COURSE CONNECTOR

 ARTICLE SUMMARIES AND QUESTIONS

"C-Suite Strategies: The Colvin Interview: Kenneth Chenault," pp. 53-58: Why has American Express remained profitable despite last year's financial collapse and the ensuing recession? Because of 9/11. Though that may sound strange, it was the experience AmEx CEO Kenneth Chenault gained in the aftermath of the 2001 terror attacks that helped him navigate the 2008 economic disaster. Following 9/11, AmEx made major efforts to improve its balance sheet so that it would not have to dip into commercial markets to fund its business in a time of crisis. This move helped protect the company when the commercial markets froze last fall. It also put AmEx in solid position just one year later to think about its future. While Chenault isn't as willing as Fed Chairman Ben Bernanke to declare this recession over, he does expect to see improvements soon in key areas, including technology, travel, and entertainment spending. Another hopeful sign for AmEx is that although card billings are still negative, transactions have remained stable, indicating that customers are still using plastic when they spend. Chenault’s plans include focusing on customer service, bringing back the pay-in-full charge card, making profitable use of key consumer spending information the company maintains, and of course, preparing AmEx for whatever lies ahead.

This article profiles American Express CEO Kenneth Chenault, who has managed his company successfully through the financial meltdown.

Discussion Questions:

1. According to Kenneth Chenault, what has been one of the most surprising developments in this recession? How has it impacted American Express? What lessons has Chenault learned as a result?

2. How were the fates of companies like American Express at least in part determined by the way they were managed prior to the financial crisis? How did Chenault’s priorities shift after Lehman Brothers failed?

3. What concerns does Chenault have regarding the Credit Card Reform Act of 2009, federal regulation of executive pay, and other financial service regulations being debated in Congress? If you were a member of Congress, how would you work to address these issues?

"The Power Broker and the Biggest Bank Failure of the Year," pp. 71-84: Bobby Lowder is having anything but a restful retirement. On August 14, just a few months after he announced his retirement as CEO and chairman of Colonial Bancgroup, federal and state regulators took control of the company he had founded and spent 28 years building into a regional banking giant. The bank's fall was precipitated by a real estate binge in fast-growing markets like Nevada, Atlanta, and especially Florida. When the bubble burst, Colonial's loan portfolio was more than 85% invested in real estate. The seizure of Colonial's roughly 350 branches and $26 billion in assets made it the sixth-biggest bank failure in U.S. history, the worst this year, and the third largest since the beginning of the credit crisis one year ago. For Lowder, one of the most feared and loathed men to wield power in Alabama, the losses are enormous. As Colonial's largest shareholder, Lowder has seen $164 million on paper vanish from his personal wealth. Even worse, he has been named a primary defendant in a slew of class-action lawsuits filed by shareholders and former employees, charging Colonial with reckless and dishonest conduct, and he’s being investigated for fraud by federal investigators. In Lowder's case, there's no rest for the weary.

Students take a closer look at the collapse of Alabama’s real estate powerhouse Colonial Bank and the allegations that could bring down its CEO, Bobby Lowder.

Discussion Questions:

1. Why did Colonial Bank's attempt to participate in the Troubled Asset Relief Program (TARP) raise red flags at the FBI and at TARP’s Office of the Special Inspector General? What are federal investigators looking for? Why?

2. What is warehouse lending? What did it allow Colonial Bank to accomplish over the past decade? How might Colonial's former position as the top warehouse lender in the country ultimately work against the bank?

3. Based on the article, how would you define Bobby Lowder's personal management style? What effect, if any, do you believe Lowder's interactions as a member of Auburn University's Board of Trustees will have on his legal fate? Explain.

"It's China's World. (We Just Live in It)," pp. 86-92: It's fair to say that China is a bonafide shopaholic. So far this decade China has spent an estimated $115 billion on foreign acquisitions, and it shows no signs of stopping anytime soon. From oil in Nigeria (and the Congo and Brazil and Kazakhstan . . .), natural gas in Iran, and iron ore in Australia, to banks, utilities, and semiconductor firms just about everywhere else, China has stakes in companies the world over. Having already established itself as the world's factory, China may soon emerge as the world's leading exporter of capital. True, it has some catching up to do. In 2008, China's $50 billion in investments abroad lagged the U.S.'s $318 billion. But China has something the U.S. doesn't — $2.1 trillion in foreign-exchange wealth it is itching to spend in order to move up the corporate value chain. Manufacturing has taken China's economy as far as it can. To sustain growth the nation must make the jump from selling sneakers for Nike, toys for Mattel, and auto parts for Magna to becoming Nike, Mattel, and Magna. This process, which China has called its "going out" strategy, will not happen overnight, but it is gaining momentum. The rest of the world is on notice.

In this article, students read about China's shopping spree for natural resources, automakers, high-tech firms, and real estate around the globe.

Discussion Questions:

1. Why is China's economy in such need of "rebalancing"? How must Chinese spending behavior change to sustain economic growth in the nation?

2. Why are the Chinese buying stakes in foreign companies — or buying them outright — at such a breakneck pace? How do you think the Volvo deal will play out? Why?

3. Describe what happened in 2005 when CNOOC tried to buy the Los Angeles-based Unocal. Why does the article predict repeats of this case in the future?

"Microsoft Reboots," pp. 98-108: Microsoft CEO Steve Ballmer, the handpicked successor to Microsoft’s legendary founder, Bill Gates, has had the better part of a decade to move the company beyond its two biggest cash cows, the Windows operating system and the Office productivity suite. He hasn't fared very well so far, but that might be about to change. As Microsoft releases Windows 7, its first new OS since 2007's roundly despised Vista, to critical raves, the self-loathing, hypercritical company is showing signs of having its old mojo back. Having ramped up its development cycles, this past summer the company kicked off "a year of product launches unlike any other in Microsoft history." Since then, Ballmer and crew have revamped Windows Server and unveiled the Zune HD line of MP3 players. They're also busy overhauling Windows Mobile, Office, Internet Explorer, and Xbox Live, and introducing the Bing search engine and Azure, a plunge into the enemy territory of cloud computing dominated by Google. As if all that weren't enough, Microsoft is about to venture into retailing as well, an area conquered by another longtime nemesis, Apple. Will it be enough to restore Microsoft's former glory? Only time will tell, but you can never count Microsoft out in a fight.

Students examine whether a new operating system and a new attitude will help Microsoft compete with Google.

Discussion Questions:

1. Why was the Vista operating system such a failure for Microsoft? Why is Windows 7 expected to restore Microsoft’s reputation?

2. Why is Microsoft so hell-bent on pursuing a position in the global search market, despite the company's rocky history online? What does the Internet offer that Microsoft’s other products no longer can?

3. As computing activity increasingly moves off PCs, what dilemma does Microsoft face? Why do Google executives like their position in the battle with Microsoft? In your opinion, will "Microsoft v.3" succeed? Why or why not?