Chordic Visa Organization (Part 2)

Chaordic (from the English chaos - chaos and order - order) - 1) characterizing the functioning of self-organizing and self-governing systems and organisms that organically combine chaos and order; 2) characterizing the fundamental features of natural systems.

Dear readers, here we are at the second part of the fascinating history of the birth of the largest financial institution in the world Visa. The narrative turned out to be quite large, so there are likely to be more than two parts. As in the previous part, quotes from Di Hawk’s book “One from Many: VISA and the Rise of Chaordic Organization” are in italics.

<< Chordic Visa Organization (Part 1)



By 1968, the young industry was out of control. No one could calculate the loss - it was about tens of millions of dollars. For that time, given the industry momentum, it was a huge amount.

In the midst of the confusion with credit cards, Service Corporation (the Bank of America branch in charge of the credit card program) convened a meeting of managers of licensee banks. There was a discussion of operational issues that strangled 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 tellers whom Service Corporration instructed to work with licensed banks.

On the first day, those present expressed strong dissatisfaction with the fact that BofA did not understand their problems and did not want to deal with them. Representatives of BofA, in turn, attacked licensed banks with criticism. By the end of the first day, the passions were heating up - reproaches and objections were heard everywhere.

The next morning was no easier. By the middle of the day, opinions were sharply divided, and for this reason. Before lunch, frantically trying to cope with the situation, without coordination with the rest, Hal and Don announced the names of the committee members who were to solve some of the most pressing operational problems. The committee consisted of seven managers of credit card departments of licensed banks. Among others, my surname was named. The committee had to consider the problems and propose its own solution. It was assumed that if BofA considered this decision acceptable, it would be imposed on licensed banks.

This moment became the turning point in the history of Visa. Dee Hawk did not want to participate in the committee because he considered the idea pointless. During the break, he went to the leaders and said:

“Listen,” I said, “I don't want to complicate anything.” If you insist, I will work on this committee, but it’s better not to appoint me there. Do me a favor, find someone else.

Hal, almost interrupting me, quipped:

“Well, of course, each of you thinks that we are doing everything wrong.” So take it and do it right!

The more restrained Don, too, became angry:

“Dee, why don't you want to be on the committee?” Do you dislike the idea itself or have any other reasons?
- Don, this is a waste of time. By the time the committee convenes and finds a solution, a dozen new problems will appear. No one knows how many there will be and 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 some bank refuses to obey, you have to give it to him under the ass with his knee. But BofA. never dare to do this, and everyone knows that very well. Everything is tied to relations between banks, and BofA will not want to take risks.
“If you want to create such a committee,” I say, “give it the authority to consider all the problems at once.” What is the point of eradicating one problem, then another, without linking them together? After all, we ourselves do not know what to do next and how all this is interconnected. Why crush water in a mortar?

During the conversation, Dee was able to convince Hal and Don to create a committee that would solve all the problems arising in bulk, and not one at a time. This decision was difficult for the representative of BofA.

After lunch, everyone gathered in the hall again and looked at the scene in surprise, where, after a brief introduction by Hal, one of the participants, that is, me, got up.

I offered the newly created committee only one thing - to help licensees to unite and together overcome the difficulties that have fallen on them. I suggested everyone join the committee, including the Bank of America.
“What will it cost us?” - one of the participants asks.
- No way. It just needs to be given some time and make frequent flights around the country.
- And what does this oblige us to?
- To nothing.

And, as it usually happens when there are disagreements in the team, but there is an illusory hope to do something, without bearing any responsibility and not spending money, everyone quickly agrees with my idea. The meeting ends, and a committee of seven people gathers for the meeting. The first to take the word is Fred James:
“I don’t know what you got us into, but you are 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-minted committee took place in Seattle.

We flew to Seattle, having a rough concept. We decided to distinguish seven independent regions, in each of them to create four specialized committees: operational, marketing, credit and computer systems, which will include representatives of banks issuing credit cards in the region. The regional executive committee is formed by the chairmen of specialized committees and other participants of their choice. The five national committees will be chaired by regional specialized and executive committees. Thus, everyone will receive the right to speak, and no one will be able to put pressure on the rest.

