View Year: 1848 1851 1852 1864 1884 1893 1898 1900 1901 1909 1912 1913 1919 1923 1927 1929 1931 1932 1933 1934 1939 1941 1944 1945 1946 1950 1955 1956 1958 1961 1962 1966 1968 1970 1974 1979 1980 1981 1982 1983 1984 1985 1987 1989 1994 1997 1998 1999 2000 2001 2003

1999

Dimon Tells Intimates of Ouster from Citigroup

Dec. 20 — As Jamie Dimon accelerates his search for a new job, the former Citigroup executive — some say once the heir apparent — has been hitting the lecture circuit, talking about the events surrounding his abrupt departure in October 1998.

But he has not told the whole of his story to open audiences, as he searches for work, possibly as a bank president. What he says privately is that his forced resignation last year as Citigroup president was more the result of a simmering personal conflict with Sanford I. Weill, the company's co-chairman, than of business issues, say people close to the former executive.

At the time of Mr. Dimon's departure, Mr. Weill complained about the sluggish pace at which Salomon Smith Barney was being integrated into the newly merged Citigroup, a combination of Citicorp and Travelers Group.

Mr. Dimon, now 43, had been co-chief of Salomon Smith Barney, and was responsible for integrating Salomon into Citicorp's wholesale bank. That led many to believe the company's integration woes were behind Mr. Dimon's departure.

But Mr. Dimon, who declined to be interviewed for this story, sees it differently, the sources say. He casts himself as a victim in a "Shakespearean tragedy," in which his long-time associate and mentor, Mr. Weill, plotted Mr. Dimon's downfall after a long-running, behind-the-scenes feud.

Mr. Dimon is said to believe that Mr. Weill became irritated as Mr. Dimon gained more attention and publicity for his growing role in a number of companies that had been headed by Mr. Weill: American Express Co., Commercial Credit, Primerica, and finally Travelers. Specifically, Mr. Weill was annoyed by frequent reports in the press that Mr. Dimon was Mr. Weill's "heir apparent," the sources say. Even within Citigroup, some executives say they suspect the 66-year-old Mr. Weill, who has made no retirement or succession plans, was irked by the suggestion he would retire at all.

The rift grew after Mr. Dimon had a falling out two years ago with Mr. Weill's daughter, Jessica Bibliowicz, a childhood friend of Mr. Dimon's who resigned as head of asset management at Smith Barney in early 1997. During the last year of his employment, Mr. Dimon believed Mr. Weill was looking for an excuse to push him out — but when it finally happened, he was surprised.

"I came home from work early," Mr. Dimon said at a lecture in New York Thursday evening. "I said, `Judy, sit down. I have something to tell you, and please, please, don't tell me I'm kidding.' "

Since his departure, Mr. Dimon has had little contact with Mr. Weill except a few chance encounters at a mutual favorite restaurant, the Four Seasons. Indeed, in the last year Mr. Dimon spoke more with John S. Reed, Mr. Weill's co-CEO, who had been chief executive of Citicorp. Contrary to some published reports, Mr. Dimon has been saying his relationship with Mr. Reed was free of clashes and that Mr. Weill, in fact, viewed an alliance between the two as a threat.

But last week, Mr. Dimon invited Mr. Weill to lunch "in the spirit of Christmas," a source said, adding that the two parted on good terms. At Thursday's lecture, Mr. Dimon said he has appreciated his time away from work. "You have to be successful in your family life and your business life," he said. "And people destroy their families, they're so busy working. And it takes time and effort."

Mr. Dimon told the audience at the 92nd Street Y that he is looking to return to the financial services industry and indicated he had a strong interest in joining a bank.

"There's a very good chance I'll end up with a company in a very senior role of some sort," he said. "I have a preference for financial services but it doesn't have to be."

He added that he was specifically interested in venture capital, "securities, bill payment … banks where I can add value."

Mr. Dimon has been among the most closely watched and courted executives this year. He confirmed Thursday that he had turned down jobs with amazon.com, Barclays Bank PLC, and Starwood Hotels & Resorts.

"He got very far at a young age," said T. Lee Pomeroy, an executive recruiter at Egon Zehnder International. "He's played at the big table and very close to people who are very close to Wall Street and finance. His reputation is that he's smart, charismatic, energetic, mature beyond his years."

