Garth Graham

In my last column, I spoke favorably about Carly Fiorina’s ability to communicate and what mortgage loan officers can learn from it. However, as Fiorina demonstrated for us during her tenure at Hewlett-Packard, it takes more than being a good communicator to be a good leader.

One of the most powerful tools of a good leader is corporate culture. In fact, there is a great book called “Culture Trumps Everything” by Dr. Gustavo Grodnitzky which makes the compelling case that the cultivation of a strong corporate culture is probably the most important job for a good leader. Conversely, the wrong culture can destroy a company.

Most of the feedback from my last column, which discussed Fiorina's strong performance in the Republican primary debate, came from people saying she destroyed HP and shouldn’t be lauded for anything she does. However, she did demonstrate well the concept that "less is more" when she responded to a churlish comment from Donald Trump with a single statement. We have all watched her use her ability to communicate effectively on the debate stage, allowing her to come across as very credible and effective.

So, what went wrong at HP?

From the beginning, Bill Hewlett and Dave Packard set out to build their company, HP, around a very specific corporate culture, one they spelled out clearly and communicated continuously.

The "HP Way" was built on a culture of trust and respect for individuals, a high level of achievement and contribution, uncompromising integrity, the pursuit of common objectives through teamwork, flexibility and innovation and a flat management hierarchy. It worked. By 2000, HP was the fastest growing maker of personal computers in the world. Its market share ranked only behind IBM and Compaq and its stock price was over $75 per share. Ten years later, its stock had lost 70% of its value.

Things started down the wrong path in 1999, when the company replaced its retiring culture-centric leader with an outsider by selecting Carly Fiorina as the new chief executive officer. She had built her reputation by being a fierce competitor in a more cutthroat culture at Lucent Technologies Inc., and brought that attitude to HP. She accepted the position and, in a series of missteps that ran counter to the HP culture, sent the company on a course from which some still believe it will never recover.

At the recent Mortgage Bankers Association Annual convention in San Diego, Bill Emerson was installed as the organization’s new Chairman. He and Executive Director David Stevens gave great speeches about two critical factors for success for our industry.

Mr. Emerson invoked the words of Bob Seger as he encouraged our industry (and our regulators) to turn the page rather than continue to dwell on the sins and the practices of the past. But Mr. Emerson also spoke about culture, and specifically the value of culture as a driving force behind the success of Quicken Mortgage.

What is interesting to me is that those two things sort of go hand-in-hand, because for mortgage executives it may be easy to say (or sing) "turn the page" but you need to have a company that is ready to turn the page with you, and a big part of that is having a culture that embraces that type of change.

By appointing Fiorina, the board had signaled that HP was ready to "turn the page," as Bob Seger and Bill Emerson might put it. Fiorina took that to heart and set out to "reinvent" HP. She shifted the company’s culture from the traditional HP way into a more competitive, sales-based culture where the bottom line far exceeded innovation in importance. By August of 2001, the company was forced to lay off 6,000 workers. Shortly afterward, it agreed to a merger with Compaq that put the final nails into the HP Way coffin.

Some will argue that this was all for the best and that the company needed to abandon its quaint ideas about teamwork and cooperation. It’s hard to look beyond the stock price for an answer and the only answer we find there is that this was a huge mistake for the board and a failure for Carly Fiorina. So what can our industry learn from it?

The first lesson is that a leader, especially if they are an expert communicator, can single-handedly change a corporate culture. That can be a positive, if the change is one that is embraced by those in the organization. But it can also completely tank morale, as well as the performance and effectiveness of the organization. That is not turning the page — that is slamming the book shut.

For the mortgage industry, now may be the time to decide how we want to turn the page, and decide what kind of corporate culture we want to build in our businesses. We can no longer afford to build our businesses around concepts that don’t serve us or the consumers we serve — certainly not under the careful review of the new federal regulator. A return to the pre-crash days of building origination businesses around the appetite of Wall Street conduits is not likely to be effective in meeting the goals of serving customers in a way that ensures compliance with Consumer Financial Protection Bureau requirements.

Every leader reading this column should take some time to think about the culture they are building in their enterprises today. Interest rates remain low and demand for mortgage product is increasing as property values recover. But how many loans do you have to write to make a profit if each loan costs you more than $7,000 to originate? And what happens if business gets tougher? We’re no longer operating in a business that rewards volume over quality or customer experience. So, how will you turn the page?

Ultimately, the corporate culture lenders build must be worthy of the borrower’s trust. That’s what HP had in its heydey. Mortgage lenders who can do that will build the kind of company that will thrive despite everything, including market conditions.

That’s the real Carly Fiorina disaster. She didn’t understand the concept of trust, or at least considered it less important than competitive advantage. That was clear when she went to HP’s employees and asked them to take pay cuts while spending $200 million on a rock star CEO ad campaign. She didn't tell them about the potential for the Compaq deal, and then did it anyway. Finally, she violated the trust of the HP Board of Directors, which sealed her fate.

In turning the page in our business, let’s make sure we don’t make the same mistakes.

Garth Graham is a partner with Stratmor Group and has more than 25 years of mortgage experience.