A week later, the concept was finalized, and a committee, which included representatives of banks licensed by BofA, gathered for a meeting in Atlanta, Georgia. After a one-day discussion and agreement, it was decided that there would be eight rather than seven regions. We will all disperse to our regions and, having gathered meetings of representatives of licensed banks, we will present our concept. If we are supported, we will help create regional committees. If one of the regions does not agree, we will abandon the idea. But with a positive outcome, the regional committees themselves will select the chairmen, who will be included in the national committees, after which our committee, created with the participation of Ваpк f ricterica, will resign.

We hoped that such a structure would help us not only to collect first-hand information on problems related to fraud, credit, operations and technology, but also to find a solution to the most painful of them. In turn, BofA was to informally participate in each of the five national committees. Being the owner of the trademark, that is, a franchising company, the bank had to take responsibility for the implementation of the proposals of the committees. Will VanAmericard agree to this and how it would look like, no one imagined.

For six months, all regional and national committees have been created. Hawk was asked to chair the executive committee of the northwestern region. It was an ungrateful and nervous job, besides it was not paid in any way and took a lot of time.

Our system of committees, for all its complexity, had one big plus - we could receive comprehensive information about emerging issues. Two series of meetings were enough for us to understand: the problems are even more serious than we imagined. They grew like a snowball, and the existing licensing system, and the committee structure itself did not contribute to their solution. Losses were not calculated 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 a solution! We need a new idea for the organization, a tiny clue with which you can start all over again.

What is the essence of the operation when the buyer, in order to pay for a service or product, hands out a plastic card to the seller? The seller wants to sell something to the potential buyer, and the buyer wants to buy something. This means that a plastic card can 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 for the buyer (for the seller) and the identity of the seller (for the buyer).

A credit card guarantees that both parties can easily exchange value: the seller can sell goods and services, for which the buyer will later be billed in the currency of one or another state. Therefore, the second function of a credit card is to guarantee the reliability of information about the equivalent value.

In addition, the credit card guarantees the buyer and seller that to start the mechanism of commodity-money exchange, neither of the parties does not need to know the exchange rates, language, laws and cultural traditions of the other side.

Any organization that can guarantee the transfer 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. Not one hierarchical, joint-stock organization cannot do this. In fact, not one 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 banks in the world, together, 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 at least a quarter of the working time, and if something works out, it will take all the working time. If the program turns into a collapse, the bank will incur huge losses. At the same time, managers are not paid salaries, and each bank is doing its own thing. To his great surprise, Mr. Carlson leaves Dee as vice president of the bank and director of the credit card department, retains his salary and allows him to use the bank’s resources, and does not require the committee to have any special relationship with NBC. “Sometimes we have to act simply as respectable citizens”, “I hope I was useful to you?” - closes the conversation Mr. Carlson.

So, I had a passion for creating a new organization. I had some idea how to do this, and I had complete freedom of action. I so wanted to look into the future, but it was necessary to create the conditions for work in order to formulate a new concept.

For a long time I went over all the members of the national committee in my mind and settled on three candidates - worthy, smart, generous people who know how to work with humor and, most importantly, who do not follow the crowd and do not have a herd feeling. Each of them had a special mental attitude.

Having exchanged thoughts on how we will solve the problem with the credit card business, I said that I came up with one interesting thing that will take a week or ten days. Namely: to hide from everyone, forget about their difficulties and ask one single question.

Assuming that the incredible is possible and that there are no barriers, what is the ideal global value exchange system?

All three nodded their heads, rounded their eyes, but agreed only on the condition that I would be with them. If they had not called me, I would be very upset.
They decided to “hide” in the old Altamira Hotel, located on a hillside in Sosalito (California).

On the fourth night, Monkey and I woke up again, started to think all about the same, and suddenly realized that not a single bank was able to create an ideal global system for exchanging value. Not a single hierarchy, not a single joint-stock company can do this either. And not a single state. And not a single organization. But what if we use at least a small fraction of the resources of all financial organizations and a little human talent to put this idea into practice? Together they would do it, but where to start?

So the first postulates of the new organization were born:

What if the right of ownership is inalienable and will be realized in the form of participation of members of the organization in its 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 will be realized only through membership in the organization and participation in its activities?

What if such an organization is self-governing, that is, its members will be able to make organizational decisions at any time, for any reason, at any level and will have the inalienable right to participate in management at the highest level?