To be sure, there is no financial compulsion for Mr. Dimon to return to work — he is worth an estimated $125 million, at least. And he does have some commitments as a board member for Mount Sinai-New York University Medical Center and the Center on Addiction and Substance Abuse (he is not interested in working full time for a nonprofit group).

But not everyone is sure Mr. Dimon is a perfect job candidate. An executive recruiter said his 14-month absence from financial services has also raised the question "Where's Jamie? No one asks where Frank Newman is. But someone as young and talented as Jamie Dimon, well, it makes you wonder."

Another strike against Mr. Dimon is that he has worked for no one other than Mr. Weill. A long-time friend of Mr. Weill's family, the recruiter said there is doubt about how well Mr. Dimon might perform on his own.

Mr. Dimon dismissed that argument. "My net worth was tied to my former employer," he said. "Not my self-worth."

Sources close to Mr. Dimon say the executive likens his lengthy job search to an engagement — he doesn't want to commit too soon. "I don't want to move overseas. I don't want to get into a situation where I might be unhappy," he said Thursday. "I want to do one thing for the next 10 years."

Still, Mr. Dimon clearly has a passion for work. Much of his hour-long talk was devoted to the Internet and banking. Asked by an audience member if he had any regrets about his career, he paused and said, "I love what I did, except for that ending part…I have been blessed." As for the merger of Citicorp and Travelers, Mr. Dimon said the idea originated as a joke in 1997. A Travelers management meeting included a slide presentation. One slide included a list of potential — and unlikely — mergers from which executives were supposed to pick "the mother of all deals," Mr. Dimon said. At the top of the list was Citicorp.

Somehow the idea was put to the company's lawyers and Travelers senior management came to a conclusion, said Mr. Dimon. "Most companies can do what they want before the regulation changes," he said. After the deal was cemented in May 1998, the combined executive team set out to integrate the companies. Until the recent passage of the financial modernization bill, banks and insurance companies were not allowed to combine. Travelers was an insurance company with large nonbank financial activities.

"Execution is much more difficult than just saying, 'Let's move the divisions,' "Mr. Dimon recalled. We said, "there will be parts that are not managed that well but hopefully the whole thing will take off."

Since he's been away from Citigroup, Mr. Dimon has turned some of his attention to other industries. He said he's particularly impressed with big companies that are managed well: Home Depot, Coca-Cola, The Gap, and Wal-Mart among them. Though he warned that some big banks were "crippled by political or cultural inadequacies," he warned that the industry should not be underestimated as "dinosaurs."

"I would argue banks are more like elephants," he said. "They're not as dumb as they look…and if you don't look out for them, they'll kill you."

[Back to top]

1998

More Fast-Food Chains Taking Plastic Payment

May 22 — Hold the pickles, but pass the plastic.

More fast-food restaurants are accepting credit cards. McDonald's and Burger King remain lukewarm, but many other takeout and quick-service chains are finding virtues in credit cards. Average purchase amounts tend to go up, and cash-handling costs come down.

In the $105 billion fast-food industry, credit cards are still recovering from historical disadvantages. Transactions used to take too long, and the fees charged by processing banks cut into profit margins.

But authorization and settlement technologies are vastly improved, networking costs have come down, and the stores are more receptive to payment alternatives, including debit and stored-value cards.

"The competitive factors are really pushing fast-food companies," said Fred P. Gore, senior vice president of MasterCard International. Companies that accept cards "will have an incremental advantage in retailing as well as bringing new customers to the store."

Fast food is one of the new categories of card acceptance-others include the grocery and health care industries-where the MasterCard and Visa associations have pursued growth in recent years.

Fewer than 1% of fast-food sales are on credit cards, but Visa U.S.A. reported a 78% jump in 1997, to $178 million, and MasterCard, 90%, to about $44 million.

"Some of the regional chains are getting onto this bandwagon," said card industry consultant Stanley Anderson, president of Anderson & Associates.

Last September, Pizza Hut became the first pizza chain to accept credit cards nationally. Little Caesars announced a pilot for its 41 Utah stores in March.

Armen Khachadourian, Visa senior vice president of market development and acceptance, said that, because turnover is high among delivery people, pizza retailers like the security of credit card transactions.

