Dee Hawk - Founder and former CEO of Visa
Dear reader, this article is based on the book “One from Many: VISA and the Rise of Chaordic Organization” by Dee Hawk, founder of Visa, the world's largest business structure. Quotes from the book are shown in italics. I decided to split the article into two parts, as the amount of information is very large. The article will tell you how Visa was created and how it is managed, and what its creator regrets.
According to Dee Hawk himself, for 2 years he created a new type of organization, and for another 14 years he brought his brainchild to mind. After 16 years as Visa's CEO, Dee Hawk is leaving his position as CEO and leaving the business world to spend almost a decade in relative isolation, working on a 200-acre plot of land on the Pacific coast west of Silicon Valley.
A strong gust of wind and icy raindrops bring me back to reality. While the Monkey and I were wandering through the jungle of thoughts, the sky became cloudy, the wind rose, and the sun disappeared. A heavy rainstorm is coming soon. We need to finish quickly: soon the ground will swell from the rain, and it will be impossible to work. I turn on the ignition, and the thing roars to life. We slowly crawl across the field, pushing a huge pile of branches into the ravine. I'm not up to the beauty of nature right now: I need to hurry. We make one pass, then a second, then a third. We should finish it in 15 minutes. And then there's the scrape of metal on metal. The piece of iron stops abruptly. A track chain can be heard bouncing off the drive wheel. Damn it! What a fool I am! Idiot! I must have been trying to control the situation and put too much weight on the Piece of Metal, more than it could handle. I turn off the engine and sit in silence. Rain lashes down on the cab, and my anger is slowly receding. I sit up and smile slyly. Well, Old Piece of Iron, 1: 0 in your favor, your old master lost!
(Monkey – an internal interlocutor, Piece of iron – an old crawler tractor).
In three years, the air and sun will do their job, and the mudstone, disturbed by the rippers of the Ironwork, will turn into clay. The clay will start absorbing nitrogen from the grass roots, mixing with the rotting stems. Thousands of ground squirrels, mice and moles are already hard at work, dragging dead grass underground, shoveling humus to the surface.
Billions of worms, ants, beetles, and other insects plow the earth day and night with their bodies. Trillions of microscopic creatures live in the ground I walk on: they feed, excrete excrement, live and die. Over time, birds and larger animals will appear here, and they will also contribute to the cycle of life. Nozdravataya land will drink rainwater, and for excess water there are gutters. Every year, the grasses, flowers, shrubs, and trees will grow taller, thicker, more diverse, and stronger.
Dee Hawk is an outspoken opponent of modern hierarchical organizations (centralization of power and authoritarian management methods). Interestingly, out-of-the-box thinking is responsible for a string of layoffs from companies where Hawk worked.
Almost 40 years ago, while conducting a continuous dialogue with my Wise Monkey, I came across three questions. I thought they were funny then, but now they haunt me. These three questions prompted me to create Visa. But they get up again and again, demanding more and more answers.
Why are political, commercial and social organizations all over the world becoming increasingly helpless? Why are the contradictions and alienation between organizations and the people who work in them becoming more acute all over the world? Why is the antagonism between society and the biosphere growing?
It is now clear that we are living in an era of global organizational decline. This decline does not occur in the same way as the destruction of dilapidated buildings or the ruin of companies. It is more radical and comprehensive in nature: organizations cease to serve the goals for which they were created, but at the same time continue to grow, devour resources, corrupt people and destroy the environment.
Every system must be controlled by someone, and change requires a strong leader. Meanwhile, in a healthy natural system, control is distributed evenly, and changes occur continuously.
National Bank of Commerce
In 1965, Dee Hawk finally got a job at the National Bank of Commerce (NBC), one of the local banks in Seattle, where Dee runs “one – time errands”, because at that time “The Bank did not have vacancies of its level”.
Bank of America launches BankAmericard credit card franchise program. NBC becomes one of the six licensees of this program and is going to enter it in just three months. NBC Bank President Maxwell Carlson appoints Bob Cummings as program manager and suggests that Dee Hawk "borrow" him for a while to help Bob.
Two weeks later, Bob and Dee showed up, along with representatives from 5 other licensed banks, for a briefing in San Francisco, at the Service Corporation, a division of Bank of America (BofA). It turned out that the connection between the Credit card department and the BofA licensing department was weak – the departments were subordinate to different divisions of the bank. Moreover, the credit card department of BankAmericard was not able to act according to the rules set out in the license agreements. NBC has already publicly announced its entry into the BankAmericard program because it had a 40-year history of correspondent relations with VofA, and the founders of both banks were friends. Dee and Bob couldn't reverse the decision made by NBC Bank, and they were terrified of it.
Dee and Bob had to create an NBC program for working with BankAmericard credit cards, drawing on their own experience, their own knowledge of the market, and also using fragmentary information that was obtained from other people. Almost all the material obtained during the Bank of America briefing was sent to the trash.
To solve these problems, 1,000 imprinters were ordered by phone for $35 apiece, as well as 200,000 plastic blanks and several expensive embossing machines. The team was located in the assembly hall near the cafeteria, and the bank "borrowed" all the free employees, everyone who could get away from business for three months. The newspaper advertised vacancies for loan specialists, commercial and service relations specialists, cash collectors, etc.
We advertised in the newspaper about vacancies in the positions of specialists in loans, relations with trade and service companies, collectors, etc. Of course, we did not act on the principle of bezrybye and cancer fish, but we were very close to this.
A month later, at a meeting at NBC, it was decided to offer credit cards to 120 thousand NBC customers. Field workers organized the entire selection process, and a month later 120 thousand customers received offers to use credit cards.
Solving the problems that arise and creating a credit card program almost from scratch, at the end of 1966, the program was launched, and 100 thousand customers received the promised credit cards.
At first, plastic cards did not have a magnetic stripe, and in retail outlets — electronic readers. A credit card with its banking details stamped on it was placed in a printing device, a check in four copies was placed on top, then the lever was lowered and raised, and the banking details were printed on the check. These devices were called "zip-zaps". Banks bought them for a few dollars apiece and gave them to sellers for rent for a very decent monthly fee. Banks lost their temper when sellers put plastic cards of competitors in their "zip-zaps".
