MasterCard’s Chris McWilton: Embracing ‘Thoughtful’ Risk-taking

While growing up in upstate New York and studying accounting at St. Bonaventure University, Chris A. McWilton became an admirer of the region’s most iconic corporation, Rochester-based Eastman Kodak. “Western New York is known for two things: Eastman Kodak and a lot of snow,” McWilton, president of U.S. markets at MasterCard Worldwide, noted during a recent Wharton Leadership Lecture. “It was long a company that was near and dear to my heart, but, unfortunately, it never did adapt to change.”

Kodak executives’ resistance to changing times has resulted in the firm’s recent bankruptcy filing. Technology and consumer tastes change quickly, McWilton said, and Kodak is an example of how important it is for leaders to recognize that. “Eastman Kodak was minting money — it had incredible margins and a great brand. It was an icon. It was what you looked for when you thought of the word, ‘successful,’” McWilton stated. “But then Fuji ran over them by processing film more cheaply. And then digital technology took off. No one saw change coming. And that long run of euphoria ended abruptly.”

The same fate could have befallen MasterCard, which is headquartered in Purchase, N.Y. The two companies were in a similar situation, with technology and evolving consumer habits encroaching on their business models, noted McWilton, who joined MasterCard in 2003 as chief financial officer after spending 21 years at accounting firm KPMG. But he said the response to change by the executive leadership at the financial services company created a far different end result.

For the first 40 years of its existence, MasterCard was mostly at the beck and call of its member banks, McWilton noted. “There is a misconception with the general population that MasterCard issues credit cards, sets the rates, makes the charges and so forth.” In reality, McWilton noted, MasterCard is more or less a technology company. “We were formed to allow banks to have a common platform [from which] they could run the cards.”

The company does not extend credit, or decide who gets it and who does not, he said. “We just run the technology that allows a credit card swiped in China to get its information to a bank in Des Moines and back to China in a millisecond so no one has to physically move the money the next day.”

According to McWilton, until 2006, MasterCard was an association owned by its member banks. “We entertained them and wined and dined them and sponsored sporting events they came to,” McWilton stated. At the first annual meeting he attended as CFO, it hit him that “leadership” was almost unnecessary in such a situation. “I got up there and said we had a great year and made all this money,” he said. The nature of the business did not attract “superstars,” McWilton added. “You never worried about profits, just if the members of the association were happy. That is the way it worked for 40 years.”

But the first few years of the 21st century brought a new level of scrutiny to the banking world. MasterCard began facing increased oversight. Lawsuits were coming daily, it seemed, and the firm became a lightning rod for anti-trust suits. “Every board meeting, instead of being about innovation or just business strategy itself, became merely a report from the general counsel on how the lawsuits were going that month,” McWilton noted.

So executives made the decision to cease being an association owned by financial institutions and to make the switch to being a publicly traded company. The firm had its initial public offering in May 2006, starting at $39 a share. Its market cap has effectively increased tenfold since that time — from $5 billion to $50 billion — despite a general malaise in the financial world. “But when we went from virtually a sleepy not-for-profit to being a Wall Street darling, it almost was a bucket of cold water for leadership,” McWilton said.

More change was on the horizon. Technology brought other forms of electronic transactions into the mainstream, some of which challenged MasterCard’s lead in the area of efficiency. The 2008 financial meltdown brought more regulation to the industry. MasterCard has been most affected by provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that cap certain fees related to debit card transactions.

In 2009 McWilton moved into his current position as head of U.S. markets, the largest part of MasterCard’s business. It was an unusual choice, he said, to promote an employee who was essentially a lifetime accountant to a job that emphasized people and strategy skills, rather than being adept at moving numbers around on a spreadsheet. “There is a perception that running a business requires some kind of ‘natural’ skills,” McWilton noted. “But I found you could learn analysis, decision making, humanity and leadership … just by being aware of what you need to run that business. If you have rational thinking, you can lead. A finance person can do marketing. A marketer can do product development. All can lead.”

