis here, but I think most successions are not done very well. And there’s some reasons for that. One is well-meaning people want to do well, but they’re passive-aggressive. They don’t want to upset the new person coming in and the new person doesn’t want to upset the person going out. I think what’s very critical from a succession standpoint, assuming you’ve identified the right person, and obviously I think one of the most important jobs of the board and the CEO is to identify the person who can really lead the company going forward.
And Warren Buffet said an important thing to me when I first met him. And he said, “Ken, I’m going to judge you by how the company does under your leadership, but I’m going to equally judge you by how the company does at least 10 years after you leave.” And that, Adi, always stuck with me.
So developing the right successor, what Harvey and I did and what Steve and I did was we really talked through, “Here’s what I’m going to focus on.” And a lot of people do that, “And here’s what you’re going to focus on.” But then we also talked about, “Here are things that would annoy me. If you did A, B, and C, that wouldn’t be good for our succession, but it also would piss me off. That wouldn’t be good.”
And having those honest conversations about what’s best for the company and what’s best for the individuals involved, and the focus should be setting up your successor for success. And that is your responsibility. And too often, we’ve seen situations where the roles were unclear, one person was upset with the other person, they didn’t really communicate honestly. And in a year or two, the company’s performance wasn’t very good. That’s the fault of the previous CEO and the new CEO. That is a shared responsibility. And I think what has to happen is very honest communications constantly, constantly about what’s working, what’s not working, how are we setting the new person up for success.
ADI IGNATIUS: I want to thank you for being on IdeaCast and I want to wish you luck in the book rollout.
KENNETH CHENAULT: Well, thank you very much. I’ve enjoyed the conversation.
ADI IGNATIUS: That was Kenneth Chennault, chairman and managing director at General Catalyst, former CEO of American Express and author of the new book Equal to the Task.
Next week, Alison speaks with Christina Wing about the taboo topics we all avoid at work–and whether we should bring them to the surface.
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Thanks to senior producer Mary Dooe and Senior Production Editor Kristin Murphy Romano. And thanks to you for listening to the HBR IdeaCast. We’ll be back with a new episode on Tuesday. I’m Adi Ignatius.
