essay

66 HARVARD BUSINESS REVIEW

LEVEL 5 LEADERSHIP

T H E T R I U M P H OF HUMILITY AND FIERCE RESOLVE

by Jim Collins

What catapults a company from merely

good to truly great? A five-year research

project searched for the answer to that

question, and its discoveries ought to

change the way we think about leadership.

The most powerfully transformative

executives possess a paradoxical mixture

of personal humility and professional will.

They are timid and ferocious. Shy and

fearless. They are rare-and unstoppable.

JANUARY 2001 67

Level 5 Leadership

IN 1971, a seemingly ordinary man named Darwin E.Smith was named chief executive of Kimberly-Clark,a stodgy old paper company whose stock had fallen 36% behind the general market during the previous 20 years. Smith, the company's mild-mannered in-house lawyer, wasn't so sure the board had made the right choice - a feeling that was reinforced when a Kimberly- Clark director pulled him aside and reminded him that he lacked some of the qualifications for the position. But CEO he was, and CEO he remained for 20 years.

What a 20 years it was. In that period. Smith created a stunning transformation at Kimberly-Clark, turning it into the leading consumer paper products company in the world. Under his stewardship, the company beat its rivals Scott Paper and Procter & Gamble. And in doing so, Kimberly-Clark generated cumulative stock returns that were 4.1 times greater than those of tbe general market, outperforming venerable companies such as Hewlett- Packard, 3M, Coca-Cola, and General Electric.

GOOD-TO-GREAT TRANSFORMATIONS

DON'T HAPPEN WITHOUT LEVEL 5 LEADERS

AT THE HELM. THEY JUST D O N ' T .

Smith's turnaround of Kimberly-Clark is one the best examples in the twentieth century of a leader taking a company from merely good to truly great. And yet few people - even ardent students of business history - have heard of Darwin Smith. He probably would have liked it that way. Smith is a classic example of a Level 5 leader-au individual who blends extreme personal humility with intense professional will. According to our five-year re- search study, executives who possess this paradoxical com- bination of traits are catalysts for the statistically rare event of transforming a good company into a great one. (The research is described in the sidebar "One Question, Five Years, Eleven Companies.")

"Level 5"refers to the highest level in a hierarchy of ex- ecutive capabilities that we identified during our re- search. Leaders at the other four levels in the hierarchy can produce high degrees of success but not enough to el- evate companies from mediocrity to sustained excellence. (For more details about this concept, see the exhibit "The Level 5 Hierarchy.") And while Level 5 leadership is not

Jim Collins operates a management research laboratory in Boulder, Colorado. He is a coauthor with Jerry I. Porras of Built to Last: Successful Habits of Visionary Companies (HarperBusiness, J994)- The ideas in this article will appear in his new book Good to Great, which will be published by HarperBusiness in 2001. Collins can be reached atjcc5i2@ aol.com.

the only requirement for transforming a good company into a great one - o t h e r factors include getting the right people on the bus (and the wrong people off the bus) and creating a culture of discipline-our research shows it to be essential. Good-to-great transformations don't happen without Level 5 leaders at the helm. They just don't.

Not What You Would Expect Our discovery of Level 5 leadership is counterintuitive. In- deed, it is countercultural. People generally assume that transforming companies from good to great requires larger-than-life leaders - big personalities like Iacocca, Dunlap, Welch, and Gault, who make headlines and be- come celebrities.

Compared with those CEOs, Darwin Smith seems to have come from Mars. Shy, unpretentious, even awkward, Smith shunned attention. When ajoumalist asked him to describe his management style. Smith just stared back at

the scribe from tbe other side of his thick black-rimmed glasses. He was dressed unfashionably, like a farm boy wearing his first J.C. Penney suit. Finally, after a long and uncomfortable silence, he said, "Eccentric." Needless t o say, the Wall Street Joumal did not publish a splashy feature on Darwin Smith.

But if you were to consider Smith soft or meek, you would be terribly mistaken. His lack of pretense was cou- pled with a fierce, even stoic, resolve toward life. Smith grew up on an Indiana farm and put himself through night school at Indiana University by working the day shift at International Harvester. One day, he lost a finger on the job. The story goes that he went to class that evening and returned to work the very next day. Eventu- ally, this poor but determined Indiana farm boy earned admission to Harvard Law Scbool

He showed the same iron will when he was at the helm of Kimberly-Clark. Indeed, two months after Smith be- came CEO, doctors diagnosed him with nose and throat cancer and told him he had less than a year to live. He duly informed the board of his illness but said he had no plans to die anytime soon. Smith held to his demanding work schedule while commuting weekly from Wisconsin to Houston for radiation therapy. He lived 25 more years, 2OofthemasCEO.