A year after launching the program at NBC, Dee Hawk became head of the credit card department.
Problems
Meanwhile, commercial banks that were already rewarded and could barely manage their own card transactions had no incentive to process other banks 'accounts and forward them to the issuing bank, which paid the cardholders' bills. And since each bank at that time both served trading enterprises and issued its own cards, the whole procedure turned into complete madness. Bank offices were littered with unprocessed bills, customer payments were delayed, and card issuing banks had piles of bills waiting to be paid. It was a nightmare.
The system of interbank credit card payments was very primitive and time-consuming. At that time, there were no electronic data entry and calculation systems. Banks that worked with merchant companies that accepted credit cards accepted all issuing banks ' card bills for payment, providing credit to the merchant company. The bank then manually selected invoices to be paid by the card issuing bank and received a reward by passing them through the Federal Reserve System. Further, these invoices were sent to the issuing bank and paid only after the bank serving the merchant sent invoices confirming the transaction by mail.
Just a few months of such a banking orgy were enough for the criminal element to understand: here it is, a gold mine! From the warehouses of raw materials producers, transport companies and banks, a huge number of plastic blanks were stolen, where the names of cardholders and other details had not yet been knocked out. All you had to do was spend a few thousand dollars on embossing devices, then look at the card numbers from a pile of payment accounts — and you could start a criminal business.
Along with the production of fake cards, real ones were also stolen: during shipment, from mailboxes, from the pockets of citizens. Some scammers distracted the customer, and he "forgot" the credit card in the store. Soon, thousands of fake and stolen credit cards appeared on the black market, for only $50 apiece. These cards were used to quickly buy and resell goods worth thousands of dollars, and the cards themselves were discarded.
Fake trading enterprises were also opened. They presented a huge number of fake invoices for payment. Banks spent weeks processing fakes, and the scammers got paid and disappeared.
At that time, there were no electronic systems for authorizing transactions. Each retail or service company set a certain limit, and if the cardholder did not exceed it, authorization was not required. By easily finding out the size of the limit, criminals knew exactly how much risk they were taking. If transactions exceeded the agreed amount, the seller had to call the bank that served his store. The commercial bank, in turn, called the issuing bank in another city. An employee of this bank manually found the customer's account on huge computer printouts to determine whether the loan was exceeded. He reported the data to the commercial bank, and the latter passed the information to the store. All this time, the buyer stood and got angry, waiting to be dealt with, or went home. The issuing bank recorded the purchase amount in the client's account in order to withdraw it after receiving the purchase invoice, which could come after weeks or even months.
Stores, in turn, quickly realized that it is better to authorize each potential transaction in advance, even if the chance of its completion is negligible. Customers 'credit lines were being" eaten up " by withholding funds for transactions that were never completed, and people were not able to use the credit they were entitled to. Authorization costs increased because, unlike stores that made local calls, commercial banks and issuing banks called other banks on long-distance lines.
There was no Internet, no computers, no monitors to enter data or view invoices. Information (each letter and number) was entered on punch cards — on a huge, cabinet-sized machine, a piece of cardboard measuring 10 by 15 cm was broken through. Punch cards were sent to a bulky reader, twice the size of a punch machine. The read-out information was recorded on a magnetic tape. A computer the size of a truck then fed the information to the customer accounts. After that, the data was recorded again on tape and finally transmitted to a giant mechanical printer that made cumbersome printouts of customer invoices.
The whole system was primitive and clumsy, but it worked flawlessly, and soon credit cards were recognized among both customers and retail businesses. But the number of interbank transactions continued to grow, and under their weight, the settlement system began to fail.
Very few financiers have had any experience with unsecured consumer loans, much less credit cards. Outside experts did not want to come to us: they were afraid of the small salary and the extravagance of industry players. But there was no shortage of unskilled and inexperienced workers — they came pouring in, and the new business easily swallowed them without chewing.
However, the banks themselves were quite disdainful of the new business, considering it not much more worthy than the car trade. Banks were reluctant to deal with credit cards, and it was difficult to recruit people to work in the relevant departments, which were also located in the worst premises. People who turned out to be unfit for anything else were usually "exiled" there.
The problems were growing and the situation was getting out of control for Bank of America…
Chaordic (from the English chaos — chaos and order — order) — 1) characterizes the functioning of self-organizing and self-governing systems and organisms that organically combine chaos and order; 2) characterizes the fundamental features of natural systems.
Dear readers, here we come to the second part of the fascinating story of the birth of the world's largest financial institution Visa. The story turned out to be quite large, so there will probably be more than two parts. As in the previous part, quotes from Dee Hawk's book “One from Many: VISA and the Rise of the Chaordic Organization” are highlighted in italics.
By 1968, the fledgling industry was out of control. No one could calculate the losses — it was about tens of millions of dollars. For that time, considering the turnover of the industry, this was a huge amount.
In the midst of the credit card mess, Service Corporation (the Bank of America branch responsible for the credit card program) called a meeting of licensee bank managers. We were going to discuss the operational problems that were choking the project. The meeting brought together 120 experts from all over the country. The meeting was hosted by Hal and Don, nice people and good operators who were assigned by Service Corporation to work with licensee banks.
On the first day, participants expressed acute dissatisfaction with the fact that BofA misunderstood their problems and did not want to deal with them. BofA representatives, in turn, attacked licensee banks with criticism. By the end of the first day, things were getting hotter — there were reproaches and objections everywhere.
The next morning was no easier. By the middle of the day, opinions were sharply divided, and here's what it was about. Before lunch, in a frantic attempt to deal with the situation, Hal and Don announced the names of the members of the committee that was supposed to solve some of the most pressing operational problems without consulting the others. The committee consisted of seven managers of credit card departments of licensee banks. Among others, my last name was mentioned. The Committee was supposed to review the problems and come up with its own solution. It was assumed that if the VofA found this decision acceptable, it would be imposed on the licensing banks.
