A Chastened ChaseKelley Holland
The room was becoming all too familiar to the 25 weary executives. For two days, sitting in a circle at a conference center an hour north of Manhattan, they had gathered to talk about the direction of their company. There were moments of levity. The executives poked fun at the saddle shoes worn by the pony-tailed consultant leading their sessions and came up with nicknames such as "Boy George and the Culture Club." But for the most part, the discussion seemed an endless recital of complaints. "It was a very gloomy group," says one participant.
Then, the consultant gave the executives new assignments: First, rate and discuss their working relationships with each other, and later, break into groups of five to assess their own management skills, tell the group about those assessments, and take feedback. After some hesitation, the 25 men began talking openly, speaking their minds to each other in ways many had never done before. Says one attendee: "Most of us thought we were terrific, but most of our panel members had slightly different views."
TOUCHY-FEELY. Once they began saying difficult things to each other, they began to develop a new degree of trust. They started to drop some of the feuds and rivalries that had divided them for years. One executive says he told his wife afterward: "Those were the four days that changed the Chase."
Chase? Chase Manhattan Corp. was once, with good reason, among the proudest banks in the world, hardly the kind to subject itself to such an est-like touchy-feely encounter session. Chase bankers had entree to corporate and government leaders around the world. Its client list was the envy of bankers everywhere. Chase was the Rockefellers' bank.
Chase had been humbled, though. A decade of missteps and blunders common to many big banks--from loans to less developed countries to a major push in commercial real estate--had bled billions of dollars in capital from its books. In 1989, Chase lost $665 million. In 1990, it halved its dividend and reported a $334 million loss. And every time Chase seemed to be surmounting a difficulty, a new one would surface.
Chase had even bigger internal problems. Top executives, each eager to build a big personal empire, had pushed Chase into a panoply of businesses, creating an unwieldy institution with a finger in nearly every finance pie but with dominance in none. Turf battles and a near-total lack of cooperation made it almost impossible, Chase veterans say, for the bank to contend with tougher market conditions. "We just didn't seem to get things done," says Fred B. Koons, executive vice-president and head of Chase Manhattan Mortgage. "We always seemed to be at cross-purposes." The bank's weakness had become so pronounced that by the early 1990s, betting was widespread on whether Chase would have to merge or be acquired by another bank.
Thomas G. Labrecque, installed as CEO in October, 1990, had taken some of the necessary steps to turn Chase around by the time of the July, 1992, retreat at the Doral Arrowwood conference center in Rye Brook, N.Y. He had begun to get finances in order and sell peripheral businesses. But at Arrowwood, Labrecque launched his boldest undertaking, which continues today: transforming the culture of an enormous, proud, 200-year-old institution and instilling enough teamwork and flexibility to return it to its old prominence.
Early signs, while far from conclusive, offer grounds for hope. To be sure, vestiges of the old cautious, territorial thinking remain. And Chase has a long history of failed reform campaigns. But turf squabbles have become less widespread, and executives from different parts of the bank are beginning to collaborate. These changes are starting to show on the bottom line. Return on equity for the first six months of 1994 was a hefty 18.1%, which tops almost all Chase's major rivals.
VULNERABLE. Chase's low stock price remains a major handicap. Despite the healthy profits and improving credit quality, Chase's shares, at $36, trade just below its book value. That makes it hard for Chase to make acquisitions for stock and more important, it makes Chase itself vulnerable. Labrecque, 56, is determined to reduce that vulnerability.
Ironically, Labrecque, a product of the old Chase culture, is an unlikely change maker. He joined the bank in 1964, fresh from four years in the U.S. Navy, and never left. Then-CEO Willard C. Butcher named him president in 1981, and the 42-year-old executive earned the nickname "Tom Terrific" from detractors, who said he replied "Terrific!" to Butcher's every plan.
Labrecque, though, says he saw internal politics looming as a potential problem more than 20 years ago. As chief of staff at then-Chairman David Rockefeller's executive office in 1970 and 1971, Labrecque says: "I watched what happened when the place operated with silos [autonomous business units]. I was there in the meetings. I was preparing the memos." The bank he saw lacked focus and suffered from lax customer service and constant turf wars. "We had a great name, a great franchise, and we had messed it up," he says.