Smith's ferocious resolve was crucial to the rebuilding of Kimberly-Clark, especially when he made the most dra- matic decision in the company's history: seil the mills.

To explain: shortly after be took over, Smith and his team had concluded that the company's traditional core business - coated paper - was doomed to mediocrity. Its economics were bad and the competition weak. But, they reasoned, if Kimberly-Clark was thrust into the fire of tbe consumer paper products business, better economics and

HARVARD BUSINESS REVIEW

Level 5 Leadership

ONE QUESTION, FIVE YEARS, ELEVEN COMPANIES

7.00

•15

The Level 5 discovery derives

from a research project that

began in 1996, when my research

teams and I set out to answer

one question: can a good com-

pany become a great company

and, if so, how? Most great com-

panies grew up with superb par-

ents-people like George Merck,

David Packard, and Walt Disney-

who instified greatness early on.

But what about the vast majority

of companies that wake up part-

way through life and realize that

they're good but not great?

To answer that question, we

looked for companies that had

shifted from good performance

to great performance-and sus-

tained it. We identified compari-

son companies that had faiied to

make that sustained shift. We then stud-

ied the contrast between the two groups

to discover common variables that distin-

guish those who make and sustain a shift

from those who could have but didn't.

More precisely, we searched for a spe-

cific pattern: cumulative stock returns at

or below the general stock market for 15

years, punctuated by a transition point,

then cumulative returns at least three

times the market over the next 15 years.

(See the exhibit above.) We used data

from the University of Chicago Center for

Research in Security Prices, adjusted for

stock splits, and all dividends reinvested.

The shift had to be distinct from the in-

dustry; ifthewho!e industry showed the

same shift, we'd drop the company. We

began with 1,435 companies that ap-

peared on the Fortune 500 from 1965 to

1995; we found 11 good-to-great examples.

That's not a sample; that's the total num-

ber that jumped all our hurdles and

passed into the study.

Those that made the cut averaged cu-

mulative stock returns 6.9 times the gen-

eral stock market for the 15 years after the

point of transition. To put that in perspec-

tive. General Electric under Jack Welch

outperformed the general stock market

Cootko-Great Companies

i.oo=Mafliet Baseline

s average ratio, each company setlol.ooal transition date

i o -5

years from iransition

by 2.8:i during his tenure from 1986 to

2000. A dollar invested in a mutual fund

of the good-to-great companies in 1965

grew to $470 by 2000-compared to $56

in the general stock market. These are re-

markable numbers, made all the more so

by the fact that they came from previously

unremarkable companies.

For each good-to-great example, we

selected the best direct comparison,

based on similarity of business, size, age,

customers, and performance leading up

to the transition. We also constructed a

set of six "unsustained" comparisons (com-

panies that showed a short-lived shift but

then fell oft) to address the question of

sustainability. To be conservative, we con-

sistently picked comparison companies

that, if anything, were in better shape

than the good-to-great companies were in

the years just before the transition.

With 22 research associates working In

groups of four to six at a time from 1996

to 2000, our study involved a wide range

of both qualitative and quantitative analy-

ses. On the qualitative front, we collected

nearly 6,000 articles, conducted 87 inter-

views with key executives, analyzed com-

panies' internal strategy documents, and

culled through analysts' reports. On the

quantitative front, we ran financial met-

rics, examined executive compensation,

compared patterns of management

turnover,quantified company layoffs and

restructurings, and calculated the effect

of acquisitions and divestitures on com-

panies' stocks. We then synthesized the

results to identify the drivers of good-to-

great transformations. One was Level 5

leadership. (The others are described in

the sidebar"Not by Level 5 Alone.")

Since only n companies qualified as

good-to-great, a research finding had to

meet a stiff standard before we would

deem it significant. Every component in

the final framework showed up in all 11

good-to-great companies during the tran-

sition era, regardless of industry (from

steel to banking), transition decade (from

the 1950S to the 1990s), circumstances

(from plodding along to dire crisis), or

size (from tens of millions to tens of

billions). Additionally, every component

had to show up in less than 30% of the

comparison companies during the rele-

vant years. Level 5 easily made it into the

framework as one of the strongest, most

consistent contrasts between the good-to-

great and the comparison companies.

JANUARY 2001 69

L e v e l 5 L e a d e r s h i p

world-class competition like Procter & Gamble would force it to achieve greatness or perish.