"This is an environment where home delivery has been the impetus to accepting cards," Mr. Khachadourian said.

Consumers' tendency to spend more when paying with cards rather than cash "has always been a tremendous draw to people in the fast-food industry," Mr. Khachadourian said.

In a recent American Express Co. test at 55 Arby's Roast Beef stores in Texas, the average card sale was $10, 72% more than the average cash transaction.

"We've got all the rationales why cards are the right thing to do," said Tracey Fulmer, director of new industry development at American Express. "Now it's a matter of getting in and talking to" potential customers.

One of the biggest signings among the hamburger chains has been Sonic Corp. of Oklahoma City.

"We believe there is a growing trend toward less cash and more emphasis on convenience," said Pattye Moore, senior vice president, brand development and marketing, at Sonic. "We have seen higher average checks and incremental sales."

Still, the industry titans are not sold. Burger King tested credit cards and found that they "slow down the speed of service," said Kim Miller, a spokeswoman for the Miami unit of Grand Metropolitan PLC of London.

"Customers who are using the cards and those behind them get annoyed," Ms. Miller said.

Burger King and McDonald's have shown some interest in smart cards. Both have been active in Visa Cash and Mondex trials, intrigued by the ability to automate cash-handling and eliminate theft.

Burger King is preparing for a major experiment with stored-value cards in the Long Island suburbs of New York. Chase Manhattan Bank will issue Mondex cards for the test.

On-line debit attuned some chains to card acceptance. Carl's Jr. introduced debit card acceptance in California in 1989, and the six major regional electronic funds transfer networks are coordinating efforts to sign fast-food companies.

A handful of Burger King and McDonald's outlets accept credit cards, primarily in tourist areas and airports where consumer demand is stronger.

A McDonald's in New York's financial district has accepted credit cards for six years, but the site is far from typical. It caters to tourists and Wall Street workers and has a stock ticker and a tuxedo-clad cocktail pianist.

But the restaurant does not trumpet its card acceptance. There are miniature American Express, MasterCard, and Visa decals on the bottom of a window at the entrance. The store handles about 10 card transactions a day, said manager Alberto Cruz.

He perceives "no time difference between cash and credit" and calls credit cards "the thing of the future" for fast food.

Mr. Khachadourian of Visa said telecommunications advances have reduced authorization times to as little as eight seconds-making credit card sales "just as fast as cash, if not faster."

At the corporate level, said Mr. Anderson, the consultant, who is based in Arvada, Colo., McDonald's would "have to see a significant demand from the customer in order to justify the process of system integration" for credit cards.

Retailers would have to not only upgrade point of sale systems but also educate clerks on the nuances of authorization and fraud prevention, said Paul Martaus, president of Martaus & Associates, Clearwater, Fla.

Mr. Gore said MasterCard has made "sizable investments in upgrading our infrastructure and the way we route the transactions" to card-issuing banks.

"For fast-food companies, it's not about spending more," Mr. Gore said. "It is to see how-and if-they can make that incremental visit."

To encourage repeat traffic-as much an aim for restaurateurs as incremental ticket totals-American Express is planning a pilot with Arby's that gives card members a free 32-ounce drink when they use the card and make a return visit.

Donna Embry, senior vice president of Vital Processing Services of Tempe, Ariz., said fast-food outlets on college campuses may be incubators for wider credit card use and acceptance.

Those franchises "helped train the merchants to be more trusting of the technology," Ms. Embry said.

They have also "trained a whole market to use plastic rather than cash."

[Back to top]

1987

Newsletter Hid Link with American Express

Sept. 18 — Over the past year and a half, John C. Pollock has been cited in numerous newspaper and magazine articles as an authority on credit cards and interest rates. As editor and publisher of the monthly newsletter Bank Credit Card Observer, Mr. Pollock has been critical of the high rates that banks charge their credit card borrowers and has played a part in mobilizing public opinion against those rates.

Most of the paying subscribers — almost 400 — are bankers who pay $290 a year to follow credit card pricing trends as reported by Mr. Pollock and a small staff of writers. Free copies of the newsletter are also sent to members of Congress, newspaper reporters, and other opinion leaders who can learn exactly how high rates are through Mr. Pollock's regional lists of banks.