It was this moment that became a turning point in the history of Visa. Dee Hawk didn't want to be on the committee because he thought the idea was pointless. During the break, he approached the managers and said:
"Look," I said, " I don't want to complicate anything. If you insist, I will serve on this committee, but it is better not to appoint me there. Do me a favor and find someone else.
Hal, almost interrupting me, said sarcastically::
— Of course, every one of you thinks we're doing it all wrong. So take it and do it right!
The more reserved Don was also angry:
"Dee, why don't you want to join the committee?" Do you not like the idea or are there any other reasons?
"Don, this is a waste of time. By the time the committee meets and finds a solution, a dozen new problems will have emerged. No one knows how many of them there will be or how serious they will be. None of the committee's decisions will satisfy all licensees. Your license agreements are written in such a way that if a certain bank refuses to comply, you have to kick it in the ass with your knee. But VofA. he'll never do it, and everyone knows it. Everything is tied to the relationship between banks, and VOFA will not want to take any risks.
"If you want to create such a committee," I say, " give it the authority to deal with all the problems together. What's the point of eliminating one problem, then another, without linking them together? After all, we do not know what to do next and how all this is interconnected. Why grind water in a mortar?
In the course of the conversation, Dee managed to convince Hal and Don to set up a committee that would solve all the problems together, rather than one at a time. The BofA representative made this decision with difficulty.
After lunch, everyone gathered in the hall again and stared in surprise at the stage, where after a brief introduction by Hal, one of the participants, that is, I, went up.
I offered the newly created committee only one thing — to help licensees come together and overcome the difficulties that have befallen them. I invited everyone to join the work of the committee, including the Wacc and Amegisa.
— How much will it cost us?" — one of the participants asks.
— Nothing. You just need to spend some time doing this and make frequent flights around the country.
— And what does this oblige us to do?
— No need.
And, as is usually the case when there are disagreements in the team, but there is an illusory hope to do something without incurring any responsibility and without spending money, everyone quickly agrees with my idea. The meeting ends and the seven-member committee meets. Fred James takes the floor first:
"I don't know what you've got us into, but you're the main instigator. So be our chairman, if no one objects, of course.
So I was forced to become a leader.
The first meeting of the newly formed committee was held in Seattle.
We arrived in Seattle with a rough concept. We decided to select seven independent regions and create four specialized committees in each of them: operational, marketing, credit and computer systems, which will include representatives of credit card issuing banks in the region. The Regional Executive Committee is formed by the chairs of specialized committees and other participants of their choice. The chairs of the regional specialized and executive committees will become members of the five national Committees. This way, everyone will have the right to speak, and no one will be able to put pressure on others.
A week later, the concept was finalized, and the committee, which included representatives of BofA's licensee banks, met in Atlanta, Georgia. After a one-day discussion and coordination, it was decided that there would be eight regions instead of seven. All of us will go to our respective regions and gather meetings of representatives of licensee banks to present our concept. If they support us, we will help create regional committees. If one of the regions does not agree, we will abandon the idea. But if the outcome is positive, the regional committees will choose their own chairmen, who will be included in the national committees, after which our committee, created with the participation of the Wacc of Ategis, will resign.
We hoped that such a framework would help us not only gather first-hand information on issues related to fraud, lending, operations, and technology, but also find solutions to the most pressing ones. In turn, BofA had to informally participate in the work of each of the five national committees. As a brand owner, i.e. a franchise company, the bank had to take responsibility for implementing the committees ' proposals. No one knew whether Vnkamericard would agree to this and what it would look like.
Within six months, all regional and national committees were established. Hawk was asked to chair the executive committee of the Northwest region. It was a thankless and nerve-racking job, and it didn't pay for anything and took up a lot of time.
Our committee system, for all its complexity, had one big advantage — we could get comprehensive information about emerging issues. Two series of meetings were enough for us to understand that the problems are even more serious than we imagined. They were growing like a snowball, and the existing licensing system, as well as the structure of the committees themselves, did not contribute to their solution. The losses were not in the tens, as we thought, but in the hundreds of millions and threatened to become even more significant.
And suddenly a diamond flashed in the mud: I saw the solution! We need a new idea for the organization, a tiny lead to start all over again.
What is the essence of the operation when the buyer hands the seller a plastic card to pay for a service or product? The seller wants to sell something to a potential buyer, and the buyer wants to buy that something. This means that a plastic card can easily be equated with a driver's license, social security cards, identity cards, etc. Therefore, the main function of a credit card is to serve as an identity card of the buyer (for the seller) and the seller's identity (for the buyer).
A credit card guarantees that both parties can safely exchange value: the seller can sell goods and services for which the buyer will later be billed in the currency of a particular state. Therefore, the second function of a credit card is to serve as a guarantee of the reliability of information about the equivalent value.
In addition, the credit card guarantees the buyer and seller that neither party needs to know the exchange rates, language, laws, and cultural traditions of the other party in order to start the commodity and money exchange mechanism.
Any organization that can guarantee the transmission and settlement of transactions in the form of ordered electronic particles twenty-four hours a day, seven days a week, around the globe, will have a market — every exchange of value in the world. More than one hierarchical, joint-stock organization cannot do this. In fact, none of the existing forms of organization that we could think of can do this.
I have a hunch that if the financial resources of all the banks in the world are shared, they could do it, but how?
Dee Hawk goes to Mr. Carlson (President of NBC Bank), describes the situation – the management of the committee takes up at least a quarter of the working time, and if something happens, it will take up all the working time. If the program crashes, the bank will suffer huge losses. At the same time, managers are not paid a salary, and each bank manages itself as best it can. To my great surprise, Mr. Carlson keeps Dee as the bank's vice president and director of credit cards, retains his salary, and allows him to use the bank's resources, without requiring the committee to have anything to do with NBC. “Sometimes we just have to act like good citizens”, " I hope I was useful to you?"- Mr. Carlson concludes the conversation.
So, I had a burning desire to create a new organization. I had a rough idea of how to do this, and I had complete freedom of action. I really wanted to look into the future, but I needed to create the conditions for work in order to formulate a new concept.
