Strategic Audit for American Express Corporate Governance

Solution Preview

Current Situation

Like so many global companies in the banking/lending industry, American Express has suffered from the economic downturn too. It appears this high-standard lender is going to survive this crisis, even with damage from wealthy consumers who are not able to pay their bills. Traditionally, American Express was a more upscale card which had to be paid off every month; however, in recent years they have offered credit cards to new consumers who were able to hold a balance on their cards. This was a fantastic way for the company to gain additional revenue. However, in this economic crisis these are the accounts they have had to write off.

In October 2008 the organization wrote off $1.4 billion of bad debt, which was up 51% from $905 million the year before. (American Express Net, 2008) Not only is this damaging their revenue, but holds on lending have made it difficult to generate new revenue possibilities. In their 2008 Annual Report, American Express claimed a 33% decline in Net Income, falling from 4,012 million in 2007 to 2,699. (Annual Report, 2008) Obviously, the downturn in the economy has affected their organization.

American Express has made special efforts to evaluate their business and their strategies to implement plans, for future development in our current struggling economy. In January 2009, American Express performed a number of different studies to determine what the necessary steps the organization must follow to control spending and come up with long-term financial plans. These plans basically focused internally on organizational and employee spending, collection of financial data, analyzing the data and making educated decisions regarding the data that they have received. Lastly the plan focuses on developing a long-term plan to cut costs, such as simplifying procedures to avoid duplications or steps which are unnecessary.

Unfortunately, this was not the only strategy that American Express was forced to take to cut-costs in their organization. In 2008 American Express announced that they would have to lay-off 10% of their staff, totaling 7,000 employees. Along with the announcement about the lay-offs the organization also stated that their operations would also halt management salary increases and institute a hiring freeze. (American Express Cut, 2008)

While the credit card industry has faced several challenges over the past couple of years, they are likely to face several more. American Express is sure to not go down without a fight. Currently, the global credit card company serves more than 130 countries around the world and continues to provide the quality products and services which they value so dearly. As a matter of fact, their mission statement is developed around the values of the organization, stating "Our mission at American Express is to be the most respected service brand." (Mission Statement, 2009) Their mission statement is clear that their focus is based values which the organization and their employees hold dearly and is incorporated into everything they do by integrating their values into their strategies and their policies.

American Express has developed their company on 7 values which are customer commitment, quality, integrity, teamwork, and respect for people, good citizenship, a will to win, and personal accountability. (About Us, 2009) These values have been the core of this company's success and shape the objectives in which they operate, enabling them to retain valuable business partnerships and maintain their respectable image. Along with creating strategies that will help the company cut costs to make it through our economic downturn, the organization has maintained and gained several partnerships with which they offer their credit cards. Such companies include partnerships with Delta Airlines, JetBlue, Hilton and Costco. Along with these acquired partnerships American Express offers individual consumers as well as corporate accounts a plethora of cards with rewards and initiatives to use them, which will continue to attract a consumer base in the coming years and help rebuild their revenues and losses during our global recession.

American Express's ability to emerge out of the global recession is solely based on the state of the global economy, simply put; if customers are not making money to pay to their lenders then the lenders are missing out as well. Also, if the lender does not have assets to lend, they are not able to generate income in that way either.

Corporate Governance

The Board of Directors consists of twelve members. The members on the board are a chairmen, founder, general partner, or president of a corporation, company, or university. The majority of the members are independent, non-management directors who have met the criteria for independence that is required by the New York Stock Exchange. Currently there is only one employee of American Express on the Board of Directors, because no more than two employees can serve on the board. The one employee is the Chairman and Chief Executive Officer Kenneth Chenault. They have one member on the board that has International Experience, which is important because they are an international company. Charlene Barshefsky is a senior international partner for a law firm in Washington D.C. and she was nominated by former President Clinton to serve with Rufus Yerxa and Richard W. Fisher as Deputy U.S. Trade Representatives.

Each director at American Express should have a substantial personal investment in the company. The company recommends 20,000 shares and they are expected to attain their share ownership threshold within five years of joining the board. "Assuring that the Company has the appropriate management talent to successfully pursue the Company's strategies are one of the Board's primary responsibilities" (www.americanexpress.com). They are expected to be familiar with the Company's executive officers to offer personal feedback on the performance of the officers.

There ...