And so, like the general who burned the boats upon landing on enemy soil, leaving his troops to succeed or die, Smith announced that Kimberly-Clark would sell its mills-even the namesake mill in Kimberly, Wisconsin. All proceeds would be thrown into the consumer business, with investments in brands like Huggies diapers and Kleenex tissues. The business media called the move stu- pid, and Wall Street analysts downgraded the stock. But Smith never wavered. Twenty-five years later, Kimberly- Clark owned Scott Paper and beat Procter & Gamble in six of eight product categories. In retirement, Smith re- flected on his exceptional performance, saying simply, "I never stopped trying to become qualified for the job."

Not What We Expected Either We'll look in depth at Level 5 leadership, but first let's set an important context for our findings: we were not look- ing for Level 5 or anything like it. Our original question was can a good company become a great one, and. If so, how? In fact, I gave the research teams explicit instruc- tions to downplay the role of top executives in their analy- ses of this question so we wouldn't slip into the simplistic "credit the leader" or "blame the leader" thinking that is so common today.

But Level 5 found us. Over the course of the study, re- search teams kept saying, "We can't ignore the top execu- tives even if we want to. There is something consistently unusual about them." I would push back, arguing, "The comparison companies also had leaders. So what's differ- ent here?" Back and forth the debate raged. Finally, as

should always be the case, the data won. The executives at companies that went from good to great and sustained that performance for 15 years or more were all cut from the same cloth - one remarkably different from that which produced executives at the comparison companies in our study. It didn't matter whether the company was in crisis or steady state, consumer or industrial, offering ser- vices or products. It didn't matter when the transition took place or how big the company. The successful orga- nizations all had a Level 5 leader at the time of transition.

Furthermore, the absence of Level 5 leadership showed up consistently across the comparison companies. The point: Level 5 is an empirical finding, not an ideological one. And that's important to note, given how much the Level 5 finding contradicts not only conventional wisdom but much of management theory to date. (For more about our findings on good-to-great transformations, see the sidebar "Not by Level 5 Alone.")

Humility + Will = Level 5 Level 5 leaders are a study in duality: modest and willful, shy and fearless. To grasp this concept, consider Abraham Lincoln, who never let his ego get in the way of his ambi- tion to create an enduring great nation. Author Henry Adams called him "a quiet, peaceful, shy figure." But those who thought Lincoln's understated manner signaled weakness in the man found themselves terribly mis- t a k e n - t o the scale of 250,000 Confederate and 360,000 Union lives, including Lincoln's own.

It might be a stretch to compare the li Level 5 CEOs in our research to Lincoln, but they did display the same kind of duality. Take Colman M. Mockler, CEO of Gillette

T H E LEVEL 5 HIERARCHY

The Level 5 leader sits on top of a hierarchy of capabilities and is, ac- cording to our research, a necessary requirement for transforming an organization from good to great. But what lies beneath? Four other layers, each one appropriate in its own right but none with the power of Level 5. Individuals do not need to proceed sequentially through each level of the hierarchy to reach the top, but to be a full-fledged Level 5 requires the capabilities of all the lower levels, plus the special characteristics of Level 5.

LEVEL 5 LEVEL 5 EXECUTIVE Builds enduring greatness

through a paradoxical combination of personal humility plus professional will.

LEVEL 4 EFFECTIVE LEADER Catalyzes commitment to and vigorous pursuit

of a clear and compelling vision; stimulates the group to high performance standards.

LEVEL 3 COMPETENT MANAGER Organizes people and resources toward the effective

and efficient pursuit of predetermined objectives.

LEVEL 2 CONTRIBUTING TEAM MEMBER Contributestotheachievement of group

objectives; works effectively with others in a group setting.

LEVEL 1 HIGHLY CAPABLE INDIVIDUAL Makes productive contributions through talent, knowledge,

skills, and good work habits.

70 HARVARD BUSINESS REVIEW

Level 5 Leadership

from 1975 to 1991. Mockler, who faced down three takeover attempts, was a reserved, gracious man with a gentle, almost patrician manner. Despite epic battles with raiders-he took on Ronald Perelman twice and the former Coniston Partners o n c e - he never lost his shy, courteous style. At the height ofthe crisis, he main- tained a calm business-as-usual de- meanor, dispensing first with ongo- ing business before turning to the takeover.

And yet, those who mistook Mock- ler's outward modesty as a sign of inner weakness were beaten in the end. In one proxy battle, Mockier and other senior executives called thousands of investors, one by one, to win their votes. Mockler simply would not give in. He chose to fight for the future greatness of Gillette even though he could have pocketed millions by flipping his stock.

Consider the consequences had Mockler capitulated, if a share-flip- per had accepted the full 44% price premium offered by Perelman and then invested those shares in the general market for ten years, he still would have come out 64% behind a shareholder who stayed with Mock- ler and Gillette. If Mockler had given up the flght, it's likely that none of us would be shaving with Sensor, Lady Sensor, or the Mach 111 - and hun- dreds of millions of people would have a more painful battle with daily stubble.