Labrecque believed Chase could easily improve individual products such as credit cards over time. But "if you take all our product companies, as good as they are, there's someone out there who's as good," he says. And with executives often unwilling to help another Chase unit work with its clients, even strong products wouldn't get the exposure they needed. Labrecque wanted Chase bankers to change the way they operated: to team up and develop joint strategies so that the bank could expand its relationships with clients. At the annual senior management meeting in early 1992, he called for a new mission statement for Chase to establish long-term objectives along these lines.
Nothing happened. Those in charge of drafting the statement could not come to any agreement. The impasse continued until the spring, when Labrecque and President Arthur F. Ryan heard about a program called VisionQuest from W. Mathew Juechter, CEO of consultants ARC International.
VisionQuest's goal, says Juechter, is to get languishing companies to reinvigorate themselves. The process begins by forcing top executives to confront each other candidly. This allows them to work through issues that in the past have been intractable. The resemblance to the controversial est program of the 1970s is far from coincidental: VisionQuest grew out of the so-called human potential movement, which also spawned est. Juechter says no one working for ARC International has been affiliated with est, and Labrecque says the bank modified VisionQuest to suit its own needs.
As part of the executives' meeting, VisionQuest calls for them to produce a statement of values and corporate vision. At Arrowwood, that provoked heated arguments. Could Chase say publicly that it wanted to be the best financial-service organization in the world when it was clearly something less? Was it appropriate to set an AA credit rating as a goal when the bank was rated several notches below that?
SIGNING PLEDGES. Eventually, the executives decided that Chase's mission was to become the best financial-services provider in the world. And they defined five values: customer focus, respect for each other, teamwork, quality, and professionalism. At the final evening's dinner, they signed a pledge to behave more constructively toward each other.
After Arrowwood and several similar meetings for senior executives, Labrecque decided that all 34,000 Chase employees should learn about the new vision. That process is continuing today. Every employee is attending at least one full-day session devoted to instilling the new values. The values are visible everywhere at the bank: An enormous banner inscribed with the vision statement and values hangs in the entrance hall at Chase's lower-Manhattan headquarters. And coffee mugs inscribed with the values adorn hundreds of desks.
Even employees' performance evaluations are changing to include measures of their adherence to the new values. Soon, credit-card-division workers' pay may swing up or down by as much as 25% based on how they measure. Executives have already felt the effects of VisionQuest in their paychecks: Robert D. Hunter, executive vice-president in charge of national consumer products, says less than half his compensation is tied to the performance of his own businesses, and "it's amazing how that changes your attitude."
Labrecque himself, the former "Tom Terrific," is extraordinarily keen about the program. His stiff, formal demeanor--seated, he looks as if his back never touches the chair--belies his enthusiasm. An easel in his office holds three drawings made by employees who were asked to illustrate what the new values meant to them. He helps conduct some of the one-day sessions himself. Says Robert R. Douglass, a former vice-chairman of the bank: "He sees his role in the company as leading this change. He has become a real missionary."
Labrecque's zeal for promoting teamwork may be rooted in his upbringing. The third of eight children of a New Jersey judge, Labrecque grew up in a close-knit family. (His entire family still lives in New Jersey.) He also played several team sports in high school and at Villanova University, where he earned his BA. As a young executive at Chase, Labrecque won plaudits during New York City's fiscal crisis in 1975 for his ability to mediate between the city's unions and its lenders.
Today, Labrecque has established a strong team of two to run Chase. Ryan is a cigarette-smoking technology maven who rose through the ranks, including a stint running the consumer bank, with the help of Labrecque's sponsorship. He is a contrast to the trim, fit CEO, who won his stripes on the corporate side of the bank. But Ryan's management strengths--encyclopedic knowledge of the operations of the bank and an incredible memory for detail--complement Labrecque's more laid-back style. "I'm probably more actively involved in business strategy and execution," says Ryan. "He's probably more involved with regulators and other constituencies."
