Whenever he is asked to reflect on his tenure at MasterCard International Inc., H. Eugene Lockhart takes himself back to his first board meeting.
It was March 1994, within days of his move from First Manhattan Consulting Group to become the card association's fifth president. A proposal was on the table to adopt smart card technology. Staff people assumed it would sail through, as it had several months before at a meeting of MasterCard's European affiliate, Europay International.
"I pulled it," Mr. Lockhart said. "Not one dollar sign was presented. Nothing was going to happen until I saw a business case."
The story is less about smart cards than about the man in charge and the tone he set. It portended changes in style and discipline at a company that may have been taking the not-for-profit aspect of its charter a little too seriously.
Mr. Lockhart has gotten his messages across in no uncertain terms - at least internally. The reshaping of the corporate culture around ideals like mutual trust and teamwork is palpable to anyone visiting MasterCard's new campus-style headquarters north of New York City.
But to many outsiders, the 45-year-old chief executive remains an enigma. MasterCard has not been tooting its horn as much as it used to, perhaps reflecting the image of a self-effacing leader who prefers to blend into what he constantly calls "the team," and who disavows any desire to one-up competitors through press releases.
Mr. Lockhart has also been less than active on the public-speaking circuit. He skipped his industry's biggest convention, the Retail Delivery Conference last December in Atlanta, where Bill Gates of Microsoft was the headliner and Visa chief executive Edmund Jensen participated in a panel discussion.
That prompted one conference organizer to dub Mr. Lockhart "the quiet man."
The name of his closest competitor barely came into the recent conversation with Mr. Lockhart. When he vowed that MasterCard would "never get between the member banks and their customers," he was asked if he thought Visa had crossed that line.
"I'll let you draw your own conclusion," he said.
Still, MasterCard remains very much locked in combat with other payment brands. Despite a growth spurt in recent years, fueled by high-profile cobranding programs like those with AT&T and General Motors, MasterCard is as far behind Visa as it ever was.
But numbers and market shares are not the obsessions they once were. (See article on facing page.) MasterCard's mission statement is about strengthening the brand and making member banks more profitable.
Which helps explain Mr. Lockhart's fondness for the smart card anecdote.
Within three months he had his business plan, and MasterCard embarked on a systematic but deliberate course toward advanced technology that typified his approach to just about any issue.
In the interest of "adding value" for members, he was willing to question basic assumptions, upset the power structure, and rattle some entrenched interests.
In the smart card example, "the Europeans went ballistic," Mr. Lockhart recalled. Having previously been one of them - he was chief banking officer at Midland Bank in London in the late 1980s and early 1990s - he understood their enthusiasm for a technology that could alter the industry's economics by reducing its dependence on on-line communications.
"I certainly see some applications where the chip card will be useful," Mr. Lockhart said. "The question is how fast."
To find an answer, MasterCard launched a major chip card trial in Australia and is preparing for an "interoperability" test with Visa in New York late this year.
"I spend a lot of thought time" on research and development matters, Mr. Lockhart said. But he noted that MasterCard spends less than 5% of its $700 million expense base on experimentation. "Core activities" like credit cards are too important and profitable to deemphasize.
For Mr. Lockhart, two years into the job and comfortably surrounded by a hand-picked executive team, what's new has much to do with where MasterCard is at - literally.
The headquarters, with about 850 employees out of a worldwide total of 2,000, moved late last year into a former IBM building in suburban Purchase, N.Y.
Mr. Lockhart, who previously lorded over an office-tower view of Central Park, now takes advantage of quiet moments to observe the nesting habits of wild turkeys from his office window.
He has spent much personal and organizational energy dismantling what he calls the "stovepipe mentality" of the skyscraper, encouraging in its stead freewheeling, boundaryless communication. In true New Age fashion, casual dress is the rule, as are operating principles called Team - Team Excellence at MasterCard - designed to strike the right balance between individual initiative and group accomplishment.
Ask him about MasterCard today, and the conversation is about the workplace. The hard and the soft of it.
The hard facts speak to the bottom line. Mr. Lockhart evinces as much pride in "the deal" as in any of his accomplishments, though he passes much credit to William I Jacobs, his executive vice president for global resources. MasterCard bought the Purchase site, a striking example of I.M. Pei architecture, for $37.8 million, almost $135 million less than it cost its original owner, Nestle Foods, to build in the early 1980s.