I went over all the members of the national committee for a long time in my mind and decided on three candidates — decent, intelligent, generous people who know how to treat work with humor and, most importantly, do not follow the crowd and do not have a herd sense. Each of them had a special spiritual mood.
After exchanging ideas about how we would solve the problem with the credit card business, I said that I had come up with an interesting case that would take a week or ten days. Namely, to hide from everyone, forget about your difficulties and ask a single question.
Assuming that the improbable is possible and that there are no barriers, what is the ideal global value exchange system?
All three of them nodded their heads and rolled their eyes in agreement, but they only agreed on the condition that I would be with them. If they hadn't called me, I would have been very upset.
They decided to "hide" in the old Altamira hotel, located on a hillside in Sausalito (California).
On the fourth night, Monkey and I woke up again, started thinking about the same thing, and suddenly realized that no bank can create an ideal global value exchange system. No hierarchy, no joint-stock company will be able to do this either. And not a single state. And not a single organization. But what if you use at least a small fraction of the resources of all financial organizations and a little human talent to implement this idea? Together, they could do it, but where do you start?
So the first tenets of the new organization were born:
What if the ownership right is inalienable and is realized in the form of participation of members in the organization's work, and not in the form of ownership of shares?
If this right is not alienated, put up for sale, bought and sold? If it is implemented only through membership in the organization and participation in its activities?
What if such an organization is self-governing, meaning that its members can make organizational decisions at any time, on any occasion, at any level, and have the inherent right to participate in governance at the highest level?
What if its functions are distributed among its members in such a way that any of them can be performed by any of the participants at any level?
What if the management function is distributed among the members of the organization in such a way that no one person or institution (and above all, no manager) will not be able to dominate discussions and control the decision-making process at any level?
What if in such an organization cooperation flows into competition and vice versa, so that each of its parts will compete with others in its own way, while remaining ready to give up, if necessary, their interests for the sake of cooperation and the common good?
What if such an organization is flexible and at the same time extremely resilient, so that its components can constantly generate new forms and functions without compromising their essence, their main purpose and principles, and contribute to the emancipation of talent and the human spirit?
It took months for licensees to adopt the principles we developed. And then the discussions started. These principles were not rejected simply because no one, including myself, believed in the possibility of creating such an organization.
After that meeting in Sausalito, we worked day and night for three months — meeting with lawyers, accountants, and committee members, desperately trying to formulate our principles in accordance with a certain concept. Dozens of teams were created, disbanded, and re-created. The questions snowballed. There were no answers yet, but the main thing was becoming more and more clear. To form a self-organizing institution, consensus was required on a permanent basis, but consensus is not in the sense that it is understood today. Unanimity of a deeper nature was required. We needed a common platform that was acceptable to everyone, so that everyone could act according to a common goal.
On June 24, 1969, a two-day meeting of the national executive committee of licensee banks was held in San Francisco, where the project concept was considered. On the third day, Fred, Sam, and Jack and I went to Ken's place. To move forward, we needed to know BofA's opinion.
At the end of July, the answer came: "The Bank is sympathetic to the proposals formulated by the executive committee, namely: to create a nationwide organization that would meet the collective needs of all licensees, but ..." And further stated the position of the Wpc on Amegis. They wanted to have representation on the board of directors of the new organization in accordance with their share of sales. This went against our principle that no one should dominate the management of the new organization. They also wanted to be a managing partner for at least five years. It went on to say that BofA, as a managing partner, should retain ownership and control of all trademarks, while remaining the sole impartial and objective licensor (that is, they believed that the board of directors of the new organization was not capable of performing these functions!). All of this contradicted our concept.
At the next meeting of the committee, when the principles of the new organization were discussed, Dee Hawk called Ken on the phone and clarified whether the bank was absolutely sure of its decision. Ken was unwavering. To which Dee said that he would recommend that the committee abandon the project and they would have to report their decision to the press, where BofA's decision will be outlined. The answer was, " You'd better come to San Francisco and talk to Sam Stewart, the vice chairman of the Board of Directors.”
A well-known lawyer who won numerous lawsuits, Sam Stewart was the second person in the world's largest bank. The conversation with Sam began with Sam explaining the bank's position, making it clear that Dee had not been invited for a chat, but for a lecture.
— Our bank is a pioneer in the credit card business. It was we who created the Vnkamericard system! and they suffered huge losses before they started making a profit. We have created a license system. With such an expansion of the business, difficulties are inevitable. Banks agreed to take licenses only because of the authority of BofA. At the same time, the bank's reputation was at stake — after all, our project is called Vnkamericard. We maintained a spirit of cooperation and made many concessions. So do you really think that now we will fall for some other, untested idea, and even under the leadership of no one knows who? It would be imprudent of you to abandon our program and blame all the failures on BofA. Listen to us: keep working with us to solve the problems that our system faces.
— Mr. Stewart, it's probably rather silly and careless of a vice president of a small bank in Seattle to point out a mistake to a vice president of the world's largest bank. But I think you're wrong. What you are proposing is not in the best interests of BofA, its licensees, or the banking industry as a whole.
— Do you really think so?"
"Then explain why."
"BofA's control will lead to the failure of our new organization. Your approach completely contradicts the principles that we have so consistently defended. To reject them is to take the heart out of our new organization, to deprive it of its soul. No honest person will work under such strict control. The license system does not provide a cooperative spirit. Licensees don't need an organization controlled by just one person. Banks need autonomy. By changing the essence of our product and organization, we will expand the credit card market to unimaginable limits. And BofA will have its own market share, incommensurable with the current one. The bank should forget that it is in charge of the system— it is time for it to become a leader in the field of ideas.
— Could you put it all in writing and send it to me?" And then, in two weeks, come back for a chat?
— Yes, sir."
Two days later, Dee sent Sam a three-page letter, and two weeks later he was back in San Francisco. Sam greeted him with a warm smile:
— We've weighed everything you've told us carefully, and we've decided that you're right about the main thing. Much still needs to be clarified and further discussed, but we will fully support you in creating a new organization in accordance with your principles. You can count on our good will when you discuss the terms of the transfer of property.
