Cawley, Charles M. 1941–

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Charles M. Cawley
1941–

Former president and chief executive officer of MBNA Corporation; former chairman and chief executive officer of MBNA America Bank

Nationality: American.

Born: 1941, in New Jersey.

Education: Georgetown University, earned degree, 1962.

Family: Married Julie (maiden name unknown).

Career: Maryland Bank National Association, worked primarily in consumer credit; MBNA Corporation, founded in 1982; 1984–2002, president; 2002–2003, president and chief executive officer; MBNA America Bank, ?–2003, chairman and chief executive officer.

Awards: Awarded the Josiah Marvel Cup by the Delaware State Chamber of Commerce; named Person of the Year in 2002 by NJBIZ; awarded President's Medal by Georgetown University, 2002.

■ Charles M. Cawley cofounded the small regional credit card issuer MBNA Corporation in 1982 and developed it into the largest independent credit card issuer and one of the 50 most profitable companies in the United States. Cawley built MBNA largely by adapting affinity marketing to the credit card business. Affinity marketing attracts customers with specific interests, and Cawley used this marketing technique to issue credit cards in association with various organizations, such as universities and their alumni societies, special interest groups, and others. Described by associates and industry insiders as driven, brash, and outspoken, Cawley enjoyed corporate largesse to the full while building a company known for customer service and for being one of the best places to work, as noted by publications as divergent as Fortune and Working Mother magazines.

DEVELOPS AFFINITY MARKETING FOR CREDIT CARDS

Born and raised in New Jersey, Cawley graduated from St. Benedict's Catholic boys school in 1958 and then from Georgetown University four years later. Early in his career Cawley worked as a door-to-door bill collector in Newark, New Jersey, before beginning his financial services career in 1963. Cawley was working for Maryland Bank National Association in 1982 when he headed a small group of the bank's executives in establishing MBNA. Cawley set up shop in an abandoned A&P supermarket in Ogletown, Delaware, largely because that state had just removed its cap on the interest rates lenders could charge.

Within a year Cawley came up with an idea that would propel the fledgling MBNA to the forefront of the credit card business. Inspired by a program that linked several banks with the American Automobile Association (AAA), Cawley approached Georgetown University's alumni association with an idea. He proposed that the association sponsor a credit card for Georgetown alumni. Cawley believed that people were more likely to choose and use a credit card connected with their alma mater than a card from a company they did not know and with whom they had no connection. Cawley was convinced that such cardholder groups would remain more committed to having MBNA credit cards and less likely to look around for lower rates or to default on their debts. Georgetown's alumni association agreed, and Cawley had given birth to the concept of affinity lending.

Over the next decade following the establishment of MBNA, Cawley developed MBNA into a major marketer of affinity credit cards. In addition to loyalty and nondefault of debts, MBNA's customers also tended to carry a larger balance on their cards from month to month, thus incurring interest charges, further making them ideal customers. Between 1991 and 1992 MBNA Corporation, the holding company of MBNA America Bank, had increased its income 14 percent to $149 million. By the end of 1992 MBNA had 8.5 million cardholders and $9.3 billion in card loans. It also was the second-largest issuer of MasterCard and Visa cards in the United States. Furthermore, MBNA continued to be successful while many other credit card issuers were having difficulties finding new customers and facing rates and fees pressures, a faltering consumer confidence, and a barrage of new competitors.

Once again Cawley's success in placing MBNA on firm ground resulted from his marketing of credit cards to 3,000 affinity groups around the country. Industry analysts noted that instead of mass-mail solicitations, Cawley oversaw a campaign that focused on creditworthy spenders by targeting members of its affinity partners. Unlike other credit card issuers, MBNA and Cawley insisted that a credit analyst, and not just a computer program, should screen each individual application. As a result, MBNA's average cardholders were homeowners earning $55,000 annually and who paid their bills on time for an average of 14 years. Cawley explained the approach to Yvette D. Kantrow in American Banker this way: "When someone is at the point where he is spending money to be a member of an organization—whether a professional organization, an alumni association, or something else—he has probably settled down. We are giving cards to people who have a high probability of using them properly" (March 2, 1993).

While intelligent marketing to the right customers was the basis of MBNA's growth, Cawley also emphasized customer service and person-to-person marketing. For example, Cawley believed that computers could not routinely make decisions that built loyalty among customers, such as increasing a customer's credit limit. In dealing with different groups, Cawley also hired negotiators that were familiar with or actually associated with the group, such as a former dentist to deal with the American Dental Association and an automobile enthusiast to deal with the transportation sector. To further promote personal contact, Cawley had MBNA salespeople set up booths at more than a 1,000 annual conventions each year.

PURSUES GROWTH STRATEGY

By 1997 the credit card industry was suffering a new set of troubles as charge-offs and delinquency rates climbed and the industry experienced sharply declining growth in new accounts and receivables. Cawley, however, was looking optimistically toward further growth. By year-end 1996 MBNA had $33.8 billion in receivables and stood above other credit card issuers in that its asset quality was well above the industry average. In addition, MBNA's receivables expanded 39 percent over 1996 while other top card issuers experienced a declining or much slower growth. While Cawley and MBNA continued to expand its affinity group cardholders, including signing up 225 new groups over the first quarter of 1997, another factor in the company's success was Cawley's decision to issue a new Platinum card in the spring of 1995. Over the next two years, the card attracted 4.4 million new cardholders.

Cawley's growth plan focused on three areas. On the international front, the company expanded to the United Kingdom and was focusing on establishing itself in Ireland and Canada. Nevertheless, Cawley took a conservative approach to expanding internationally, choosing a wait-and-see attitude to markets in Asia and Latin America. Cawley also began to move MBNA more into consumer financing by setting up a separate division. By 1997, the division had grown into a $4 billion business. Finally, Cawley saw enormous potential in the insurance industry and created a subsidiary insurance agency.