Sadly, Mockler never had the chance to enjoy the ftill fruits of his efforts. In January 1991, Gillette re- ceived an advance copy of Forbes. The cover featured an artist's rendi- tion of the publicity-shy Mockler standing on a mountaintop, holding a giant razor above his head in a tri- umphant pose. Walking back to his office, just minutes after seeing this public acknowledgment of his 16 years of struggle, Mockler crumpled to the floor and died from a massive heart attack.

Even if Mockler had known he would die in office, he could not

N O T BY LEVEL 5 ALONE Level 5 leadership is an essential factor for taking a company from good to great,

but it's not the only one. Our research uncovered multiplefactors that deliver com-

panies to greatness. And it is the combined package- Level 5 plus these other

drivers-that takes companies beyond unremarkable. There is a symbiotic relation-

ship between Level 5 and the rest of our findings: Level 5 enables implementation of

the other findings, and practicing the other findings may help you get to Level 5.

We've already talked about who Level 5 leaders are; the rest ofour findings describe

what they do. Here is a brief look at some ofthe other key findings.

F I R S T W H O ; we expected that good-to-great leaders would start with the

vision and strategy. Instead, they attended to people first, strategy second. They got

the right people on the bus, moved the wrong people off, ushered the right people

to the right seats-and then they figured out where to drive it.

S T O C K D A L E P A R A D O X : This finding is named after Admiral James Stock-

dale, winner ofthe Medal of Honor, who survived seven years in a Vietcong POW

camp by hanging on to two contradictory beliefs: his life couldn't be worse at the

moment, and his life would someday be better than ever. Like Stockdale, people at

the good-to-great companies in our research confronted the most brutal facts of

their current reality-yet simultaneously maintained absolute faith that they would

prevail in the end. And they held both disciplines-faith and facts-at the same time,

all the time.

B U I L D U P - B R E A K T H R O U G H F L Y W H E E L : cood-to-greattransforma-

tions do not happen overnight or in one big leap. Rather, the process resembles

relentlessly pushing a giant, heavy flywheel in one direction. At first, pushing it gets

the fiywheel to turn once. With consistent effort, it goes two turns, then five, then

ten, building increasing momentum u n t i l - b a n g ! - t h e wheel hits the breakthrough

point, and the momentum really kicks in. Our comparison companies never sus-

tained the kind of breakthrough momentum that the good-to-great companies did;

instead, they lurched back and forth with radical change programs, reactionary

moves,and restructurings.

T H E H E D G E H O G C O N C E P T : m a famous essay, philosopher and scholar

Isaiah Berlin described two approaches to thought and life using a simple parable:

The fox knows a little about many things, but the hedgehog knows only one big thing

very weit. The fox is complex; the hedgehog simple. And the hedgehog wins. Our re-

search shows that breakthroughs require a simple, hedgehog-like understanding of

three intersecting circles: what a company can be the best in the world at, how its eco-

nomics work best, and what best ignites the passions of its people. Breakthroughs

happen when you get the hedgehog concept and become systematic and consistent

with it, eliminating virtually anything that does not fit in the three circles.

T E C H N O L O G Y A C C E L E R A T O R S : The good-to-great companies had a para-

doxical relationship with technology. On the one hand, they assiduously avoided

jumping on new technology bandwagons. On the other, they were pioneers in the

application of carefully selected technologies, making bold,farsighted investments

in those that directly linked to their hedgehog concept. Like turbochargers, these

technology accelerators create an explosion in flywheel momentum,

A C U L T U R E O F D I S C I P L I N E : when you look across the good-togreat trans-

formations, they consistently display three forms of discipline: disciplined people,

disciplined thought, and disciplined action. When you have disciplined people, you

don't need hierarchy. When you have disciplined thought, you don't need bureau-

cracy. When you have disciplined action,you don't need excessive controls. When

you combine a culture of discipline with an ethic of entrepreneurship, you get the

magical alchemy of great performance.

JANUARY 2001 71

Level 5 L e a d e r s h i p

have changed his approach. His placid persona hid an inner intensity, a dedication to making anything he touched the best-not just because of what he would get but because he couldn't imagine doing it any other way. Mockler could not give up the company to those who would destroy it, any more than Lincoln would risk losing the chance to build an enduring great nation.