What if its functions are distributed among 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 members of the organization in such a way that no one person or institution (and above all, no manager) can 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 the others in its own way, while remaining ready to give up, if necessary, its own interests for the sake of cooperation and the common good?

What if such an organization is flexible and at the same time extremely stable, so that its components can constantly generate new forms and functions without compromising their essence, their main goal and principles, and contribute to the emancipation of talent and the human spirit?

Months passed before the licensees accepted the principles developed by us. And then discussions began. These principles were not rejected only because no one, including myself, believed in the possibility of creating such an organization.

After that meeting in Sosalito, we worked day and night for three months - we met with lawyers, accountants, committee members, desperately trying to formulate our principles in accordance with a certain concept. Dozens of teams were created, dissolved and re-created. Questions grew like a snowball. There have been no answers so far, but the main thing has become clearer. In order to form a self-organizing institution, consensus was required on an ongoing basis, but consensus is not in the sense that is being put into this concept today. Unanimity of a deeper nature was required. What was needed was a common platform 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 licensed banks was held in San Francisco, at which the concept of the project was considered. On the third day, Fred, Sam and Jack and I went to Ken. To move on, we needed to know the opinion of BofA.


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 then the position of Bank of America was stated. They wanted to have a representation on the board of directors of the new organization in accordance with their share of sales. This went against our principle: no one should have dominated the management of the new organization. In addition, they wanted to be a managing partner for at least five years. It was further stated that BofA, as a managing partner, must retain ownership, control all trademarks, while remaining the only impartial and objective licensor (that is, they believed that the board of directors of the new organization is not capable of performing these functions!). All of the above contradicted our concept.

At the next meeting of the committee, when the principles of the new organization were discussed, Di Hawk phoned Ken and clarified whether the bank was sure of his decision. Ken was unshakable. To which Dee stated that he would recommend the committee to abandon the project and they would have to report their decision to the press, where the decision of BofA would be stated. To which he received the answer: “Better come to San Francisco, talk with Sam Stuart, vice chairman of the board of directors.”

A well-known lawyer who has won many lawsuits, Sam Stewart was the second person in the largest bank in the world. The conversation with Sam began with the fact that Sam began to state the position of the bank, thereby making it clear that Dee was invited not to talk, but to read moralizing.

- Our bank is a pioneer in the business of credit cards. It was we who created the BankAmericard system! and suffered huge losses before they began to make a profit. We have created a license system. With this expansion of the business, difficulties are inevitable. Banks agreed to take licenses only thanks to the authority of BofA. At the same time, the reputation of the bank was at stake - because our project is called BankAmericard. We maintained a spirit of cooperation and made many concessions. So do you really think that now we are pecking at some other, unverified idea, and even under the direction of no one knows. It would be inadvisable for you to abandon our program and blame BofA for all the failures. Listen to us: continue to work with us, solving the problems that our system faces.
“Mr. Stewart, it is probably rather stupid and reckless for the vice president of a modest bank in Seattle to point out a mistake to the vice president of the largest bank in the world.” But I think you're wrong. What you offer does not meet the interests of BofA, licensed banks, and the entire banking industry as a whole.
- Do you really think so?
- Yes, sir.
“Then explain why.”
“Control by BofA will lead to the failure of our new organization.” Your approach is completely contrary to the principles that we have so consistently upheld. To abandon them means to tear out the heart of our new organization, to deprive its soul. No honest person will work under such tight control. The system of licenses does not provide a spirit of cooperation. Licensees do not need an organization controlled by one person. Banks need autonomy. Having changed 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, disproportionate to the current one. The bank should forget that it manages the system - it is time for it to become a leader in the field of ideas.
“Could you put all this in writing and forward it to me?” And then, in two weeks, come again to talk?
- Yes, sir.

And two days later, Dee sent Sam a letter in three pages, and two weeks later he again arrived in San Francisco. Sam greeted him with a warm smile:

- We carefully weighed everything that you told us, and decided: in the main you are right. Much more 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 goodwill when you discuss the conditions for the transfer of property.

Our idea was met with understanding and enthusiasm by many people.