Unknown to Bank Credit Card Observer readers, and even to its employees, Mr. Pollock's venture has been receiving substantial financial support since its April 1986 startup from American Express Co. The company competes in the credit card business and its public image may have been enhanced by the newsletter's reporting on the field.

This operating subsidy is likely to approach $500,000 over a two-year period, roughly five times the newsletter's annual subscription revenue. This came to light as a result of an investigation by American Banker. Mr. Pollock and American Express officials confirmed the facts to this newspaper within the past few days.

Bank card industry leaders who read the newsletter and experts in business journalism, when asked to comment about the relationship, expressed surprise about it and raised questions about its propriety.

These questions concern the newsletter's journalistic independence from its corporate benefactor, how far a corporation should go in support of a publication in its field of interest, and whether that relationship should have been disclosed before now.

Mr. Pollock and American Express representatives asserted, in separate interviews, that they see nothing improper about the subsidy. They said that it is part of a well-intentioned consumer education program not related to specific business strategies of American Express, and that the newsletter is free from corporate interference.

"One always has to be sensitive to conflict of interest," Mr. Pollock said in an interview. "The name is Bank Credit Card Observer. We monitor bank credit cards. We don't monitor travel and entertainment cards or, for that matter, retail store cards."

Newsletter Covered Optima Card

But the newsletter has covered the American Express Optima Card, which competes against bank credit cards.

New York-based American Express began selling Optima in May 1987, a year after the start of Bank Credit Card Observer. Optima's 13.5% interest rate looks especially attractive alongside the average bank's 17%-18% MasterCard and Visa rates tracked and publicized by Mr. Pollock.

Mr. Pollock, a market researcher by trade with academic credentials in journalism, editorialized in his newsletter that Optima had a favorable impact on the market, and he rebuked bankers for keeping their card rates high.

Questions pertaining to news publications' independence from financial backers arise daily in journalism and particularly in financial journalism.

Howard Simons and Joseph A. Califano Jr., in their 1979 book "The Media and Business," said a business publication must assert its independence from corporate sources so that it does not become "a public relations operation or a business blotter or… a mouthpiece for official statements and pronouncements."

Mr. Pollock's funding came out of American Express Co.'s public affairs budget, American Banker has learned. Mr. Pollock and American Express said there was no ulterior motive in the funding and no meddling by the corporation in the contents of the newsletter. Both said they simply wanted to tell the public where it could find better deals in bank cards.

Indeed, Mr. Pollock singled out banks that charge both high and low annual percentage rates relative to the average for all banks. His listings appeared regularly in newspapers such as The Wall Street Journal, Barron's, San Francisco Chronicle, and San Francisco Examiner.

The Wall Street Journal's announcement on Jan. 13, 1987 that it would publish the monthly credit card data was a major breakthrough for Bank Credit Card Observer.

Ethical questions arise because American Express had something to gain from raising public consciousness about bank card interest rates, which have consistently been higher than the competing Optima card rate.

Educating or Influencing?

Thomas Donaldson, professor of ethics at Loyola University in Chicago, when asked to comment on this newspaper's findings, said, "As a general principle, there is a difference between attempts to educate consumers in a neutral way and attempts to influence public opinion. The public has a right to know who is funding an effort to change its mind or form an opinion on a given subject."

A teacher of business ethics and author of four books on the subject, Professor Donaldson said he is hesitant to pass judgment on the American Express matter without studying it in detail. But he said Bank Credit Card Observer, in the relationship described with American Express, appears to be engaged in a form of corporate advocacy.

Experts in business and journalism ethics say a financial tie between an interested party and a news publication creates a potential for conflict of interest. If readers know of the potential conflict, because it is explicitly disclosed, then they can judge the credibility of the reporting.

For example, Fortune, a business magazine, will not mention Time Inc. in its pages without noting that Time owns Fortune.

And when American Express made an unsolicited offer in 1979 to acquire McGraw-Hill Inc., McGraw-Hill resisted on grounds that American Express' ownership might compromise the integrity of Business Week and other McGraw-Hill publications. American Express failed to convince McGraw-Hill management that it would keep its distance from matters of editorial policy. The merger was never consummated.

The readers of Bank Credit Card Observer were not given the opportunity to judge its independence because American Express' involvement was not disclosed either in the newsletter, or other public communications. Now American Express maintains that its relationship with Mr. Pollock was at arm's length, and that his reporting was not tainted.

