Steven Preston is not one to refuse a thankless task. While transitioning out of the CFO role at $3.6 billion ServiceMaster, he agreed to stay on after the implosion of the firm’s auditor, Arthur Andersen, and then through what he calls the Sarbanes-Oxley “implementation war.”
But then came an opportunity to make a different contribution, Preston says, in a job described to him as a “higher calling”: heading up the Small Business Administration (SBA), the federal agency that guarantees bank-originated small-business loans, conducts lending in disasters, and ensures small businesses get their cut of government contracts. In July 2006, Preston took on what has to be one of the toughest jobs in the country.
Best known as the organization that botched the federal government’s response to the 2005 Gulf Coast hurricanes, the SBA has the lowest employee morale of any agency and has been on the verge of closing for the last 20 of its 54 years. It has a multitude of missions, having been created by Herbert Hoover in 1932 as the Reconstruction Finance Corp., charged with lending to businesses hurt by the Great Depression. Congress has been adding to the SBA’s duties ever since.
Coming over from the private sector, Preston says his biggest challenge as SBA administrator has been transforming the organizational mind-set into one that is “accountability-driven.” In just a year and a half, the 47-year-old Preston has tried to refocus the agency on the customer, overhaul processes, set controls, and initiate audits. Complicating the task, the agency’s workforce has been slashed by 27 percent since 2002 even as its workload — measured by number of loans — has grown by 93 percent.
“I think he’s been honest and a fair person,” says Sen. John Kerry (D–Mass.), chairman of the Committee on Small Business and Entrepreneurship. “Unfortunately for him, he inherited a troubled organization.”
Preston joined the agency at a particularly low point. In 2005 it had received 420,000 loan applications from victims of hurricanes Katrina, Rita, and Wilma — twice the number triggered by the Northridge earthquake of 1994, the second-largest disaster-lending event. (As a result of this year’s California wildfires, in contrast, by early December the SBA had approved only 415 loans, worth $49.3 million.
When Preston came aboard, the SBA was still mopping up and trying to get checks to hurricane victims. Constraints in the agency’s disaster-credit management system and delays in staff hiring meant that homeowner and small-business applicants had to wait an average of 71 days for decisions on loans, instead of the standard 14 to 18 days.
It was a difficult situation for an executive indoctrinated in the “service profit chain” theories that came out of Harvard in the late 1990s. In the service profit chain, profit stems from customer loyalty, which depends on customer satisfaction, which is driven by satisfied and productive employees who have the right tools. In its current crisis, the SBA represented exactly the opposite.
Preston has moved quickly to apply the service-profit-chain principle to the operating model used by the disaster-lending division. He has created case managers and grouped credit analysts, lawyers, and clerical workers into teams working on individual loans for homeowners and businesses. “It’s basically a surge-and-decline lending operation” that must be put in place on a day’s notice, he says. “I think we have the credit skills and the field organization now.”