Virtually everything our modern culture believes about the type
of leadership required to transform our institutions is wrong.
It is also dangerous. There is perhaps no more corrosive trend
to the health of our organizations than the rise of the celebrity
CEO, the rock-star leader whose deepest ambition is first and
In 1996, my research team and I began to wrestle with a simple
question: Can a good company become a great company and, if so,
how? If we could find organizations that had made the leap from
good to great and isolate the factors that distinguished these
examples from carefully selected comparison companies that failed
to make the leap (or if they did, failed to sustain it), we would
shed light on the key variables that separate great from good.
We embarked on a five-year study to answer this one deceptively
simple question, examining merely good performers that had somehow
transformed themselves to achieve truly great results. (We defined
"great results" as cumulative stock returns at least 3.0 times
better than the general stock market over fifteen years, a performance
superior to most widely admired companies. For perspective, General
Electric from 1985 to 2000 beat the market only 2.8 to 1.)
We uncovered a number of key requirements and underlying variables
for turning a good company into a great one. But perhaps the most
intriguing—and certainly the most surprising—is the type of leadership
that turns good into great.
Consider Darwin E. Smith. In 1971, this seemingly ordinary man
became chief executive of Kimberly-Clark. He inherited a company
that for one hundred years had been merely good, never great.
A mediocre player in the middling paper industry, Kimberly-Clark
returns to investors had fallen 36 percent behind the general
stock market over the twenty years prior to Darwin Smith's ascension
to CEO. Over the next twenty years, Smith led a stunning turnabout,
generating returns to investors that beat the general stock market
by over four times, easily outperforming such companies as Hewlett-Packard,
General Electric, and Coca-Cola.
Have you ever heard of Darwin Smith? Despite being one of the
greatest CEOs of the twentieth century, he remains largely unknown.
A shy and reserved man, Smith shunned any attempt to shine the
spotlight on him, preferring instead to direct attention to the
company and its people. He showed none of the swagger that characterizes
many of today's high-profile CEOs, and he never viewed himself
as a great hero. Early in Smith's tenure as CEO, a director pulled
Smith aside to remind him that he lacked some of the qualifications
for the position (he had been corporate counsel and had never
run a major division). Smith, a man who never entirely erased
his own self-doubts, later summed up his tenure by saying simply,
"I never stopped trying to become qualified for the job."
Yet despite his shy and self-effacing nature, Smith was anything
but weak. When it came time to make the big decisions required
to make the company great, he made them. Early in his tenure,
he unflinchingly decided to sell all the traditional paper mills,
which accounted for the majority of Kimberly-Clark's business—sell
even the namesake mill in Kimberly, Wisconsin—and throw all the
money into the consumer business, investing in brands like Huggies
and Kleenex. It was a huge and painful step. Coming home from
work during this particularly difficult period, a wearied Smith
said to his wife, "It's really tough. But if you have a cancer
in your arm, then you've got to have the guts to cut off your
Wall Street derided him, the business media called the move stupid,
and the analysts wrote merciless commentary. After all, how on
earth could such a mediocre paper company take on the giants of
the consumer business? But in the end, Smith's stoic resolve paid
off. Kimberly-Clark became the number one paper-based consumer
products company in the world, eventually beating Procter & Gamble
in six of eight product categories and owning outright its previous
main competitor, Scott Paper. I think we can safely say that Darwin
Smith did indeed become qualified for the job.
Level 5 leadership: The antithesis of
If you want to grasp the essence of the type of leader who turns
good into great, just keep in mind Darwin Smith. It turns out
that every good-to-great company in our study had a leader from
the Darwin Smith school of management at the helm during the pivotal
We eventually came to call these remarkable people "Level 5 leaders
The term "Level 5" refers to a five-level hierarchy. Level 1 relates
to individual capability, Level 2 to team skills, Level 3 to managerial
competence, and Level 4 to leadership as traditionally conceived.
Level 5 leaders
possess the skills of levels 1 to 4 but also have
an "extra dimension": a paradoxical blend of personal humility
("I never stopped trying to become qualified for the job") and
professional will ("sell the mills"). They are somewhat self-effacing
individuals who deflect adulation, yet who have an almost stoic
resolve to do absolutely whatever it takes to make the company
great, channeling their ego needs away from themselves and into
the larger goal of building a great company. It's not that Level
have no ego or self-interest. Indeed, they are incredibly
ambitious—but their ambition is first and foremost for the
institution and its greatness, not for themselves.
