Magazine Feature Story

*Pointing To New Leaders*

**By Barbara Perino and Rebecca Walzak**

***Last month we took a look at the innovative needs within the industry and recognized that there is an urgent need and many opportunities for emerging technologies and business models. However, moving from the recognition of need and the current available opportunities to taking advantage of them is a long way from the actual implementation and acceptance of change. So why are some companies better at this than others? Or are there some leaders that are so very innovative themselves that they naturally lead their employees to innovation? Is there such a thing as being an “Innovative Leader” or are the leaders of companies that bring us innovation just in the right place at the right time? And, if innovative leadership is real, what does it look like and how can today’s mortgage leaders lead the charge to make this industry better? 

****Leadership – what it is, why it works and what makes a leader has been the study and discussion topic of numerous papers, books, classroom lectures and boardroom arguments. Yet the reality is that leaders and leadership have been around since history has been recorded. Some individuals are often used as examples of “good” leadership and others are case studies in leadership failure. Is leadership a matter of “time and place” or do “leaders” utilize their time and place as a catalyst for taking the lead? What makes some individuals credible as leaders and others failures? 

****In 2008, James M. Kouzes and Barry Z. Posner published a book called The Leadership Challenge (4thed.;Jossey-Bass) in which they examined numerous attributes often associated with modern leadership. While competency within a chosen field was high on the list, it was not the overriding measure of good leadership. Instead they found a series of leadership practices that appearedconsistently in leaders deemed to be the “best”. These practices, none of which refer to competency in the area of leadership, include:

****>> Modeling the Way

****>> Inspiring a Shared Vision

****>> Challenging the Process

****>> Enabling Others to Act

****>> Encouraging the Heart

****So what then do these attributes look like in practice and is there a relationship between these practices and the ability to lead an industry to redefine itself; to re-emerge from a firestorm of global failure? 

****Examples of Leadership: While there are many well-known leaders who could be used as an example, most people don’t envision themselves as the next Steve Jobs or Jack Welch. There are however numerous examples of leaders that embody these practices in our everyday lives. One such example is the principal of a high school in one of the largest school districts in the country. The high school was in a multi-racial neighborhood which was located on the outskirts of a major metropolitan area and attracted families who had recently emigrated from other countries. In order to facilitate non-discrimination policies the school also offered several magnet programs which brought in students from multiple other neighborhoods. As a result, the school of 2400 had a mix of students that encompassed equal percentages of whites and minorities. To further complicate the situation, many of these minorities did not speak English as their native language. A leadership challenge if there ever was one, yet the school was one of most highly regarded schools in the system and often the focus of television reports and studies on educational success. 

****The individual charged with the leadership had a long tenure as an educational administrator, but he also exhibited the practices of credible leadership. He set high goals and standards for everyone, students, teachers, administration and support staff and provided constant reminders of them, frequently walking the halls encouraging and controlling at the same time. He would never ask any staff member to do something he hadn’t or wouldn’t do himself. While acknowledging the standards and limitations imposed by budgetary restraints, he found innovative ways to supplement the school funds to ensure that teachers had supplemental resources necessary to provide extraordinary opportunities to students. And when it came time to act, when a crisis occurred, he gathered his staff, listened to their ideas and jointly developed a plan of action. Once decided, the staff were charged with “making it happen” allowing them to feel valued as a key part of the solution and the organization. 

****As this example demonstrates, leadership is not limited to CEO’s of big companies but in fact can occur at any level within an organization. Today’s mortgage lenders, executives, vendors and all ancillary service providers could and should be providing this type of leadership. But does that really address the issue of how to identify and support the innovations that are critical to redefining and supporting the new mortgage lending industry? Where does the innovation come from? 

****What Makes A Leader Innovative? Leaders often challenge the status quo and are willing to implement incremental changes such as advanced technology and associated business processes. Innovative leadership however goes beyond this level and leads changes in the way things are done; identifies innovative ideas or encourages and rewards staff for promoting these innovations. Innovation requires taking risks that may or may not provide the expected level, or any level, of reward.  

****There are without a doubt some individuals whose leadership has resulted in innovative ideas, concepts and products. In examining these individuals it became apparent that there were some elements of their leadership style that went beyond those identified by Kouzes and Posner. 

****The first of these was being open to radical ideas. Too often leaders view their job as occurring within the confines of what exists, or is expected, of the industry in which they reside. The idea of radically changing this framework is terrifying to them since it takes them outside the known and into the unknown. Failure is definitely a possibility and losses rather than profits can have serious consequences. There are however, organizations that exist entirely to promote radical change. Look at the concept of the “X-Prize”. The X-Prize foundation is a group “whose mission is to bring about radical breakthroughs for the benefit of humanity, thereby inspiring the formation of new industries and the revitalization of markets that are currently stuck due to existing failures or a commonly held belief that a solution is not possible.”Today the X- Prize Foundation is widely recognized as the leader in fostering innovation through incentivized competition.