Monthly Contributions Continue

Information obtained by this newspaper, and not disputed by American Express and Mr. Pollock, shows that the financial services company bankrolled the launch of Bank Credit Card Observer in April 1986 and has since contributed at least $20,000 per month to its operation.

The publication's annual subscription revenue of more than $100,000, according to Mr. Pollock's subscription total, would result in a profit for a typical newsletter of its size.

American Express planned to stop funding Mr. Pollock at the end of the newsletter's first year, in May 1987, but subsequently agreed to continue providing a $20,000 monthly subsidy through the end of this year.

Mr. Pollock's research company, New World Decisions Inc. of Iselin, N.J., is marketing two other products to bankers: a computerized data base, called DataBanks, with information on the 200 largest credit card issuing banks, at a cost of $2,000 a year; and a nationwide consumer survey planned for this fall that will cost a bank $5,000 to consponsor.

With the aid of American Express, Mr. Pollock, accompanied by consumer advocates, held panel discussions in several major cities over the past 18 months. Those panel discussions, which called attention to banks' credit card pricing, attracted considerable coverage in local news media. American Express' support of those engagements was not made known to speakers or attendees.

Almost a year into its existence, Bank Credit Card Observer began reporting on the American Express Optima card.

Optima was covered in its March, April, May, and June issues. The June issue included dialogue from a Senate consumer affairs subcommittee hearing that was critical of Visa U.S.A., the bank card association.

Visa's president, Charles T. Russell, had sent a letter to his member banks suggesting that they retaliate against Optima by refusing to sell American Express gold cards and travelers checks. Some members of Congress wanted Mr. Russell's letter investigated as a potential violation of antitrust law, which prohibits "conspiracies in restraint of trade."

Among those quoted on the Visa matter was Meredith M. Fernstrom, the American Express senior vice president who arranged the newsletter financing for Mr. Pollock.

The June 1987 issue of the newsletter said that at the hearing, Sen. Christopher Dodd, D-Conn., held up a copy of the Visa letter. "Would American Express do something like that?" he asked Ms. Fernstrom.

"I'd like to think that we wouldn't," she answered, according to the newsletter. "It seems like the Visa organization is looking out for the interests of banks rather than the consumers. We think it's a case of the tail wagging the dog."

Optima Got Good Press

Mr. Pollock himself commented on Optima in his newsletter column. In May he said Optima's 13.5% interest rate forced the bank card average down to 17.29% from 17.82% in March, "although many bankers won't admit it."

Meanwhile, Mr. Pollock was quoted in many newspaper articles. None said that American Express was paying at least part of his salary ad expenses.

For example, a New York Times article on March 11, 1987, the day after American Express announced its Optima plan, contained this statement by Mr. Pollock:

"This could open up a whole new competitive era in credit cards. Up to now, the really large banks, which control 75% of the credit card business, just have not been competitive."

Ms. Fernstrom, who heads the American Express office of public responsibility — a consumer affairs function — insisted in the interview that the company imposed no editorial strictures on the newsletter. Mr. Pollock's quotation in The New York Times, she said, typified an interest in competitive markets and consumer welfare, not aggrandizement of American Express.

"We would not have done this unless the data had absolute integrity and objectivity," said Ms. Fernstrom.

"We think Dr. Pollock has become the single best source of interest rate information in the United States. It has become a great public service."

Harry L. Freeman, executive vice president of corporate affairs and communications, Ms. Fernstrom's boss, also was unapologetic when asked to comment on American Express' support of the newsletter.

He said Ms. Fernstrom's corporate mission is to advocate consumer causes and education because "this is a very market-driven organization and what is good for the consumer is good for us."

Mr. Freeman pointed out that he and Ms. Fernstrom are members of the corporate staff, independent of the line business units that administer charge cards and other products.

When Ms. Fernstrom proposed backing Bank Credit Card Observer in early 1986, the corporate staff did not know that the Optima card was coming, Mr. Freeman said.

He did confirm that the company had been exploring for some years the idea of a revolving credit card giving customers the option of deferring their payments. Other American Express cards require payment of most balances within 30 days.