Our idea was received with understanding and enthusiasm by many people.
In early 1970, everything started to fall into place. It's time to remove the most important obstacle. At that time, there were 200 licensed banks in the country that issued their own credit cards. Each of them could grant sub-licenses to other banks so that they could find new customers for the credit card business and new businesses in the field of trade and services. Thus, another 2.5 thousand banks received sub-licenses. But the credit card fever hasn't abated. More and more banks joined the business, fearing that the traditional methods of work would become outdated. And the problems grew and grew.
We had to persuade more than 3 thousand banks to give up their VOF licenses and blindly join a new incomprehensible organization, which was supposed to be called National BankAmericard Incorporated (NBI). Upon joining the NBI, banks gave up their autonomy in favor of collective interests and became simultaneously owners, participants and managers of the new organization.
Hawk faced a difficult task. On the advice of Mr. Carlson, Hawk decided to enlist the support of 10-15 influential people in the banking business, and “the rest will catch up on their own”"
On February 8, 1970, very respectable people gathered in a luxurious meeting room of a New York skyscraper. The bankers greeted each other like old acquaintances, exchanged impressions of private jet travel, and talked about golf and banking. I sat quietly and thought that it was precisely such gentlemen who skinned impudent lambs. I had no experience with such people, with the exception of Sam Stewart and Max Carlson. I've never been in such luxurious boardrooms before. After all, a little over a year ago, I was crawling on my knees in the bank basement, digging through a pile of garbage!
Sam opened the meeting. He said that BofA approved of our concept and that he, Sam Stewart, would serve as an ordinary member of the committee. After that, he sat down in his seat and began to listen carefully to the performances. I had to lead the discussion alone and answer questions.
It was obvious that BofA still reserved the right to act at its own discretion, while listening to the opinions of others. Although Sam didn't convince or dissuade anyone, his very presence spoke volumes. And the directors were very careful in their statements — they asked questions to the point, but did not go into details. So I took the liberty of talking about ideas that meant so much to me.
Then they all left, taking their bags of documents with them and promising to meet in Chicago in a month. By this time, each of them will be sent a new package with offers and documents by mail. In Chicago, after the same one-day discussion, each of the directors will have to answer whether their bank will join the new organization or not. If we get two-thirds of the votes, the directors will work on the committee for another six months and finance the same presentation for other licensee banks in their regions. The life and death of our organization depended on them. Time passed.
March 11, 1970. Chicago is wet and windy. Here we are putting together the second meeting of the organizing committee. Once again, I'm in a banking skyscraper, in a swanky boardroom. We are served a sumptuous lunch. It's hard to imagine these people sitting on crates somewhere in the basement, munching sandwiches and laughing. These people are more comfortable in such a posh environment, and I feel out of place. What to do — life forces you.
From the very beginning, I've been bombarded with questions. No one seems to take the idea seriously. But I don't have time to be offended.
— What if some bank refuses to join the organization?
— According to the principles of the new organization, it will not be infringed. Such a bank will retain its BofA license. Members of our new organization will have to cooperate with them in the same way as with other members. The Bank of America will work with licensees according to the rules established by the National Bank of Commerce, with the only difference being that licensees will not have the right to vote in the NBI
— But what if the bank does not want to join the NBI or participate in the system?
— He will have every right to refuse the license. They will have enough time to wind up the business, sell their program to another licensee, or change the BNKAMERICARD program to another competing program.
— Is it possible to create an NBI if this organization includes only a small percentage of banks?
- no. It will be able to operate only if it includes at least two-thirds of the banks. Even the loss of one — third of the members is a big risk for the organization. If we don't get the right number of votes, our project will fail.
— What if the members or owners want to make significant changes, such as dropping the name Vnkamericard in favor of some other name?
— The Board of Directors has unlimited powers under the current legislation. However, the charter of our new organization requires that such important decisions be taken by at least 80% of the votes. We can change the name if 80% of the participants agree to it.
— And where is the guarantee that the NBI will solve the existing problems and really create such a market as you are talking about?
— No guarantees. We count on your trust and common sense.
I am bombarded with questions, one more serious than the other, and so on, hour after hour.
Later in the evening, the questions run out. And here it is, the crucial moment. Will each representative's banks join the organization? Will these people support the program with their personal authority? The meeting participants think, hesitate, and for some reason ask me to come out for half an hour. I have no choice but to comply. Half an hour of torment!
Finally, the door opens and I'm invited in. They announce to me the main condition without which no one will agree to enter the NBI. Horses are not changed at the crossing. Therefore, they have a question for me: will I agree to continue working on this program? How strange! Why throw me out the door for that?
- of course. I'm not going to go into the bush without finishing the job, without creating such an organization-even if it takes a year or more.
One of the directors clarifies:
— You don't understand us. We want to hear from you that you are ready to move to San Francisco and lead the NBI. You are at the origin of this project. We would not want to change the head until the creation of the NBI plus a few more years. If you agree, Sam will discuss the terms with you. We know that only the board of directors has the right to elect the head of the NBI, but we must obtain your consent in advance. If you say yes, we all join the NBI.
— How? Every single one of them?
- yes.
So Visa was born. But there was still a lot of work to be done.
Dee Hawk
Dear readers, we continue our series of articles about the history of the birth of the largest financial institution in the world — Visa. As in the previous section, quotes from Dee Hawk's book “One from Many: VISA and the Rise of the Chaordic Organization” are shown in italics. Important quotes are highlighted in bold. We will discuss these points in the 4th final part.
