The CEO of GMAC details his vision for the industry, our members, assessments, selection and more.
Joe Fox, the Associate Dean and Director of Graduate Programs at the Olin Business School, Washington University at St. Louis, recently sat down with Sangeet Chowfla, President and CEO of GMAC to talk about the organization’s past, present and future.
Joe Fox: In 1983 I went to my first annual GMAC meeting. I was just a brand new MBA program director at Marquette University and I think at that time we were the 34th or 44th member school in GMAC. Where do we stand now with member schools, and how do you think that growth has changed the feel, the nature, the culture of the organization?
Sangeet Chowfla: GMAC started with nine member schools. It was a small group, which created a lot of bonding and glue. GMAC today stands at about 213 member schools. So with this growth and the globalization of the membership base, we have a tremendous amount of strength because the network has expanded. The downside is that we have lost some of that sense of camaraderie, and that is something we can do a better job in trying to foster.
JF: I would tend to agree. The small size really fostered the opportunity for people to take ownership of the organization, to volunteer, or be on a committee. Do you see ways that this can happen again?
SC: You know Joe, I think you are on to something here, and my answer is, I hope it can. We will never be able to go back to the old days, but I think we can play a role in fostering the broader sense of community.
One of the things we have been doing is redefining the GMAC brand. And like most brand initiatives, you start by looking at your history. We were founded by nine business schools 63 years ago to solve a common problem. And that manifested itself into the test, which then became GMAT exam. What unfortunately happened is that we shifted from an association of business schools to a testing organization.
So one of the things we are doing as part of this redefinition of GMAC is to create a sense of balance. We are a global testing organization, there is no getting away from that, but we can balance that testing organization with the association of business schools. And if we do that then we can actually start bringing people together again to start solving common problems.
A recent example is what we call the Application Process Advisory Group, where we started bringing I think 13 different schools together to again solve a common problem. In this case, the common problem is the application process, which creates incredible amounts of stress on the candidate population. If we can work together, we start hopefully creating this renewed sense of community.
JF: I like that way of thinking about it. When I was on the board, we had three equally important missions – we had the test, we had research, and we had professional development. Is that still the same, or has GMAC changed focus?
SC: The three legs to that particular stool still hold true, but they are also evolving. The test continues to be our primary asset. But the question that we are beginning to ask ourselves is, what next? Are there other technologies that enable us to solve the same problems? So the test itself is beginning to evolve.
Also when you look at research, which we are the premier providers to our overall community, even that needs to start evolving. Not only have research technologies changed, but also the scope of the research that we need to do is different. It can no longer only be about research around the GMAT testing base, which is a particular segment of a particular type of student applying to a particular type of school. If we really want to represent the global GME community, we have to expand our reach. For example, we have to expand our research to include people who are testing domestically in China. That person is making a decision between a local Chinese school and one of our member schools either in China or elsewhere in the world.
JF: One more question that transitions from the past to where we are today. Back in the mid-90s, the board was primarily admissions directors and program managers. Then there was a significant change. Deans now had a defined number of seats on the board and some outsiders started to come in – corporate people, as well. The concern was that people removed from GMAC’s products and services were in those decision making roles. How does your board fit with what you need to have them doing?
SC: Right now we have seven dean directors, four representative directors, four independent directors, which are neither deans or representatives, and myself. I do share some concerns that the representatives don’t have as many seats, but our board members have been very committed to working very actively with the organization. It’s a volunteer board, so I’m a little bit in awe of the amount of time people spend on our board.
Even though we are a nonprofit organization, we run our board according to the standards of a public company. The reason is we generate significant revenue from around the world and as a result of that must hold ourselves to the compliance standards of a global corporation from a governance point of view. It is important that we have these independent directors who bring in perspectives of governance, which otherwise might not have existed.
JF: It probably holds GMAC to a higher standard in terms of integrity, accountability, and reporting than a typical non-for-profit might be held to.
SC: Exactly, and I’m really passionate about the fact that we must create governance standards that have very high levels of transparency, integrity, independence, etc.
JF: In the existence of GMAC there has only been two other leaders. Each served long periods of time with their own culture, tone, and direction. You were brought in to set your own culture, tone and direction. How is it going?
SC: It’s been going great. When I came into GMAC, we were at a transition point in our own history. GMAT, our primary product if you will, had lost its de facto monopoly as the only test that was accepted by our member schools. We had to learn how to compete, and that’s a nontrivial shift in mindset. Graduate management education, as you well know, has been going through its own transition. During the last couple of years, the GME pipeline had been declining, particularly in places like the United States.