"I didn't learn about it [Optima] specifically until around the first of this year," Mr. Freeman said, "and that was when we were asked to take a look at it from a corporate-image point of view. On the rate question, I argued, 'the lower the better,' because I thought that would give us a competitive advantage.

"Meredith was brought into the process a few months later and she took the same view."

Of the newsletter, Mr. Freeman said, "I thought it was a good idea. It is performing a very important public service. It has made information available to millions of people who didn't have access to it before, and information makes the market work efficiently.

"I hope he [Mr. Pollock] continues to sell more newsletters," Mr. Freeman said.

When asked if he had a problem with public disclosure of his tie to American Express, Mr. Pollock said, "No. American Express is involved in a number of consumer awareness campaigns. They fund many ongoing education programs.

"They found our program imaginative and they funded it consistent with other things they do."

He pointed out that the American Express payments to the newsletter are outright grants. American Express owns no equity interest in Bank Credit Card Observer, and the only tangible benefit it receives in return is a subscription, he said.

He said that after December 1987, when American Express' current commitment to pay $20,000 a month is scheduled to end, the connection will be severed completely.

In Demand as an Expert

Mr. Pollock's name began turning up last year in press accounts of credit card developments. With few available sources of authoritative information about the credit card industry, Mr. Pollock found himself in demand from the media. In many articles he was quoted along with more established sources such as Spencer Nilson, publisher of the Nilson Report, a trade newsletter, and Bankcard Holders of America, a cardholder advocacy group.

Mr. Pollock, 44, brought to the credit card field a record of achievement in academia and public-opinion research and a personal commitment to consumer education that dovetailed with Meredith Fernstrom's charter at American Express.

Mr. Pollock said consumer education and advocacy are "in my blood." His biographical sketch shows he earned a BA degree from Swarthmore College, a Master's from Syracuse University, and a PhD from Stanford University. He has taught college courses in social sciences and mass communications. He has written a book, "The Politics of Crisis Reporting: Learning to be a Foreign Correspondent," and many academic journal articles. He is currently a research associate at the Rutgers University Journalism Resources Institute.

Before starting the newsletter, Mr. Pollock was mainly known through his opinion research company, New World Decisions. It published "The Miller Lite Report on American Attitudes Toward Sports;" "Aging in America: The Connecticut Mutual Life Report on American Values in the '80s;" and "Small Business Speaks: The Chemical Bank Report," among other subsidized projects.

Mr. Pollock conceived Bank Credit Card Observer as a showcase for New World Decisions research and a platform for consumer education. To get the newsletter off the ground he needed funding beyond what New World Decisions could generate.

Birth of the Relationship

He established a relationship with American Express through Dorothy Gregg, an independent economist and public affairs consultant who has been on retainer to Ms. Fernstrom's office for four years. Mr. Pollock and Ms. Gregg had previously worked together at Research & Forecasts Inc., an opinion polling subsidiary of Ruder, Finn & Rotman, a New York public relations firm.

Ms. Gregg submitted the newsletter-funding proposal to Ms. Fernstrom.

"Her idea was to create a newsletter to track interest rates," Ms. Fernstrom said. "There had been a communications void about interest rates and we believe the market operates most efficiently when information about rates and prices is made available."

After the funding was approved, Ms. Fernstrom delegated to Ms. Gregg responsibility for managing the project, which included a public relations strategy to raise Mr. Pollock's profile and attract media coverage of his data.

American Express made its payments of $20,000 or more per month to Ms. Gregg, who in turn sent the funds to Mr. Pollock.

Ms. Gregg's strategy centered on press relations — many journalists received free copies of Bank Credit Card Observer — and Mr. Pollock's panel discussions with bankers, consumer activists and legislators in such media centers as Washington, Miami, Los Angeles, and San Francisco.

One aspect of the strategy — an attempt to syndicate columns by Mr. Pollock to newspapers around the country — failed, he said.

Bank Credit Card Observer itself gave extensive coverage to the panel discussions that it sponsored. It also made favorable mention of legislators who criticized high bank card rates or sponsored bills to limit rate increases. In this group are Sen. Dodd of Connecticut; Sen. James Sasser, D-Tenn.; Rep. Charles Schumer, D-N.Y.; and California State Assemblyman Rusty Areias, a Democrat.