****Zappo Shoes CEO Tony Hsieh is a firm believer in the need to embrace and drive change. He encourages anyone with a different idea to “run with it” even if it is not within his general area of responsibility. He is also bucking the trend of using “social media” as a primary means to sell his product. Rather he focuses his staff on PEC; personal, emotional connections. As he has recognized, innovation sometimes means an “old” new. 

****While not viewed as an attempt to innovate the industry in the same scope as the X-Prize foundation, our industry has experienced different innovations that have evolved into accepted ways of doing business. One prime example is the Automated Valuation Model or AVM. The idea of utilizing millions of data sets on property values to calculate the value of another was radically different at the time when it was believed that only an individual conducting an on-sight review of the property could be reasonably accurate. Then Dr. Michael Sklarz, a statistician with a long involvement in the appraisal evaluation field developed the idea that statistical methods could be applied to this data to create a valuation that provided better results and also reduced the time and inherent bias involved in the manual process. This radical concept was not immediately embraced by the industry, but over time it has come to be a mainstay for determining valuation and in many cases, proven more accurate than having an individual conduct the analysis. 

****While not specifically developed for mortgage lending, the development of a borrower credit score that could be used to assist in predicting the probability that a borrower would repay his or her debt was also radical thinking. Conducting the studies, creating the score and supporting it while the consumer lending industry adopted it required a long-term leadership commitment.

****One of the more expansive views of innovation is recognizing the opportunity to drive societal change. There is no doubt that the technology advances have clearly changed the way that society communicates and relates to each other. The opportunities to expand an individual’s circle of influence expand exponentially every day. But not all innovative leadership is at this level. Innovations at a smaller level can also be powerful and not only require the type of innovative leadership we have been discussing but actual hands on action to make the innovation a reality.

****Take Sharon Quercioli for example. She has started several different companies all based on ideas that she developed after recognizing a need and/or opportunity. Her latest venture was the development of paper with flower seeds embedded in it. This paper can be used just as any other paper would be, but when finished with it, it can be planted and produce flowers rather than being thrown away and added to a mountain of trash. 

****So What Does All This Mean? Based on this research it is clear that an innovative leader needs to be more than just a good leader. It means expanding each of the attributes of good leadership until they are attributes on steroids. 

****Where a leader must be the model for how the organization is to treat its customers and its employees, an innovative leader will break the status quo to generate, as Tony Hsieh says, the actions that result from the implementation of whatever innovative idea you believe in.

****Leaders must challenge the process and develop a vision to be shared with employees, but an innovative leader will see opportunities to turn the process upside down and be willing to take the risk that goes with making those changes. Innovative leaders not only enable others to act, but encourage and reward the creativity associated with developing innovative ideas. Just as the X-Prize is the world leader in incentivized innovation, innovative leaders must be willing to foster and support radical changes within their organizations. 

****Finally, while passion for the objective is important to a leader, it is the driver behind innovation. From the global innovations of communication to the deeply personal drive to turn trash to flowers, passion for what you plan to achieve must be worn in the open, right on the sleeve.  

****Where Are The Mortgage Industry’s Innovative Leaders? One thing the research for this article did not find was an example of an innovative leader in this industry. Sure, there are some great examples of innovative applications for supporting the industry or providing ancillary services, but none that get to the heart and soul of our business. Instead it appears that industry leaders are so concerned about what is going to come out of all the regulations that they have failed to look ahead, to recognize that there will be an end to the tunnel and that we need to start looking now for the light at that end. 

****If innovative leaders challenge the process, where are the individuals that are leading the charge for a lending process that radically changes the way we do business; refocuses our origination process from an inquisition of potential borrowers to a personal, emotional connection that addresses the frustrations verbalized over the past few years. 

****Servicing, which has been a stagnant, inefficient process with numerous flaws, has gone through a public exposure of these problems that makes Tiger Woods’ problems seem minor in comparison. Yet there is no leader of a servicing organization that has publically acknowledged that the process is so flawed that it cannot be corrected, but re-designed. 

****We need innovative leadership. We need a leader, whether it be a super-sized lender or a small origination or servicing shop to stand up and model an innovative way to make this industry work again. Maybe the creation of an “X-Prize” incentive program would force our thoughts and ideas toward the future? Or maybe it will come down to those in the industry who embrace and drive change, who will be the survivors. Unfortunately those who fail to understand and adapt, who fail to become innovative leaders, will become stories of the past for our grandchildren’s entertainment. 

****ABOUT THE AUTHOR: Barbara Perino is a Certified Professional Co-Active Coach guiding her

clients who are executive leaders and their staff. Barbara has been trained

through The Coach Training Institute (CTI) located in San Rafael, CA. She

completed a Coaching Certification Program through CTI and the International

Coaching Federation (ICF). Prior to becoming a coach, Barbara was

a 16-year veteran of the residential mortgage industry in a national sales

management capacity for property valuation and residential mortgage service providers.

****ABOUT THE AUTHOR: rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak,

a leader in operational risk management programs in all areas of

the consumer lending industry. In addition to consulting experience in

mortgage banking, student lending and other types of consumer lending,

she has hands on practical experience in these organizations as well

having held numerous positions from top to bottom of the consumer

lending industry over the past 25 years.