When I came out of the woods with a notebook in my pocket and a maple cane in my hand, I had already made up my mind. It was hard, but it was simple. Either I say "no"and give up my dream, or I say" yes " with all the consequences that follow. It was with a heavy heart, but knowing that I had made the right decision, that I returned home and sat down to write a letter to Sam Stewart. I had two wishes. First, I wanted to get paid, even if it was a fairly modest salary given the task I was about to complete. I also wanted that salary to be a little higher than what I'd been receiving so far, and that it would be guaranteed for three years, in case I was asked to retire or settle somewhere on the other side of the Rockies. Without asking much, I made it clear that I was not working for money, but for an idea. I was sure that Sam and the committee members were going to offer me much more generous terms. As for the three-year deadline, I knew that I would have to be tough when debugging a new system, and many people would turn their backs on me. In other words, I was afraid that I wouldn't last as long in my position.
A month later, I met with Sam to discuss my letter. Sam worked at BofA for many years, and he was part of the bank's culture. Amadeo Giannini, the founder of Vapk of Amegisa, became famous for having lived in a small country house all his life and received a very modest salary. It was this man who set the bank's wage rates, which have been preserved to this day. No one knows why Giannini paid people so little, either to keep costs down or just out of principle. In any case, it was unfair, because he himself, unlike his employees, made a huge profit and had excellent working conditions. In any case, when the state of California began to thrive at the turn of the century, BofA became the richest bank in the world, but at the same time was famous for its monstrously low salary. Sam told me the whole story:
"Dee, since you will be president of the NBI and a member of the organizing committee, your salary will be made public. There are only a few people in the bank who get the kind of salary you're asking for. If you make that much money, I'll be in trouble." So let's focus on the $44k per year that you will receive from the date of NBI registration. In addition, we are ready to pay you a lump sum of $10 thousand in recognition of your achievements over the past year and a half and the next few months, while you collect the banks together and launch the NBI.
Is he serious? Only $44 thousand a year, without any bonuses and additional income? And this is despite the fact that I will have to rake in a pile of $2 billion? Just $10,000 for two years of innovative, exhausting work in the most difficult conditions? Do they have only a few people in the bank who get $60k a year? But even so, there are still stock options and other bonuses and privileges, and finally, there are lifetime guarantees? But no, Sam wasn't joking. Seeing how upset I am, he tries to soften the blow.
"Dee, be patient. Many years ago, I couldn't get a promotion myself for a long time. It's hard, but it will pay off over time.
"Sam, this mistake goes back to the beginning. Have you discussed this issue with other potential committee members?
"No, they left it to me to sort it out. If you want to get them to agree to join the NBI, you need to give an answer right now.
Was I mistaken about this man? What nonsense is that? Why should my salary depend on the whim of one person? Sam is clearly telling the truth. Rather, he is mistaken. I never expected that I would be subjected to such an unpleasant ordeal from the very first steps. But I have already decided to work in this position!
"Sam, I'll do as you say. Still, you're wrong. Your mistake hits my pocket, but I'll get over it. Tell the committee members that everything is fine and get their consent. In a week's time, I will present a program of actions.
So I left for Seattle, leaving Sam in the best of spirits. A week later, I showed Sam the action plan. He didn't like her.
"Dee, that's impossible. We cannot persuade 3,000 banks to give up their licenses and join the NBI, and then hold annual meetings and choose directors. All this should be done in 3 months. This is not feasible.
"Sam, we won't know if this is feasible or not until we try. We have enlisted the support of 13 influential people. Dozens of specialists worked in this field for a year and a half. Our concept is quite convincing. The time has come. Now is the perfect time! If we build the right relationships with banks, inspire people, and give them freedom, they will work wonders. I've seen this happen many times. However, not on this scale. Still, it's worth a try. If we delay, we'll miss everything. I can feel Sam starting to give up.
Dee asked BofA to allocate 6-8 dedicated people for two weeks, 10-12 experienced specialists from the credit card department for six to eight months, a loan of $2 million. And the NBI was supposed to be located in an empty BofA building with a moderate rent.
Do I understand this person correctly? Will it reach him or not? I can't resist the temptation.I hit his ball, alluding to the conversation I had earlier about the size of my salary:
"Sam, there's no time to try. The Working committees have instructed me to complete the task. If you want them to take action, decide immediately, on the spot.
Sam laughs: he might remember a few things, too.
"All right, we'll do it. I won't comment on it. But don't ask me to agree with you. Because you're wrong. All this can't be done in three months. Tell your work committees that I agree, and let them get down to business. In a week you will have a program of our participation in the work.
On the same day, I called all the members of the organizing committee and asked them with a bold request: to meet with the directors of all regional licensee banks and discuss with them the content and main directions of our work. Each meeting will be attended by myself, as well as the chairmen of local working committees. Expenses will have to be paid by the bank that organized all this. "Very interesting," they said, and agreed.
Everyone kept their word. Over the course of ten days, they called each other, agreed, and as a result, 12 meetings were planned, which were to be held sequentially in cities located two hours apart in the summer. Ten days later, I boarded a plane and got on a hectic schedule. One meeting followed another. I was bombarded with questions, people doubted, caught fire with an idea, criticized, confused, convinced each other. Then I would rush back to the airport and sleep fitfully for 12 consecutive days: 12 cities, 200 banks, hundreds of people.
Representatives of licensee banks received copies of the official permission to establish the NBI, statutory documents, license waiver agreements, NBI membership agreements, and other working materials. They discussed the documents with the right people, sent their proposals to the working committee, and the latter, in turn, brought them together and made changes. As a result, a package of statutory documents of the NBI members — owners was created. According to one of the points, the documents had to be approved within a month after they were received. Not a single word or comma could be changed in the finished package of documents. Banks had to either accept the documents or refuse them. The third was not given. At the same time, after the formation of the NBI, any bank that meets certain requirements could join the organization at any time.
Each NBI bank was required to sign a short standard contract confirming that all documents were accepted with the obligation to comply with them "in this wording, with all subsequent amendments and modifications." A minimum number of votes was approved, sufficient to decide on the immediate entry into force of the membership agreements and contracts between the NBI and BofA. As expected, if the required number of votes is not obtained during the voting, the contracts will not be legally binding. In the event of a positive decision, a deadline will be set for the election of the Board of Governors and the first meeting of the NBI's owner members.