"RIGHT DIRECTION." Labrecque has a ways to go before Chase can be called a transformed company. The bank has been performing well, says Paul W. MacAvoy, a Chase director and the former dean of Yale University's School of Management. He adds: "All I can say at this point is the great ship of state has left the harbor and is heading in the right direction." Teamwork and flexibility are nice values for a company to espouse. Banners, coffee cups, and employee surveys are pleasant boosters of morale. But Chase needs more than improved morale.
Officials at other companies who have used VisionQuest say it is only a starting point for the business of improving bottom-line performance. The program laid the foundation for major changes at Duke Power Co., in Charlotte, N.C., says Christopher C. Rolfe, vice-president for organization effectiveness there, but it "needs to be looked at as a piece of the puzzle, not the puzzle." And Chase is hardly the first bank to latch on to teamwork. J.P. Morgan & Co. is well known for doing business with clients on a number of fronts, and even Citibank, long a competitive company, is trying to foster more cooperation between business units.
For Chase, the new cultural campaign is risky. If it does not add to the bottom line, Labrecque will face renewed cynicism and infighting among his troops. Instead of winning praise as a visionary, Labrecque could find himself tagged a Neronian fool--fiddling with ephemeral values when Chase's core business badly needs fixing.
The new stress on teamwork is beginning to have an effect, though. A proprietary computer program Chase uses to track client relationships shows that 27% of Chase's top clients have begun using more of the bank's services since the summer of 1992. Revenue from those clients increased 78% in 1993 and is rising again this year. Global risk-management chief Mark B. Grier says that his group's foreign exchange revenues from corporate-finance clients have tripled since mid-1992, and his business with clients of Chase's cash-management and funds-transfer businesses is up 65%. More than half Grier's business this year has come from internal referrals.
Canandaigua Wine Co. is typical of the companies increasing the work they do with Chase. The upstate New York winery has long been a Chase client for basic banking services. But now, says President Richard Sands, in addition to borrowing money, Canandaigua is using Chase's mergers-and-acquisitions advisory services and its capital-markets expertise for deals such as its $437 million acquisition of the Almaden and Inglenook labels from Grand Metropolitan PLC. Likewise, Chase used experts in asset-backed finance, derivatives, loan syndication, and industry analysis to create a novel way for Houston Lighting & Power Co. to sell $66.5 million in accounts receivable. "Nobody's suggesting we're all sitting around and singing Kumbaya," says Joseph F. Sinzer Jr., a vice-president for global securities services. "But now, we have a lot more people talking about our customer, not my customer."
Similar changes are evident in private banking. Bernard J. Jacob, the head of M&A at Chase, recently set up a team to work on a $20 million deal--too small for him to bother with ordinarily. But he did it to help Chase's private-banking unit build closer ties with an important client. Similar coordination is winning Chase business in securities-processing businesses such as global custody: Farmers Insurance Group became a global-custody client this year after global-custody specialists coordinated with the private bankers selling investment products to the company.
STEEP TAKEOFF. The pickup in teamwork extends overseas. Asia head Timothy McGinnis says his group, working with corporate finance in New York, won a mandate to provide advisory work and financing to Philippine Airlines Inc. in 1993. The PAL business in turn helped Chase win other work. The bank has added ten aviation and aerospace clients in Asia in the past year.
Remnants of old Chase ways remain: The offices of Labrecque and the other executives on the 17th floor at Chase headquarters are still hushed, palatial spaces insulated from the rest of the bank by uniformed guards and glass doors that slide closed and lock at the push of a button. Labrecque himself thinks the bank is at best halfway through its changes. And some executives still need to be reminded about communicating openly with other employees. Last year, Chase Europe's Thompson M. Swayne visited the bank's transaction-processing center in the English town of Bournemouth--where an employee's comment revealed that Swayne was shutting people out by delivering quarterly updates only to bank officers. Swayne now sends the reports to every employee in his division.
As a Chase veteran, Labrecque is acutely aware of how frustrated and embarrassed longtime employees have been by the bank's problems--and how eager they are to get Chase back on its feet. In his view, if it takes sitting in a circle and talking about conflict resolution, that's fine. "You have to have been where we were to understand," he says. "People here like to win." Given time, Chase just might.