Mr. Lockhart estimates MasterCard will save $250 million over the length of a new lease that he decided to break in New York. Those savings - plus the recent sale of its merchant processing business and the outsourcing of network management - should help MasterCard boost earnings even more than the 82% reported for 1995.
(The net of $21.5 million was booked as retained earnings, bringing equity up to $58.2 million at yearend. Mr. Lockhart boasts that excluding nonrecurring expenses, costs rose at a 7% to 9% rate the last two years, down from 25% before he arrived. Head count in the last year was up less than 3%, while transaction volumes grew in double digits.)
Mr. Lockhart acknowledged that he drastically cut his commuting time from Connecticut, but he said he would have moved to St. Louis, the site of MasterCard's operations center, or anywhere else if it made better business sense.
"We had two goals, to reduce costs and break open the culture," he said. "The costs we've talked about. As for the culture, just look around.
"Everything is open. There is no way to hide here."
Mr. Lockhart still bristles about "one hell of a communications problem" he discovered on his first visit to the old building after being named chief executive. His access card allowed him on the executive floor, not others. People he encountered in one department didn't know those who worked nearby in another, let alone those working along other elevator banks.
In Purchase, office partitions are low. Given the relaxed atmosphere, conversations go across aisles and turn corners, even if a little shouting is necessary. The physical layout is every bit as horizontal as the New York office was vertical, but navigating the long hallways provides views of work in progress that could not be had from an elevator.
The more remote location makes the cafeteria, one of many on-site amenities, a regular gathering place for both social interaction and the "Team meetings" that have become crucial to MasterCard's workings.
Mr. Lockhart first sounded the Team theme about a year ago with an off- site meeting of senior executives. They set about removing organizational "inhibitors" analogous to the physical plant's problems. The process has since filtered through the company not because he decreed it, Mr. Lockhart said, but because "they asked for it."
He regularly walks the halls and sits at lunch tables. The idea is to stay in touch with the troops and promote the Team precept of openness to new ideas, anywhere and anytime.
Though Mr. Lockhart decries the "warm, comfortable environment" that MasterCard used to be, his language is liberally laced with warm fuzzies.
"Team creates a true sharing mentality," he said. Shared principles, which are in writing, include "Be open, honest, and direct," "Be fair and caring," "Inspire teamwork through example," and "Celebrate and reward successes." If someone gets out of line, a colleague might throw a red card on the table - a nonverbal cue to cool it.
"I saw the same problems of culture when I was running a bank," Mr. Lockhart said. "People have to be open and honest and treat each other the way they'd want to be treated themselves."
This golden rule is serious business. Adherence to Team principles accounts for 30% to 50% of an employee's evaluation. But compensation is also linked to member profitability, and in a very direct way when it comes to calculating Mr. Lockhart's own bonus.
"The banking world is different now," he said. "There is no room any more for an entity that doesn't have a valid commercial role."
The attention to culture was essential to "ensuring everyone is pushing in the same direction," said Joseph V. Tripodi, executive vice president of global marketing and a member of Mr. Lockhart's inner circle. He said some "soft stuff" was needed to create the "right structure and value system for a global business that is changing and growing so dramatically."
How does all this play off-campus?
The financial performance and management rigor have certainly pleased members and directors. But are they applauding the revamped culture, or just the lower expense lines?
Joseph W. Saunders, the MasterCard International chairman, is clearly on board.
Mr. Lockhart has "reenergized and revitalized" the organization, said Mr. Saunders, president of Household Credit Services Inc. "He has taken it to the next level by organizing, controlling, and putting the things in place that are absolutely needed for it to resume its place as a world- class organization, which it is. He's done an absolutely phenomenal job."
Arthur Clark, principal of Business Dynamics Consulting in Nyack, N.Y., said given everything on its plate the last two years, "MasterCard has made pretty good progress." But he noted a lack of market-share gains and said he has not heard Mr. Lockhart state "a vision and direction for the next five years."
That may be more a matter of style, said Peter Dunn, managing director of Edgar, Dunn & Co., San Francisco. The previous chief executive, Alex W. Hart, now at Advanta Corp., led by "personality and sheer enthusiasm." Mr. Lockhart is a deep strategic thinker and hands-on manager.
"Both were effective, but they are very different kinds of leaders," Mr. Dunn said. He deemed the current culture "more fact-based and capable of moving quickly with the times."