A Compelling Modesty The Mockler story illustrates the modesty typical of Level 5 leaders. (For a summary of Level 5 traits, see the exhibit "The Yin and Yang of Level 5.") Indeed, throughout our interviews with such executives, we were struck by the way they talked about themselves - or rather, didn't talk about themselves. They'd go on and on about the com- pany and the contributions of other executives, but they would instinctively deflect discussion about their own role. When pressed to talk about themselves, they'd say things like, "I hope I'm not sounding like a big shot "or "I don't think I can take much credit for what happened. We

IT'S HARD TO IMAGINE A LEVEL 5

LEADER THINKING, " H E Y , THAT R A M B O

CHARACTER REMINDS ME OF ME."

were blessed with marvelous peopie." One Level 5 leader even asserted, "There are lot of people in this company who could do my job better than 1 do."

By contrast, consider the courtship of personal celeb- rity by the comparison CEOs. Scott Paper, the comparison company to Kimberly-Clark, hired Al Dunlap as CEO-a man who would tell anyone who would listen (and many who would have preferred not to) about his accomplish- ments. After 19 months atop Scott Paper, Dunlap said in Business Week: "The Scott story will go down in the annals of American business history as one ofthe most success- ful, quickest turnarounds ever. It makes other turn- arounds pale by comparison." He personally accrued $100 million for 603 days of work at Scott Paper - about $165,000 per day-largely by slashing the workforce, halv- ing the R&D budget, and putting the company on growth steroids in preparation for sale. After selling oft the com- pany and pocketing his quick millions, Dunlap wrote an autobiography in which he boastfully dubbed himself "Rambo in pinstripes." It's hard to imagine Darwin Smith thinking,"Hey, that Rambo character reminds me of me," let alone stating it publicly.

Granted, the Scott Paper story is one ofthe more dra- matic in our study, but it's not an isolated case. In more than two-thirds ofthe comparison companies, we noted the presence of a gargantuan ego that contributed to the

demise or continued mediocrity of the company. We found this pattem particularly strong in the unsustained comparison companies-the companies that would show a shift in performance under a talented yet egocentric Level 4 leader, only to decline in later years.

Lee lacocca, for example, saved Chrysler from the brink of catastrophe, performing one of the most celebrated (and deservedly so) turnarounds in U.S. business history. The automaker's stock rose 2.9 times higher than the gen- eral market about halfway through his tenure. But then lacocca diverted his attention to transforming himself He appeared regularly on talk shows like the Today Show and Larry King Live, starred in more than 80 commercials, en- tertained the idea of running for president ofthe United States, and promoted his autobiography, which sold 7 mil- lion copies worldwide, lacocca's personal stock soared, but Chrysler's stock fell 31% below the market in the sec- ond half of his tenure.

And once lacocca had accumulated all the fame and perks, he found it difficult to leave center stage. He post- poned his retirement so many times that Chrysler's in-

siders began to joke that lacocca stood for "I Am Chairman of Chrysler Corporation Always." When he finally retired, he demanded that the board continue to provide a private jet and stock op- tions. Later, he joined forces with noted takeover artist Kirk Kerkorian to launch a hostile bid for Chrysler. (It failed.) lacocca did make one final brilliant decision: he picked a modest yet deter-

mined man-perhaps even a Level 5-as his successor. Bob Eaton rescued Chrysler from its second near-death crisis in a decade and set the foundation for a more enduring corporate transition.

An Unwavering Resolve Besides extreme humility. Level 5 leaders also display tremendous professional will. When George Cain became CEO of Abbott Laboratories, it was a drowsy family- controlled business, sitting at the bottom quartile ofthe pharmaceutical industry, living off its cash cow, eryth- romycin. Cain was a typical Level 5 leader in his lack of pretense; he didn't have the kind of inspiring personality that would galvanize the company. But he had something much more powerful: inspired standards. He could not stand mediocrity in any form and was utterly intolerant of anyone who would accept the idea that good is good enough. For the next 14 years, he relentlessly imposed his will for greatness on Abbott Labs.

Among Cain's first tasks was to destroy one ofthe root causes of Abbott's middling performance: nepotism. By systematically rebuilding both the board and the execu- tive team with the best people he could find, Cain made his statement. Family ties no longer mattered. If you couldn't become the best executive in the industry, within

72 HARVARD BUSINESS REVIEW

Level 5 Leadership

your span of responsibility, you would lose your paycheck.

Such near-ruthless rebuilding might be ex- pected ftom an outsider brought in to turn the company around, but Cain was an i8-year in- sider - and a part of the family, the son of a pre- vious president. Holiday gatherings were proba- bly tense for a few years in the Cain clan-"Sorry 1 had to fire you. Want another slice of turkey?"- but in the end, family members were pleased with the performance of their stock. Cain had set in motion a profitable growth machine. From its transition in 1974 to 2000, Abbott created share- holder returns that beat the market 4.5:1, out- performing industry superstars Merck and Pfizer by a factor of two.