Each member of the Board of Governors will have one vote for every $1 thousand of the volume of operations of Wpc of Ameris clients in the previous year. The service fee will be 0.25% of 1% of the transaction volume. Thus, the service fee and the representative office will be interconnected.
Dividends, if any, will be distributed among members in proportion to the share of each member's service fee in the total amount of service fees paid by all members. There will be no need for endless negotiations, renegotiation of contracts and legal proceedings. The most important rights and obligations of bank members, as well as the NBI structure itself, will be based on self-organization and self-management.
Membership in the organization will not be transferable and will not be linked to the number of credit cards issued and revenue. The business portfolio can be bought or sold, but it will not be possible to buy or sell the rights of members who own the organization, as well as the rights to use the trademark and other similar assets. These rights can only be obtained after joining the organization in accordance with the requirements for NBI members. However, NBI will not be a closed club. Managers will be able to determine the conditions for accepting new members, but they will not have the right to reject applications from applicants who meet these conditions. As well as accepting banks that do not meet these requirements to join the organization.
Although voting rights will depend on participation in the program, the principle of "one bank — one director (one vote)"will be strictly observed. Regardless of the number of votes received in proportion to the volume of transactions, members of the Board of Governors will not be able to use their votes to elect other representatives of their bank to the board. Each member of the board of governors will be responsible not to his own bank and those who elected him, but to the entire organization. Each member of the governing council will have only one vote in the decision-making process at meetings of the governing council.
Members of the Board of Governors will have different powers. The country will be divided into regions, and each of them will elect a member of the Board of Governors. Only the banks of the given region will have the right to participate in the election of regional governors. No more than five members of the Governing Council will be elected from each region on the basis of a cumulative voting procedure. One manager will be elected by small banks. Each bank whose share in the volume of operations will exceed 15% will be able to elect a manager.
Members of the Board of Governors will be re-elected annually. The Council will be able to set up a committee that will nominate candidates for voting. However, if any member of the NBI proposes a candidate supported by at least one other bank, that candidate will be included in the voting list and will participate in the election on an equal basis with the candidates proposed by the committee. In the regions, any NBI member will be allowed to nominate candidates at any meeting.
The President appointed by the board will be its chief Executive Officer, but not the Chairman of the board. The Chairman of the Board of Directors, who is elected by the Board, will not have any executive or operational powers. The President will be responsible for preparing the agenda of the meeting. Any member of the council will be able to include issues for discussion in the agenda. The Chair will lead the meetings, ensuring an open exchange of views and equal rights for members. In addition, it will determine the compliance of decisions made with the statutory goals and policies of the NBI, as well as with current legislation and regulatory documents. The Chairman of the Board of Governors may not share the views of the members of the board, but will not have the right to exert pressure on the members of the board.
Visa could not be bought, acquired or sold, because the ownership of this organization was in the form of a lifetime, inalienable right of participation. However, each member's business, which was owned only by the NBI, was reflected in the share prices and could be sold to any other member of the organization. In other words, there was an active and very extensive market.
Each Visa member received perpetual rights — all they had to do was issue at least one Visa credit card. The right to issue any number of cards at any time and anywhere, complete freedom to determine the type of services, prices and marketing conditions required only compliance with the simplest requirements necessary to ensure the use of credit cards.
Despite the fact that individual, often peripheral banks served as a source of innovation, the organization as a whole developed rapidly. If there were any mistakes, the banks dealt with them on the spot. But successful moves were immediately adopted and distributed to the entire system along the chain. The central office could only promote the product and services offered by Visa members, and not vice versa, so the mistakes of the center were eliminated as quickly as the mistakes of peripheral banks.
Visa branded products have received worldwide recognition. Although the organization was completely transparent to end-users, its branches and even some NBI members had no idea what it was based on or how it worked. The center, in turn, was also not aware of everything that was happening and could not influence numerous branches in any way. Within Visa, as a single legal entity, there were many boards of directors, and none of them was more important than the other, because each of them enjoyed the inalienable right to independently resolve all issues in their own regions or in their own functional area.
The parts didn't know what the whole was, and the whole didn't know what its parts were, because it wasn't necessary. This whole entity, like millions of other chaordic entities (for example, the human body, our brain, forests, ocean, and biosphere), existed on its own, on the basis of self-management.
The NBI's work was coordinated by fewer than 500 people spread across dozens of countries and four continents.
At that time, I was still unable to make retail and service businesses, as well as cardholders, members of the NBI as owners. Any step in this direction caused a storm of protest from the banks. Perhaps if I had been firm, I could have won them over to my side, but it's too late to talk about that now.
I had neither the experience nor the character to fully defend my beliefs without stooping to compromise. I tried to put my ideas into practice without changes, but I could not calm the dragon with four heads in people-selfishness, envy, greed and vanity. I still struggle with it today. I hope many people do it better than I do.
The initial stage of creating the NBI was coming to an end. It was the last day of the NBI annual meeting. The agenda was exhausted, and I was exhausted. At the final meeting, I asked a rhetorical question:
- So, all the issues are resolved?
But then Sam Stewart got up. He was serious and even stern. His deep voice echoed through the room.
Oh, my God, I thought. Sam stood up and said —
" When VofA supported the idea of creating an NBI, we were sure that a quarter of the licensee banks would not want to participate in this endeavor. When Dee argued that we should create some kind of perfect organization by refocusing the entire credit card business in three months, I told him that this was impossible — "He paused significantly and exclaimed with pathos," I still think so!
The audience roared with laughter. After all, Sam is a miracle! The newly formed board elected Sam as Chairman and me as President and Chief Executive Officer. This was the beginning of a three-year stint with the organization, after which I planned to return to my quiet backwater and move back to Seattle. If I had known then that these three years would stretch out into 14 long and difficult years! If I had known, I would have resigned immediately.
As it turns out, VofA has been in months-long negotiations with American Express, and the two companies have already developed a plan to create their own credit card authorization system. At the time, American Express was the world's largest travel and leisure credit card issuer. VOFA, in turn, was the largest issuer of bank cards. Other issuing banks had to participate in the new system, first paying a tidy sum that would provide financial resources for the development of the system. At the same time, banks would not be its owners. The plan was going to be published in the coming days.