David Maxwell, the good-to-great CEO at Fannie Mae in the 1980s
and early 1990s, was another such leader. He took over a bureaucratic,
quasi-governmental entity losing $1 million every single business
day and turned it into one of the smartest, best-run financial
institutions in the world, earning $4 million every business day.
Fannie Mae cumulative stock returns beat the general stock market
by nearly four times under Maxwell, and he set the stage for the
next generation to continue the momentum, eventually outperforming
the market by over seven times.
When his nearly $20 million retirement package became a point
of controversy in Congress (Fannie Mae is subject to congressional
oversight due to its government charter), Maxwell became concerned
that the controversy might damage the company's future. So he
instructed his successor to not pay him the remaining third of
his package and to donate it instead to the Fannie Mae foundation
for low-income housing.
Like all Level 5 leaders
, Maxwell wanted to see the company become
even more successful in the next generation than in his own. Preferring
to be clock builders rather than time tellers, Level 5 leaders
are comfortable with the idea that their companies will tick on
without them, reaching even greater heights due to the foundations
they laid down. The fact that most people will not know that the
roots of that success trace back to them is not an overriding
concern. As one Level 5 leader
put it, "I want to look out from
my porch at one of the great companies of the world and be able
to say, 'I used to work there.'"
It is not surprising, then, that some of the greatest CEOs of
the last forty years—those few extraordinary executives who led
companies from good to great using our tough benchmarks—are relatively
unknown. In addition to Darwin Smith and David Maxwell, they include
such obscure figures as George Cain, Alan Wurtzel, Colman Mockler,
Lyle Everingham, Fred Allen, Joe Cullman, Carl Reichardt and Charles
Walgreen III. These and other leaders in our study quietly went
about building greatness step by step, without much fanfare or
hoopla, while generating results that are extraordinary by any
standard. If you had had an opportunity to invest in each of the
good-to-great companies at the point of upward inflection created
by these leaders and held your investments to 2000, your total
returns would have exceeded those of a comparable investment in
a mutual fund of the general stock market by well over eight times.
Yet despite these remarkable results, almost no one has ever remarked
about these leaders. The media paid scant attention, and you'll
find very few articles ever written about them.
In contrast, the comparison leaders in our study—people like Al
Dunlap of Scott Paper (the comparison company to Kimberly-Clark)
), Lee Iacocca of Chrysler (a company that failed to make a sustained
shift from good to great) and Stanley Gault of Rubbermaid (a company
that imploded after Gault departed)—garnered vastly more attention.
Some of the comparison CEOs became wealthy celebrities—covers
of magazines, bestselling autobiographies, massive compensation
packages—despite the fact that their long-term results failed
to measure up to the quiet, unknown Level 5s. In over two-thirds
of the comparison companies, we noted the presence of a gargantuan
personal ego that contributed to the demise or continued mediocrity
of the company. These leaders were ambitious for themselves, and
they succeeded admirably on this score, but they failed utterly
in the task of creating an enduring great company.
Looking for Level 5 leaders
The implications are obvious. Boards of directors and executives
planning for succession would do well to search for the type of
leadership— Level 5 leadership
—correlated with the best and most
enduring results. To do otherwise is to sacrifice long-term effectiveness
for short-term expedience, which is tantamount to an act of irresponsibility
on behalf of a company's constituents, including its shareholders.
To be clear, Level 5 leadership
is not the only requirement for
taking a company from good to great and for sustaining greatness
once it is attained, but it does appear to be essential.
So, how should we go about identifying Level 5 leaders
The key step is to stop looking for outsized personalities and
egocentric celebrities, and instead to scrutinize for results.
Look inside for some part of the organization where extraordinary
results have been produced but where there is no person standing
forth to take excessive credit for those results. Look there and
you will likely find a Level 5 leader. And if you feel you must
look to the outside (which the good-to-great companies almost
never did), then look for people who show the following traits.
Two sides of the Level 5 leader
On the one hand
Creates—and is a clear catalyst in creating—superb
results. Yet on the other hand
Demonstrates a compelling
modesty, shunning public adulation and never boastful.