Another good example of iron-willed Level 5 leadership comes from Charles R. "Cork" Wal- green III, who transformed dowdy Walgreens into a company that outperformed the stock market i6n from its transition in 1975 to 2000. After years of dialogue and debate within his ex- ecutive team about what to do with Walgreens' food-service operations, this CEO sensed the team had finally reached a watershed: the company's brightest future lay in convenient drugstores, not in food service. Dan Jorndt, who succeeded Walgreen in 1988, de- scribes what happened next:

Cork said at one of our planning committee meet- ings, "Okay, now I am going to draw the line in the sand. We are going to be out of the restaurant busi- ness completely in five years." At the time we bad more than 500 restaurants. You could have heard a pin drop. He said,"l want to let everybody know the clock is ticking." Six months later we were at our next planning committee meeting and someone men- tioned just in passing that we had only five years to be out of the restaurant business. Cork was not a real vociferous fellow. He sort of tapped on the table and said,"Listen, you now have four and a half years. I said you had five years six months ago. Now you've got four and a half years." Well, that next day things really clicked into gear for winding down our restau- rant business. Cork never wavered. He never doubted. He never second-guessed.

Like Darwin Smith selling the mills at Kimberly-Clark, Cork Walgreen required stoic resolve to make his deci- sions. Food service was not the largest part of tbe busi- ness, although it did add substantial profits to the bottom line. The real problem was more emotional than finan- cial. Walgreens had, after all, invented the malted milk shake, and food service had been a long-standing family tradition dating back to Cork's grandfather. Not only that.

T H E YIN AND YANG OF LEVEL 5

PERSONAL HUMILITY PROFESSIONAL WILL

Demonstrates a compelling modesty, shun- Creates superb results, a ning public adulation; never boastful.

Acts with quiet, calm determination; relies principally on inspired standards, not inspiring charisma, to motivate.

clear catalyst in the transi- tion from good to great.

Demonstrates an unvwavering resolve to do whatever must

be done to produce the best long-term results, no matter how

difficult.

Channels ambition into the com- pany, not the self; sets up succes- sors for even more greatness in

the next generation. Sets the standard of b u i l d i n g an

enduring great company; will settle for nothing less.

Looks in the mirror, not out the window, to apportion

responsibility for poor results, never blaming other people, external factors, or bad luck-

Looks out the window, not in the mirror, to apportion credit for the success of the

c o m p a n y - t o other people, external factors, and good luck.

some food-service outlets were even named after the CEO-for example, a restaurant chain named Corky's. But no matter, if Walgreen had to fiy in the face of family tra- dition in order to refocus on the one arena in which Wai- greens could be the best in the world-convenient drug- s t o r e s - a n d terminate everything else that would not produce great results, then Cork would do it. Quietly, doggedly, simply.

One final, yet compelling, note on our findings about Level 5: because Level 5 leaders have ambition not for themselves but for their companies, they routinely select superb successors. Level 5 leaders want to see tbeir com- panies become even more successful in the next genera- tion, comfortable with the idea that most people won't even know that the roots of that success trace back to them. As one Level 5 CEO said, "I want to look from my porch, see the company as one of the great companies in the world someday, and be able to say, 'I used to work there.' " By contrast. Level 4 leaders often fail to set up the company for enduring success-after all, what better tes- tament to your own personal greatness than that the place falls apart after you leave?

In more than three-quarters of the comparison com- panies, we found executives who set up their successors for failure, chose weak successors, or both. Consider the case of Rubbermaid, which grew from obscurity to be- come one oí Fortune's most admired companies-and then, just as quickly, disintegrated into such sorry shape tbat it had to be acquired by Newell.

The architect of this remarkable story was a charis- matic and brilliant leader named Stanley C. Gault, whose

JANUARY 2001 73

Level 5 Leadership

name became synonymous in the late 1980s with the company's success. Across the 312 articles collected by our research team about Rubbermaid, Gault comes through as a hard-driving, egocentric executive. In one article, he responds to tbe accusation of being a tyrant with the statement, "Yes, but I'm a sincere tyrant." ln another, drawn directly from his own comments on leading change, the word "I" appears 44 times, wbile tbe word

THERE ARE TWO CATEGORIES OF

PEOPLE: THOSE WHO DON'T HAVE

THE LEVEL 5 SEED WITHIN THEM

AND THOSE WHO DO.

"we" appears 16 times. Of course, Gault had every reason to be proud of his executive success: Rubbermaid gener- ated 40 consecutive quarters of earnings growth under his leadership - an impressive performance, to be sure, and one that deserves respect.