American Express officially opposes legislated ceilings on credit card interest rates. Along with Visa, Mastercard, and the American Bankers Association, American Express supported a recent disclosure bill designed by Mr. Schumer and Rep. Doug Barnard, D-Ga., to defeat an interest rate cap.

American Express wanted to distance itself from Bank Credit Card Observer, Ms. Fernstrom said, "because from the standpoint of integrity of the data, the public media would have been less likely to publish it if it had the American Express name on it."

She added, "We didn't go out of our way to hide it. Our name is not always associated with research or programs that we fund. Some consumer organizations that we fund don't want to give the company a credit line, and we can agree to that."

Interest in consumerism is not unusual for American Express, which a corporate brochure boasts is "the most consumer-sensitive company in the financial services industry."

Its board of directors has a five-member public responsibility committee headed by Vernon E. Jordan Jr., a partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, and former president of the National Urban League. The stated purpose of this committee is "to ensure that American Express is a good corporate citizen."

American Express has won praise from organized consumer groups for monitoring and responding to their concerns. Ms. Fernstrom herself was a consumer advocate in the 1970s and served as an assistant secretary of commerce in the Carter Administration.

Mr. Freeman, who is regarded as a top-flight lobbying and public relations strategist, established the consumer affairs office in the late 1970s. But it was not until Ms. Fernstrom joined American Express in 1980 that the company found "a person who could provide a window on organized consumers and consumerists and relate what those people are thinking back to our decision-making process," Mr. Freeman said.

With encouragement from American Express chairman James D. Robinson 3d, Ms. Fernstrom and a vice president, Peggy Haney, became consumer advocates and watchdogs with mandates both internal and external.

They have distributed two million brochures and wallet-sized "consumer cards" that explain the legal rights of mail-order shoppers and female credit applicants, how to buy insurance, and how to select a financial planner. The documents are written in neutral, non-commercial terms as a public service.

In 1984 Ms. Fernstrom's staff completed a survey of consumerism and its impact on financial services. This year American Express sponsored an international consumer symposium near London, securing for the company a leadership role in the emerging multinational consumer movement.

The symposium was structured much like Mr. Pollock's U.S. panels, except on a much larger scale and with American Express sponsorship fully disclosed. Consumer leaders from eight countries attended and had their travel expenses paid. Laura Gross, an associate editor of this newspaper, participated in the international symposium but did not accept reimbursement of her expenses from the sponsor.

Ms. Fernstrom's budgetary generosity toward Bank Credit Card Observer differed from the support of consumer groups and philanthropic causes that American Express funds under its public affairs policy. The latter are not-for-profit organizations, while Mr. Pollock's is a for-profit commercial entity.

Ms. Fernstrom said American Express has not funded other publications of this kind. She focused on the goal of raising awareness about interest rates.

"Our thinking was to have the research done and get the information out to the public," she said. "We didn't want an open-ended financial commitment [with Mr. Pollock] and after a year, we began to decrease the amount of our support. We agreed to end funding by the end of 1987."

She said American Express is satisfied that "the public information gap has been filled… Dr. Pollock is a true research scientist. We would not have done this project if it were not pure research or if he did not have an objective contractual relationship with us."

Ms. Fernstrom said she is prepared to take some heat as a consequence of what she characterized as her independence. She cited a recent poll of consumer leaders, conducted by her office, about the need for regulation in the financial planning industry. It was not well received by IDS Financial Services Inc., an American Express subsidiary, whose financial planning staff would prefer to remain unregulated.

"Something like that may ruffle a few feathers inside the company but I represent the public view," Ms. Fernstrom explained. "I have always had a personal philosophy of consumer and public-interest advocacy and the luxury of a senior management that supports that philosophy."

The view of the newsletter sponsorship from outside American Express is charitable on two counts:

• Bank Credit Card Observer portrayed itself as an impartial information resource while it was receiving financial assistance from American Express.

• Neither Mr. Pollock nor American Express disclosed their relationship until they were asked by this newspaper.

"I think it represents a substantial conflict of interest that is an embarrassment to both Mr. Pollock and American Express," said Chris Welles, a senior writer at Business Week and an educator in business journalism. He is the former director of the Bagehot Fellowship Program in financial journalism at Columbia University.