On the one hand
Demonstrates an unwavering resolve to do
whatever must be done to produce the best long-term results, no
matter how difficult. Yet on the other hand
Acts with quiet,
calm determination and relies principally on inspired standards—not
an inspiring personality—to motivate.
On the one hand
Sets the standard of building an enduring
great organization and will settle for nothing less. Yet on the
Channels ambition into the organization and its
work, not the self, setting up successors for even greater success
in the next generation.
On the one hand
Looks in the mirror, not out the window,
to apportion responsibility for poor results, never blaming other
people, external factors, or bad luck. Yet on the other hand
Looks out the window, not in the mirror, to apportion credit for
the success of the companyto other people, external factors,
and good luck.
I used to think of these leaders as rare birds, almost freaks
of nature. But then a funny thing happened after a seminar where
I shared the Level 5 finding and bemoaned the lack of Level 5
leaders. After the session, a number of people stopped by to give
examples of Level 5 leaders
they'd observed or worked with. Then
again, at another seminar, the same thing happened. Then again,
at a third seminar—and a pattern began to emerge.
It turns out that many people have experienced Level 5 leadership
somewhere in their development—a Level 5 sports coach, a Level
5 platoon commander, a Level 5 boss, a Level 5 entrepreneur, a
Level 5 CEO. There is a common refrain: "I couldn't understand
or put my finger on what made him so effective, but now I understand:
he was a Level 5." People began to clip articles and send e-mails
with examples of people they think of as Level 5 leaders, past
or present: Orin Smith of Starbucks Coffee, Joe Torre of the New
York Yankees, Kristine McDivitt of Patagonia, John Whitehead of
Goldman Sachs, Frances Hesselbein of The Drucker Foundation, Jack
Brennan of Vanguard, John Morgridge of Cisco Systems, former Secretary
of State George Shultz, and so on. My list of Level 5 leaders
began to grow exponentially.
Then it dawned on me: Our problem is not a shortage of Level 5
. They exist all around us. Like the drawing of two faces
that transforms itself into a vase, depending on how you look
at the picture, Level 5 leadership
jumps out at us as soon as
we change how we look at the world and alter our assumptions about
how it best works.
No, our problem lies in the fact that our culture has fallen in
love with the idea of the celebrity CEO. Charismatic egotists
who swoop in to save companies grace the covers of major magazines
because they are much more interesting to read and write about
than people like Darwin Smith and David Maxwell. This fuels the
mistaken belief held by many directors that a high-profile, larger-than-life
leader is required to make a company great. We keep putting people
into positions of power who lack the inclination to become Level
5 leaders, and that is one key reason why so few companies ever
make a sustained and verifiable shift from good to great.
The fact that our culture has evolved away from Level 5 leadership
however, does not mean that the culture is right or that we should
accept it. After all, our culture in the 1990s also embraced the
idea of irrational exuberance and infused people with the idea
that they could—indeed should—get rich quick by creating companies
that were Built to Flip rather than Built to Last. The culture
was neither right nor healthy, and we would have done better to
reject that culture and hold to fundamental tenets of creation
and value that we knew in our guts to be eternally true. The same
holds for our current misguided confusion of celebrity and leadership;
it is neither right nor healthy. If we allow the celebrity rock-star
model of leadership to triumph, we will see the decline of corporations
and institutions of all types. The twentieth century was a century
of greatness, but we face the very real prospect that the next
century will see very few enduring great institutions. If good
is the enemy of great—and I believe it is—the current trends in
leadership give the decided edge to the enemy.
Yet I remain optimistic. For one thing, I sense an increasing
societal unease with the emergence of celebrity leaders who care
more about themselves than they do about the institutions for
which they are responsible. Smart people instinctively understand
the dangers of entrusting our future to self-serving leaders who
use our institutions—whether in the corporate or social sectors—to
advance their own interests. For another, we now have hard empirical
evidence that shows such leaders to be negatively correlated with
sustained great results, and this evidence should bolster courageous
boards of directors. Finally, and perhaps most important, I am
absolutely convinced that the seed of Level 5 leadership
dispersed throughout society. It can be identified. It can be
cultivated. It can be developed. Given encouragement and the right
tools, it can flourish. And if it does, so will our institutions.
Copyright © 2001 Jim Collins, All rights reserved.