But Gault did not leave bebind a company that would be great witbout him. His chosen successor lasted a year on the job and the next in line faced a management team so shallow tbat he had to temporarily shoulder four jobs while scrambling to identify a new number-two execu- tive. Gault's successors struggled not only with a man- agement void but also witb strategic voids that would eventuaiiy bring the company to its knees.

Of course, you might say - as one Fortune article did-that the fact that Rubbermaid fell apart after Gault left proves bis greatness as a leader. Gault was a tremen- dous Level 4 leader, perhaps one of the best in the last 50 years. But he was not at Level 5, and that is one crucial reason why Rubbermaid went from good to great for a brief, shining moment and then just as quickly went from great to irrelevant.

The Window and the Mirror As part ofour research, we interviewed Alan L, Wurtzel, the Level 5 leader responsible for turning Circuit City from a ramshackle company on tbe edge of bankruptcy into one of America's most successful electronics retailers. In the 15 years after its transition date in 1982, Circuit City outperformed tbe market 18.5:1.

We asked Wurtzel to list the top five factors in his com- pany's transformation, ranked by importance. His num- ber one factor? Luck. "We were in a great industry, witb the wind at our backs." But wait a minute, we retorted, Silo-your comparison company-was in tbe same indus- try, with the same wind, and bigger sails. The conversation went back and forth, with Wurtzel refusing to take much

credit for the transition, preferring to attribute it largely to just being in the right place at the right time. Later, when we asked him to discuss the factors that would sus- tain a good-to-great transformation, be said, "The first thing that comes to mind is luck. I was lucky to find the right successor."

Luck. What an odd factor to talk about. Yet the Level 5 leaders we identified invoked it frequently. We asked an

executive at steel company Nucor why it had such a remarkable track record of making good decisions. His response? "I guess we were just lucky." Joseph F. Cullman III, the Level 5 CEO of Philip Morris, flat out refused to take credit for his company's success, cit- ing his good fortune to have great colleagues, suc- cessors, and predecessors. Even the book he wrote about his career-which he penned at the urging of his colleagues and whicb he never intended to dis- tribute widely outside the company - had the un-

usual title I'm a Lucky Guy.

At first, we were puzzled by the Level 5 leaders' em- phasis on good luck. After all, there is no evidence that the companies that had progressed from good to great were blessed with more good luck {or more bad luck, for that matter) than the comparison companies. But then we began to notice an interesting pattern in the executives at the comparison companies: they often blamed their situ- ations on bad luck, bemoaning the difficulties of the en- vironment they faced.

Compare Bethlehem Steel and Nucor, for example. Both steel companies operated with products that are bard to differentiate, and both faced a competitive chal- lenge from cheap imported steel. Both companies paid significantly higher wages than most of their foreign com- petitors. And yet executives at the two companies held completely different views of the same environment.

Bethlehem Steel's CEO summed up the company's problems in 1983 by blaming the imports: "Our first, sec- ond, and third problems are imports." Meanwhile, Ken Iverson and his crew at Nucor saw tbe imports as a bless- ing: "Aren't we lucky; steel is heavy, and they have to ship it all the way across tbe ocean, giving us a huge advan- tage." Indeed, Iverson saw the first, second, and third prob- lems facing tbe U.S. steel industry not in imports but in management. He even went so far as to speak out publicly against government protection against imports, telling a gatbering of stunned steel executives in 1977 that the real problems facing tbe industry lay in tbe fact that manage- ment had failed to keep pace with technology.

Tbe emphasis on luck turns out to be part of a broader pattern that we came to call the window and the mirror. Level 5 leaders, inherently bumble, look out tbe window to apportion credit-even undue credit-to factors outside themselves. If they can't find a specific person or event to give credit to, they credit good luck. At the same time, they look in the mirror to assign responsibility, never cit-

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ing bad luck or extemal factors when things go poorly. Conversely, the comparison executives frequently looked out the window for factors to blame but preened in the mirror to credit themselves when things went well.

The funny thing ahout the window-and-mirror concept is that it does not reflect reality. According to our research, the Level 5 leaders were responsible for their companies' transformations. But they would never admit that. We can't climb inside their heads and assess whether they deeply believed what they saw in the window and the mir- ror. But it doesn't really matter, hecause they acted as if they believed it, and they acted with such consistency that it produced exceptional results.

Born or Bred? Not long ago, I shared the Level 5 finding with a gather- ing of senior executives. A woman who had recently be- come chief executive of her company raised her hand. "I believe what you've told us about Level 5 leadership," she said,"but I'm disturbed because I know I'm not there yet, and maybe I never will be. Part of the reason I got this job is because of my strong ego. Are you telling me that I can't make my com- pany great if I'm not Level 5?"