Selling Change

When a company is undergoing big changes, one of the most important jobs of a senior executive is to make sure employees are on board, McWilton said. The workers at any firm can often be broken down into three groups. One-third of employees will enthusiastically embrace change. “‘This can be an opportunity for me. Let’s go,’ this group will say,” McWilton noted. Then there are the third that are OK with change, but fall into more of a ‘wait and see’ category. A good leader can get those people to come around through strong reasoning and guidance, McWilton added.

“The last third want change to die and go away,” he said. “They will be the obstacles of change, and a good leader has to make a quick decision about those folks — which is basically find something else for them to do and some place other than the organization to do it in.”

McWilton considers himself lucky that he was one accountant who had the ability to stand up in front of a group and give an effective speech. “Leadership comes from the heart, from your passion. If you need to hide behind PowerPoint, then you don’t know how to speak to employees, to talk about issues with conviction, to give a persuasive argument,” he said, suggesting that aspiring leaders should take advantage of every opportunity to speak in public.

As the changes in regulation and technology kept coming for MasterCard, McWilton had to move quickly and publicly. “You can’t just hold a town hall meeting and the leader says, ‘We are changing’ and just have it happen,” he noted. He offered the analogy of converting a hotel room from smoking to non-smoking, pointing out that the hotel staff cannot simply empty the ashtrays and get the smoker out of the room. “The smoke is in the fabric and in the bedspread. You have to change the carpeting, open the windows and get rid of the old curtains. You have to get the old ways of doing things out. That is effective leadership.”

To that end, he added, leadership is not about being loved, but about being respected. “At MasterCard, sometimes we have promoted managers who think they have to be instantly loved by everyone around them, not only those who work for them, but those above,” he said. But then the executive might have to reprimand someone, or criticize them. The object is not, on the other hand, to ruffle feathers, but just to be fair. “Unfortunately, leadership means having to make tough decisions. But if you are fair, you will always be respected.”

That means, too, that good leaders do not sit on the fence when decisions must be made. Leadership, McWilton noted, is not about appointing a committee to study something indefinitely, deferring decisions for six months and waiting for new ideas to magically come along. “I tell my managers not to wait for me to be in my office,” he said. “The point is that I hired them because they were smart. Nine out of 10 decisions they can make on their own, and know I would approve them. There is that tenth one that you need to consult me on, but otherwise, move on. Make a decision and make things happen.”

Being able to trust that managers will make the right decisions on their own comes down to assembling a strong team of employees, McWilton said, adding that a good leader acknowledges that he or she does not know everything, and takes advantage of experts in technology, finance or sales who know more than he or she does about their respective fields. “You have to have the courage to hire people who will challenge your thinking,” he stated. “You don’t have to be the smartest person in the room, just the person who has assembled the smartest team. Yes, the ultimate decision will have to come from you, but you often have to check your ego, and rely on your best employees’ knowledge so that you can make that decision.”

The new culture at MasterCard encourages “thoughtful risk-taking,” he said. In its old form, leadership at the firm was nervous and unable to risk upsetting the proverbial apple cart. According to McWilton, the perception was that margins were good, so why take a risk? Now, with the advent of technology like microchip-embedded cards, international rules regarding transactions and new federal rules surrounding payment cards, there has to be a level of creative risk-taking, otherwise the changes will suck up those margins in a heartbeat, McWilton noted.

He is bullish on the future of MasterCard, and the entire credit card business. The Social Security Administration, he said, has moved toward prepaid cards as a means for payments. The Indian government intends to issue credit card-like national identity cards, which will navigate citizens through payments, security checks and other daily functions. More than 60% of all ordinary transactions in the United States today are done by credit or debit cards, he noted, more than twice the amount just a decade ago. “We are getting rid of swaths of paper, and being more efficient doing so” — something that even his employees have a hard time comprehending.

“So change is here and more is coming,” he stated, noting that microchip embedded cards are the norm in Europe but still facing resistance in the U.S., where people are reluctant to give up the ubiquitous magnetic swipe strip due to the cost of changing the related machinery. The change will happen eventually, though, McWilton predicted, and MasterCard will be ready. “The biggest risk is not to change,” he said.

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