In early 1970, everything began to fall into place. It is time to remove the most important obstacle. At that time, there were 200 license banks issuing their own credit cards in the country. Each of them could provide sublicenses to other banks so that they would find new customers and new enterprises in the sphere of trade and services for the credit card business. Thus, another 2.5 thousand banks received sublicenses. But the fever associated with credit cards has not subsided. More and more banks were joining the business, fearing that traditional working methods would become obsolete. And the problems were growing and growing.

We had to persuade more than 3 thousand banks to abandon BofA licenses and blindly join the new obscure organization, which was to be called National BankAmericard Incorporated (NBI). Upon joining NBI, banks renounced their autonomy in favor of collective interests and simultaneously became owners, participants and leaders of the new organization.

Hawk had a difficult task. On the advice of Mr. Carlson, Hawk decided to enlist the support of 10-15 people influential in the banking business, and "the rest will catch up on their own."

On February 8, 1970, very respected people gathered in the luxurious conference room of one of the New York skyscrapers. Bankers greeted each other like old acquaintances, exchanged impressions about flying on private jets, talked about golf and banking operations. I sat quietly and thought that it was these gentlemen who were tearing skins from impudent lambs. I have had no experience communicating with such people, with the exception of Sam Stuart and Max Carlson. Never before have I been to such luxurious boardrooms. After all, a year or so ago I was crawling on my knees in a bank cellar, delving into a pile of garbage!

Sam opened the meeting. He said that BofA endorses our concept and that he personally, Sam Stuart, will work as an ordinary member of the committee. After that, he sat down in his seat and began to listen attentively to the speeches. I had to lead a discussion alone and answer questions.

It was obvious that BofA still retains the right to act at its discretion, listening, however, to the opinions of others. Although Sam did not convince anyone or dissuade anyone, his very presence spoke a lot. And the directors were very cautious in their statements - they asked questions on the merits, but did not go into details. So I allowed myself to talk about ideas that meant so much to me.

Then they all dispersed, taking with them packages of documents and promising to gather in a month in Chicago. By this time, each of them will be sent by mail a new package with proposals and documents. After the same one-day discussion in Chicago, each director will have to answer whether his 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 will finance in their regions the same presentation for other licensed banks. The life and death of our organization depended on them. The time has gone.

March 11, 1970. Chicago is damp and windy. Here we gather the second meeting of the organizing committee. And again, I'm in a banking skyscraper, in a posh meeting room. We are served a sumptuous lunch. It is difficult to imagine these people sitting somewhere in the basement on boxes, chewing sandwiches and laughing. These people are more comfortable in such a chic setting, but I feel at ease. What to do - life makes.

From the very beginning, they bombarded me with questions. Nobody seems to take the idea seriously. But I have no time to be offended.

- And 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 the BofA license. The members of our new organization will have to cooperate with them in the same way as with other participants. 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 voting rights in 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. He will have enough time to close the deal, sell his program to another licensee, or change the BankAmericard program to another competing program.
- Is it possible to create NBI if only a small percentage of banks enter this organization?
- Not. It can only work if it includes at least two-thirds of the banks. Even the loss of one third of the participants is a big risk for the organization. If we do not get the required number of votes, our project will fail.
- What if members or owners want to make significant changes, for example, abandoning the name BankAmericard in favor of some other name?
- The board of directors has unlimited powers under applicable law. However, the charter of our new organization requires that such important decisions be taken by at least 80% of the vote. We can change the name if 80% of the participants agree to this.
- And where is the guarantee that NBI will solve the existing problems and really create the market 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 hour after hour.
Towards evening, questions run out. And here it is, the decisive moment. Will the banks of each of the representatives 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 go out for half an hour. I have no choice but to obey. Half an hour of torment!

Finally, the door opens and I am invited to enter. I am announced the main condition, without which no one will agree to enter the NBI. Horses do not change at the crossing. Therefore, they have a question for me: will I agree to continue this program? What a weird one! Why would you put me out the door?
- Of course. I’m not going to go into the bushes without completing the matter, without creating such an organization — let it take a year or more.

One of the directors clarifies:

- You did not understand us. We want to hear from you that you are ready to move to San Francisco and lead NBI. You are at the forefront of this project. We would not want to change the leader until the creation of 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 NBI, but we must obtain your consent in advance. If you say yes, we all join NBI.
- How? All to one?
- Yes.

So Visa was born. But there was still a lot of work ahead.

>> Chordic Visa Organization (Part 3)