And as often happens during a period of change, our own internal cost structure had gotten a little out of whack. As these changes were happening to our business and revenue model, we still had a fairly high cost structure that was denying us resources to invest in our own future. Those are the three things that we actually ended up having to deal with, and we’ve come a long way in that particular journey.
JF: Are you in a position now to make the kind of investments that are going to take you into the next ten years?
SC: Yes, we are looking right now at a number of different streams. One is the future of testing. How long is standardized testing going to last? GMAT is an incredible instrument. I’ve been looking at all the tests out there, and both from the point of validity and from the point of reliability GMAT is probably the best testing instrument that exists in any field. But we wouldn’t be doing our job if we weren’t simultaneously taking a look at what is the future of standardized testing. It does a wonderful job in evaluating what I call cognitive capabilities, but it doesn’t tell us a lot about behavior and experiences. Given things like gamification, big data, predictive analytics, and all the technologies available now - are there other ways that we can develop tools to initially supplement the GMAT exam, but maybe even in the long term replace standardized testing? That is an important thing that we are looking at.
The other big change is the nature of selection. Selection is now a two way process. It used to be that there were a select number of highly selective schools and people from all over the world would apply to them. Now take an example of a student in India. It used to be that you had a couple of options in India, but most of the options were very big name schools in the West. That same individual can now take a look at US schools, European schools, Asian campuses of European schools, etc. What role does GMAC have in helping the student decide? Just like we’ve historically helped the schools make decisions, we are expanding and trying to bring both the schools and students together.
JF: What surprised you the most when you got here?
SC: Well, a couple of things. The amount of churn and turmoil that actually was going on in the industry surprised me. Also, GMAC had been losing money for a number of years, which was something that we had to deal with.
JF: So one of your concerns was financial?
SC: Dave, my predecessor, used to say, ‘Without a margin there is no mission.’ And he is absolutely right about that. We have to have a strong financial foundation to be able to do all the good work that we want to do. One of the things we really had to focus on was making a margin so we can do the research, we can do the professional development and we can invest in these future initiatives we have been talking about.
JF: Let’s talk for just for a minute about an article that was written not too long ago. It described the financial circumstances of GMAC and in particular the financials when it came to pay rates based on the 990 form. Take a second to talk about what that report had to say and what it really means.
SC: There are a few things that are going on. First the way that the form 990 is derived does not accurately reflect real compensation. For example, monies earned by a particular individual is reported twice – in the year in which it is accrued and the year it is paid out. So what happens is there is a fair amount of double counting.
Just using myself as an example, my W2, which as we all know is the reflection of the money that I got paid, was less than half the amount of what was reported in that particular article because of this double counting.
The second thing that has been going on is that we have been changing the nature of the organization. The number of executive staff at GMAC went down from 20 to 11. Our executive payroll declined by about 44%. It’s almost half what it was 2 ½ years ago. When you are taking 20 people down to 11, you have to work through people’s contracts, severance payments, etc.
The reality is that we now have about half the executive staff with competitive compensation systems. The board has been working very diligently with outside compensation consultants to benchmark compensation to external norms.
JF: Well, let’s take the last few minutes here to talk about the future. I have a series of questions, some of which you may have touched on briefly. In your mind who owns GMAC?
SC: The industry and that is a very nebulous thought. We are a membership organization so legally actually nobody – we don’t have stockholders who own us. Nor do members own GMAC in legal terms. We are an organization of the industry, for the industry, so the industry in its own amorphous sort of form ends up owning GMAC.
JF: So if the industry owns the organization, how does your leadership and vision reflect that fact?
SC: Well I have stood up in front of groups of people in the industry and said think of me as the Chief Marketing Officer of the industry. It is a little bit of a facetious point, but the point I’m trying to make is that GMAC is the candidate outreach organization of the industry. We are the primary communication point about the value of the industry itself, the value of GME, the value of the MBA, or the different masters programs offered.
A big thing that we are focusing around is what we call building the candidate pipeline. So as we were saying to an earlier point, we are not only a testing organization, we are a pipeline development organization.
JF: Here is my last question. At the end of every board meeting, back in the day when I sat on the board, it became our tradition to always ask at the end, what keeps you up at night?
SC: Relevance. How relevant is GMAC as an organization to the industry it serves, and how relevant are our products? I worry about the model by which we deliver standardized tests, and I worry about information between schools and students coming together. We do a lot of research into students’ mindsets and their attitudes about applying to business schools. It is primarily driven by anxiety, so how can we reduce that particular anxiety and how can we make the process of finding, selecting and applying to a business school more streamlined?
JF: Well Sangeet it has been a real pleasure.
SC: Thank you Joe.