I felt cheated. This system was completely alien to the spirit of the NBI and could seriously harm us. While preliminary work was underway, all potential participating banks, including VofA, agreed that the most important basis for creating National BankAmericard Incorporated is to develop an effective system for authorizing credit card transactions. And the initiative of two banking giants imposed the role of servants on other banks. I consoled myself with the fact that this whole story could have been started before the negotiations for the creation of the NBI.
At the meeting of the Board of Governors, we suggested that the NBI should announce the creation of its own competitive electronic system for authorization of transactions, mutual settlements and payments. 22 influential bankers clashed in a tough discussion. It was about making an important decision. If we failed, we risked our reputation, financial stability, and the ability to attract new members and develop new business lines.
The next day, we made a splash by announcing the creation of our own electronic card authorization system. We had already jumped off the cliff into the ocean, and there was no turning back. It remains only to safely dive into the water.
But we fell, as they say, on the belly. It was a failure. We didn't have enough specialists, so we hired an outside programmer. In a few days, he managed to persuade us to take traditional actions. He offered to organize a tender for leading computer companies. At first, it seemed quite reasonable. But after a few weeks, I was worried. Our "expert" assured that everything was going well, but did not explain anything. Well, I could only trust his experience.
Finally, we received an offer from a large computer company. The amount she mentioned was several times higher, and the deadline for completing the order was twice as long as the council expected. None of the computer companies gave any guarantees: they, like our "expert", believed that this was not their problem. We had to ask the council to increase the budget and extend the deadline. Oh, these computer scientists, they always do! But that didn't suit us. We've been through this before, and more than once. As Emerson famously put it: "Trust yourself! This string can touch any heart."
We gathered everyone who was involved in the project, both from the NBI and from outside. The conversation was brief.
— We were told that the system cannot be created in the allotted time and within the adopted budget. In addition, some of the money has already been spent. If we want to meet the deadline and budget, we must act on our own. We didn't get any outside help. So, we will look for her in our company. The clue is in ourselves. Either we ask the council for a delay and additional resources, or we rely on our own strength and talent. I suggest a brainstorming session. We'll get out of here when we find the answer to the question: how to meet the set time without any extra expenses?
A discussion broke out. We were looking for a way out of this situation. There were enough dedicated people in the room. But our "expert", by the way, has disappeared somewhere. Well, okay: there were people from other computer companies, and they got the idea. We stayed in the room until we found a solution that suited everyone. This is how the experimental banking authorization system (BASE 1) was born. These were the most exciting months in the history of our young company. We decided that we should focus on the needs of NBI members and cardholders rather than the ambitions of programmers. Therefore, the company must assume all responsibility. We decided to become both customers and performers, that is, to formulate a task for our programmers, coordinate their work and use its results. This method of creating an electronic communication system was contrary to all common sense.
People quickly organized their work. A whiteboard filled the entire wall, where paper chronicles of each day were attached with buttons. Someone had stolen an unwashed coffee cup from someone and put a rope through the handle that stretched across the room. The cup served as a runner, and we used it to mark our progress. All tasks were written down on scraps of paper, with the name of the responsible person and deadlines. Everyone could make comments, make suggestions, and change deadlines. By going to the wall, everyone could see how things were going, how their work affected the work of the organization as a whole, and how it related to the work of other employees. People gathered at the blackboard, discussed current issues, argued, and got together in groups. When the task was completed, the paper was removed from the board, and the coffee cup was victoriously moved forward.
Everyone was completely dedicated to their work, because everyone had the same attitude.
Money didn't mean much. There was a kind of continuous exchange of intangible values: everyone agreed to work for the other, without demanding anything in return. Our company seemed to have one soul, one heart. People devoted themselves to the task, and the reward could not be measured in money. Those who couldn't stand it left, and dozens of others took their place. No one spoke unnecessary words, no one wrote down or calculated anything. Everyone felt and understood what needed to be done, and everyone loved their work.
A dirty coffee cup that no one had bothered to wash was rolling along the wall. For many more years, the company talked about how the "dirty coffee cup system" was created, or more precisely, BASE 1. We met the budget, the system was created on time, and its operational capabilities exceeded all expectations. It refuted the thesis of a natural monopoly, and after that other innovative systems began to be created in the banking industry. BASE 1 was the foundation on which Visa's global communications system was built. So the failure turned into a dizzying success.
At the same time, the NBI introduced a ban on dual membership, meaning that NBI member banks could not join other similar organizations. MasterCharge (MasterCard), the main competitor of NBI, which at that time was much larger than NBI, stated its disagreement with our point of view. MasterCharge did not intend to introduce a ban on dual membership.
The pros and cons had their own reasons. Banks that have expressed a desire to join both systems have argued that the NBI's moratorium on dual membership infringes on their freedom, making it impossible to offer credit cards to consumers and merchants at their own discretion. But in this case, the competition was conducted exclusively between banks. No one argued that the ban on dual membership imposes certain restrictions on the actions of banks. However, these restrictions were necessary to create new systems and create an incentive for competition. That's what I and many of my supporters thought.
A ban on participating in two or more competing systems is an important incentive to create other systems that can compete with each other.
— If we don't suspend dual membership now, we'll be left with just two bank card systems. They will constantly try to weaken the competition and, perhaps, try to unite. And the whole thing will end with debit cards and other similar payment systems. No justification is needed here. This is common sense.
But the antitrust division of the US Department of Justice did not support Dee Hawk and his associates.
Everything is going to lead to the fact that two, or at least three, payment systems will take root in the world, and only a few financial institutions that are members of these systems will manage them. This development could have been avoided. This wasn't supposed to be a reality. Things may be even worse in the future. But it doesn't have to be like this!
I still regret today that I didn't continue the fight. I could have resigned and given up instead. Sometimes it seems that my decision was influenced by those threatening emails. I still don't know if the concession regarding dual membership was a sign of prudence, or if I just didn't have the courage. I don't know.
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