In addition to these growth efforts, Cawley continued to see a growth market in affinity groups despite the claims of many industry insiders that this particular marketing strategy had been mined out. In 1997 he told John W. Milligan for an article in US Banker, "Today, 55% of all the physicians in this country carry our card. Well, there's another 45% who don't. Twenty-five percent of all the nurses 36% of all the lawyers … and on and on" (July 1997).

ANALYSTS PERCEIVE PROBLEMS

Despite the fact that MBNA had experienced nine straight years of 25 percent earnings growth since the company went public in 1991, industry analysts believed that the juggernaut Cawley had created was beginning to show signs of strain. Seeing indications of an oncoming recession, they were concerned that MBNA would falter because of numerous factors, including recent highly priced acquisitions, a dangerously low leverage, and MBNA's growing emphasis on controversial accounting techniques. Furthermore, getting new accounts was becoming more expensive, costing MBNA $32 per account as opposed to just $14 an account five years earlier. Analysts also noted that, even with a customer base of cardholders who had solid credit histories, a recession could lead to a rash of defaults on credit cards.

For the most part, Cawley shrugged off these concerns, noting that these potential problems were more dangerous for other firms that were not run as well as MBNA. He noted that MBNA had weathered both the recession in the early 1990s and the credit crunch that hurt many lenders in 1998. He told Rob Wherry of Forbes magazine, "The reason you don't read a lot about us is that we don't screw things up" (November 13, 2000).

In the end Cawley's confidence proved correct. MBNA not only weathered much of the recession that began in 2001 but also actually prospered. For example, his strategy of giving affinity cards to high-end customers continued to garner a loyal and prosperous cardholder base that included 75 percent of the doctors in the United States by mid-2003. In 2003 the company turned a profit of $2.34 billion and the company's share price by 2004 had grown at a rate of 28 percent a year. Overall, Cawley's leadership led Standard & Poor's to report in 2003 that MBNA had the best five-year annualized return of any bank in the S&P 500.

MANAGEMENT STYLE: BOLD, BRASH, AND EFFECTIVE

Cawley summed up and repeated his philosophy of business and life many times. He related to Stephen Kleege for an article in American Banker, "Life by the inch is a cinch; life by the yard is hard" (September 21, 1993). This philosophy was well demonstrated in Cawley's approach in targeting MBNA credit cards to small sectors of the population. Industry analysts praised Cawley for being a focused manager who stuck to his guns. Rather than an indiscriminate mass-marketing approach, Cawley formed regional centers around the country where MBNA marketed to individual states on a very narrow basis.

As for his own personal style, Cawley was described by colleagues as abrupt and temperamental but also as giving and funny. Although shrewd and conservative in his business dealings, he was also somewhat capricious, especially in rewarding himself and other top executives with lavish salaries and perks. On the other hand, Cawley formed a company noted for its good employee relations, which Cawley saw as being good for business. The banking analyst Susan L. Roth told Kantrow in American Banker, "They treat their employees so well that they have every incentive to treat their customers well" (March 2, 1993).

Colleagues also noted that Cawley was spontaneous and secure in his decision-making and extremely loyal to those who stood by him. He also had a penchant for order, even going so far as to pull a flower in full bloom from one of the company's flowerbeds because he thought the color was wrong. Michael Auriemma, president of an industry consulting firm, told Jonathan D. Epstein in Delaware's News Journal, "He's a visionary that had … an idea about how a credit card company should work … instilled his culture and his vision in the fabric of that company and has been extremely successful at it" (January 4, 2004).

ALL GOOD THINGS MUST END

After MBNA cofounder Alfred Lerner died in October 2002, Cawley was given the additional title of CEO of MBNA Corporation, retaining his title as president and his position as chairman and CEO of MBNA America Bank, the primary subsidiary of MBNA Corporation. However, despite the company's continued prosperity, Cawley resigned on December 30, 2003. Although the company said that Cawley's retirement was part of a mutually agreed-upon transition, company executives and others eventually revealed that Cawley's departure was the result of an intense disagreement with the board of directors. While other company executives were cutting costs Cawley stubbornly refused to adhere to a new accountability in corporate spending, an issue that had received a great deal of public and federal scrutiny in other companies. Many of the board members believed that Cawley was overusing and perhaps even misusing MBNA's corporate jets and other corporate assets.

With the growing scandals of Enron and corporate leaders bilking company funds for personal use, the board and stockholders became increasingly concerned about what Cawley viewed as a type of executive privilege. As friction between the old and new ways grew, Cawley became upset over the efforts of the board's compensation committee to restructure executives' pay and perks. Ten days after an especially confrontational meeting with MBNA's board in early November 2003, Cawley announced his retirement. An anonymous MBNA director told Lowell Bergman and Patrick Mcgeehan for an article in the New York Times, "It probably was time for him to go. Had he been willing to change and do things the way the board wanted him to do, there's no doubt in my mind he would be there today" (March 7, 2004).

Despite leaving his executive positions at the company, Cawley agreed to serve as a consultant. In addition to his financial compensation package, Cawley's retirement package included two full-time personal assistants and access to the company's planes for him and his wife for the rest of their lives. As for Cawley, he told Epstein of the News Journal, "Everyone can do things better, but I can't really think of too many things that the company and all of its people have done that in any way I'm not proud to be associated with" (January 4, 2004). Cawley was also noted for his philanthropic efforts. He served on the Board of Regents of Georgetown University and the American Architectural Foundation and on the Executive Committee of the Board of Directors of MasterCard International.

See also entry on MBNA Corporation in International Directory of Company Histories.