"Let me return to the data," I responded. "Of 1,435 companies that appeared on the Fortune 500 since 1965, only 11 made it into our study. In those n , all of them had Level 5 leaders in key positions, including the CEO role, at the pivotal time of tran- sition. Now, to reiterate, we're not saying that Level 5 is the only element required for the move from good to great, but it appears to be essential."

She sat there, quiet for a mo- ment, and you could guess wbat many people in tbe room were thinking. Finally, she raised her hand again. "Can you learn to become Level 5?" I still do not

Level 5 leaders look out the window to assign credit-even undue credit. They look in the mirror to assign blame, never citing external factors.

know the answer to that question. Our research, frankly, did not delve into how Level 5 leaders come to be, nor did we attempt to explain or codify the nature of their emo- tional lives. We speculated on the unique psychology of Level 5 leaders. Were they"guilty" of displacement-shift- ing their own raw ambition onto something other than themselves? Were they sublimating their egos for dark and complex reasons rooted in childhood trauma? Who knows? And perhaps more important, do the psychologi- cal roots of Level 5 leadership matter any more than do the roots of charisma or intelligence? The question re- mains; Can Level 5 be developed?

My preliminary hypothesis is that there are two cate- gories of people: those who don't have the Level 5 seed within them and those who do. The first category consists of people who could never in a million years bring them- selves to subjugate their own needs to the greater ambi- tion of something larger and more lasting than them- selves. For those people, work will always be first and

foremost about what they get - the fame, fortune, power, adula- tion, and so on. Work will never be about what they huild, create, and contribute. The great irony is that the animus and personal ambition that often drives peo- ple to become a Level 4 leader stands at odds with the humility required to rise to Level 5.

When you combine that irony with the fact that boards of di- rectors frequently operate under tbe false belief that a larger-than- life, egocentric leader is required to make a company great, you can quickly see why Level 5 lead- ers rarely appear at the top of our institutions. We keep putting people in positions of power who lack the seed to become a Level 5 leader, and that is one major reason why there are so few companies that make a sus- tained and verifiable shift from good to great.

The second category consists of people who could evolve to Level 5; the capability resides within them, perhaps buried or

ignored or simply nascent. Under the right circum-

stances-with self- refiection, a

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Level 5 Leadership

mentor, loving parents, a significant life experience, or other factors-the seed can begin to develop. Some ofthe Level 5 leaders in our study had significant life experi- ences that might have sparked development ofthe seed. Darwin Smith fully blossomed as a Level 5 after his near- death experience with cancer. Joe Cullman was pro- foundly affected by his World War U experiences, partic- ularly the last-minute change of orders that took him off a doomed ship on which he surely would have died; he considered the next 6o-odd years a great gift. A strong re- ligious belief or conversion might also nurture the seed. Colman Mockler, for example, converted to evangelical Christianity while getting his MBA at Harvard, and later, according to the book Cutting Edge, he became a prime mover in a group of Boston business executives that met frequently over breakfast to discuss the carryover of reli- gious values to corporate life.

We would love to be able to give you a list of steps for getting t o Level 5 - other than contracting cancer, go- ing through a religious conversion, or getting difterent p a r e n t s - b u t we have no solid research data that would support a credible list. Our re- search exposed Level 5 as a key component inside the black box of what it takes to shift a com- pany from good to great. Yet inside that black box is an- other - the inner development of a person to Level 5 leader- ship. We could speculate on what that inner box might hold, but it would mostly be just that, speculation.

In short, Level 5 is a very sat- isfying idea, a truthful idea, a powerful idea, and, to make the move from good to great, very Ukely an essential idea. But to provide "ten steps to Level 5 leadership" would trivialize the concept.

My best advice, based on the research, is to practice the other good-to-great disciplines that we discovered. Since we found a tight symbiotic relationship between each ofthe other find- ings and Level 5, we suspect that conscientiously trying to lead using the other disciphnes can help you move in the right di- rection. There is no guarantee that doing so will turn execu- tives into full-fledged Level 5 leaders, but it gives them a tan-

gible place to begin, especially if they have the seed within.

We cannot say for sure what percentage of people have the seed within, nor how many of those can nurture it enough to become Level 5. Even those of us on the re- search team who identified Level 5 do not know whether we will succeed in evolving to its heights. And yet all of us who worked on the finding have been inspired by the idea of trying to move toward Level 5. Darwin Smith, Col- man Mockler, Alan Wurtzel, and all the other Level 5 leaders we learned about have become role models for us. Whether or not we make it to Level 5, it is worth trying. For like all basic truths about what is best in human be- ings, when we catch a glimpse ofthat truth, we know that our own lives and all that we touch will be the befter for making the effort to get there. Ö

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"As it is, the only decisions I can moke are no-brainers."

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