"The fact that he says he is covering only bank cards does not excuse him, because bank cards compete with American Express," Mr. Welles said. "Even if his coverage seemed even-handed, the fact that the subsidy was undisclosed violates any standard of journalistic ethics that I am aware of."

Mr. Welles, who has studied and written about American Express, said he was surprised that this company would secretly fund a newsletter. "I've always regarded it as a very sophisticated company but the office of public responsibility's attitude here was naïve at best," Mr. Welles said. "This [newsletter] is very different from the rest of the eleemosynary causes that they support."

Mr. Donaldson, the Loyola University professor, said "A lot of things that are legal are not ethical. I will grant a corporation's legal or moral right to give money to promote a certain point of view. But it has an obligation to shareholders who expect a return on their investment, and there was a lot of money involved here.

"If I picked up a copy of this newsletter and knew that American Express gave it hundreds of thousands of dollars, it would change the way I think about the newsletter."

Card industry observers and Mr. Pollock's own employees were curious about Mr. Pollock's financial backing but learned nothing about it from him.

"I asked John Pollock several times about the source of his funding — he came on in a manner uncharacteristic of a startup organization — but I never got a straight answer," Elgie Holstein, associate director of Bankcard Holders of America, said.

Thomas E. Honey, until recently the president of the Consumer Bankers Association, a participant in a panel discussion that Mr. Pollock organized in Chicago, said: "What concerns me is that [American Express' backing] wasn't disclosed. He portrayed himself as an independent, fact-finding observer." Mr. Honey is now senior vice president of U.S. marketing for DHL Worldwide Express, Redwood City, Calif.

Two journalists who worked for Bank Credit Card Observer said they feel betrayed by the American Express revelation and worried that it would affect their professional reputations.

William F. Bowman, Jr., the managing editor until his resignation this month, said, "One of my roles was to talk with the media, and I would always point out that we were an independent voice, did not take advertising, and the like.

"Now I am angry. The fact that Bank Credit Card Observer was mainly supported by American Express means that my credibility as a journalist was unwittingly compromised, and that outrages me."

Mr. Bowman said he resigned after Mr. Pollock told him that he was running out of funds to pay his salary.

"John gave us the impression that his funding came from private investors," said Maureen Nevin Duffy, a freelance writer who was listed as associate editor on the Bank Credit Card Observer masthead.

"I met John through the Journalism Resources Institute at Rutgers. I thought I could trust that there was no conflict of interest, and that if there was an opportunity for a conflict he would have had the ethics to disclose that fact," said Ms. Duffy, who has also contributed articles to this newspaper and other publications.

"I hope the bankers I have dealt with in the past understand that I never had any ulterior motives, and that I had no idea where John was getting his funding," she added.

Critics of the arrangement do not quarrel with Mr. Pollock's research, except on technical grounds.

A spokesman for Visa U.S.A., which took a lot of criticism for its response to the Optima announcement, said Bank Credit Card Observer would have done more for consumer education if it published "real interest rates," incorporating annual fees into the interest rate calculation.

"By focusing only on the annual percentage rate they served the interest of Optima, putting it in a better light," the spokesman said. "If they had published a 'real rate table' they would have done a real service and I would praise them for it."

Ken McEldowney, executive director of San Francisco Consumer Action, said that by concentrating on the 200 largest commercial banks, Mr. Pollock's compilations exclude smaller banks and thrift institutions charging interest rates well below the norm.

Mr. McEldowney, representing a regional consumer group, criticized the San Francisco newspapers for printing Bank Credit Card Observer's rate list because it leaves out some northern California institutions that he said deserve mention.

Mr. McEldowney also said that the newsletter's focus on higher rates charged by the bigger banks tended to make Optima's 13.5% look slightly better in comparison.

Mr. Holstein, of Bankcard Holders of America, Washington, said, "I'm not shocked but I'm amazed and kind of disappointed" when he was told of American Express' role with Bank Credit Card Observer.

"John is outspoken. He has been a valuable voice. But his rhetoric did not go as far as it might have," Mr. Holstein added.

In Los Angeles, Mr. Nilson said of his competitor, Mr. Pollock, "I never could understand how he got his start and how he got so much press coverage." Mr. Nilson called American Express' role "the most astounding piece of news I've heard in 20 years. I am shocked and I think the industry should be shocked."

[Back to top]