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Capital One Hack Puts Low-Profile CEO in Spotlight

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Richard Fairbank, the founder of

Capital One Financial
Corp.


COF -1.16%

and the only chief executive the bank has ever had, expanded it into one of the biggest in the U.S. His mettle will now be tested in the company’s biggest crisis.

Capital One is under scrutiny after a hacker exposed the personal information of some 106 million people, raising questions about the technology Mr. Fairbank has extolled and the bank’s ability to manage it safely. Lawmakers are seeking more information on the breach. Shares have dropped 7% since the hack was disclosed.

It is an unprecedented test for Mr. Fairbank, 68 years old, who has largely stayed out of the spotlight since becoming CEO of Capital One 25 years ago and expanding it into the nation’s fifth-biggest credit-card issuer.

“He is a visionary,” said Warren Kornfeld, a credit analyst at Moody’s Investors Service. “Without that vision, there’s a level of uncertainty as to whether the bank can continue being a trailblazer with respect to technology and credit.”

Mr. Fairbank and his top executives had long developed a game plan for a big hack, studying what he saw as weaknesses in responses from other banks and companies, said people familiar with the matter. After Capital One was hacked, he pushed to move quickly to disclose what the bank could. He carefully crafted, editing several times, personal apologies to customers and employees, a spokeswoman said.

“This is a defining moment for us to put our values on display and to be swift, open, and profoundly empathetic,” he wrote to employees in an internal note the day the bank disclosed the problem. Mr. Fairbank declined through a spokeswoman to be interviewed for this story.

Capital One’s Richard Fairbank joined District of Columbia Mayor Anthony Williams and actor Bruce Willis in announcing support for foster children in December 2004.


Photo:

Shaun Heasley/Getty Images

In 2017, after a breach at credit-reporting company

Equifax
Inc.,

Mr. Fairbank talked about the ripple effects on Capital One and other card companies that would end up paying for it through reissuing cards and dealing with other customer problems. “A lot of people are going to have to live the pain of this,” he said at a conference at the time.

Capital One started moving reams of customer information onto

Amazon.com
Inc.

’s cloud services about five years ago, making it one of the first big banks to do so. The hacker accused of breaking into Capital One’s data is a former employee of Amazon Web Services Inc., which hosts much of Capital One’s tech infrastructure. Capital One has said that the hack wasn’t a result of the cloud itself and that the cloud helped it respond to the hack.

Mr. Fairbank’s mantra is to be “strategically bold but risk averse,” according to people close to him. The rise of financial-technology firms in the wake of the financial crisis gave him a sense of urgency to keep his bank ahead of rival startups and experiment with different ways to attract customers.

Unlike many U.S. card issuers, Capital One lends to what are known as subprime borrowers with flawed credit histories, as well as wealthy customers.

Even so, the bank escaped the financial crisis relatively unscathed. Mr. Fairbank, who mostly avoids the media, wasn’t publicly grilled by Congress in the crisis and its aftermath.

Inside the company, though, Mr. Fairbank is a magnetic figure. Each year he hosts employee town halls across the country. Tickets to watch in person are usually snapped up in minutes.

Early years included acrobats and inflatable dancers more common at used-car dealerships. Now they focus largely on Mr. Fairbank, who can hold stage for hours.

The CEO is known as both a geek who can talk in detail about credit-card laws and bank technology, and a visionary who speaks in airy terms about dreams and revolutions.

Mr. Fairbank, married to his college sweetheart and the father of eight, sometimes leaves in the middle of meetings to attend his children’s sporting events. He took up hockey when his older boys first started playing.

Capital One expanded its reach when it acquired Hibernia Corp. in 2005. Richard Fairbank of Capital One, right, negotiated the deal with Hibernia CEO J. Herbert Boydstun.


Photo:

Ted Jackson/The Times-Picayune/ASSOCIATED PRESS

He didn’t always plan to go into banking. He has often said he planned to work with children, and after graduating from Stanford University in 1972 he worked with youth swimmers.

Mr. Fairbank was a young management consultant working for banking clients when he started to question why card issuers gave the same terms to virtually all of their customers.

Mr. Fairbank and a colleague, Nigel Morris, thought banks could use consumer data to better target and keep customers. They found a willing partner in Signet Bank, a small lender in Richmond, Va., in 1988.

Signet workers usually erased tapes filled with customer data once they were full and reused them, according to a 2001 Harvard Business School case study. Messrs. Fairbank and Morris set about to change that. They compiled data from thousands of tests mailed to consumers and matched it with demographics and other statistics. They experimented with rates and deals common today, such as balance transfers, and examined whether people were more likely to respond to mailers based on the color of the card.

Signet spun out Capital One into a public company in 1994.

Mr. Fairbank has been willing to experiment, but not always successfully. Capital One launched a mobile-phone subsidiary, America One, in the 1990s, but shut it down after it proved unprofitable.

The bank’s stock soared during Capital One’s first decade. Losses this week pushed it back below its precrisis peak in 2006. That was around the time the bank started an acquisition spree.

Still, shares have outperformed other banks since the financial crisis.

Share Your Thoughts

Does CEO Richard Fairbank deserve the blame for Capital One’s data breach? If not, who does? Join the conversation below.

Mr. Fairbank owns about 1% of the bank’s stock. He hasn’t taken a cash salary in more than 20 years, instead earning stock-based incentive payments.

A Wall Street Journal analysis ranked him as the fifth-highest-paid CEO of the decade ended in 2010. Executive-pay research firm Equilar estimates he has earned $323 million over the past decade.

Write to David Benoit at david.benoit@wsj.com, Ben Eisen at ben.eisen@wsj.com and AnnaMaria Andriotis at annamaria.andriotis@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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