Six years ago, consultant and author Jim Collins set out to research a book he wasn't sure he would ever get to write. The idea was to see if a pattern existed among companies that moved from being nimble performers to being long-term, significant market outperformers. He came across some startling similarities, and the result is the book Good To Great, now in its ninth month on the BusinessWeekBest-Seller List.
Collins, who left a prestigious teaching spot at Stanford Business School to go into business for himself, is now hot in demand as a leadership guru. One of his book's key conclusions: All of the companies he deemed great had a CEO with a set of similar character and personality qualities as well as an adherence to a common culture. Termed "Level 5" by Collins' research team, these CEOs somehow blended humility and an iron will into a drive for greatness.
Among the other important commonalties: A rigorous focus on getting the right, disciplined managers and employees, a strong system that forces management to face brutal realities and set goals, and a savvy use of technology to accelerate growth.
With a wave of scandals now tarnishing Corporate America, Collins is now so busy that he recently hired a full-time assistant to field speaking and consulting requests. He turns down more interviews than he accepts, but he did sit with BusinessWeek Associate Editor Nanette Byrnes recently to talk about his new book and his list of the Top 10 CEOs of All Time (see table). Here are edited excerpts from their conversation at a conference table in his Boulder (Colo.) office, located in a corner of the converted schoolhouse where Collins attended the first grade.
Q: How did you come to launch this project? A: The initial question was: Can something go from good to great? It was an open question whether we would even find one company. It was entirely possible that we would find nothing good to say. That it would end up an article that just said, "You're Doomed."
Q: You found 11 companies you deemed to be great. Did you expect that leadership would turn out to be crucial to them? A: That debate went on for three years. I so badly didn't want to have a leadership answer. One, because I would never follow a leader myself. If I would never follow a leader, why would I write about a leader? That's my own psychological makeup.
Two, I genuinely believe that leadership answers are sloppy and dangerous. Whatever the equation for output, the key plug becomes leadership. We reached a point where that plug figure was 90% of the answer. Third, through the power of evidence, I wanted to give the unlikely heroes hope. Stop looking out there for the leader, the savior, whatever, and look inside.
Q: Does a Level 5 leader always triumph? A: No. It's entirely possible to be a Level 5 leader and not succeed. Toby Lenk of eToys had a lot of Level 5 characteristics. He didn't sell his stock. He was trying to make a company great. But he was in a situation where even being a level 5 leader might not have been enough. It's also an arrogant extrapolation to say the only people who get great results are Level 5. Others do too, I don't think it lasts as long, that's all.
Q: Can someone who isn't one become a Level 5 leader? A: I don't think Sam Walton started out anything like a Level 5. He was not a humble guy, but his ambition was first and foremost for the cause. How do you separate someone like Sam Walton from Wal-Mart? He did a brilliant job. He really set the stage for David Glass to succeed.
Q: Was Jack Welch a Level 5? A: His report card does not come in until [new CEO Jeff] Immelt exceeds him. If Immelt does not exceed him, then he has failed. Jack Welch did not make GE great. GE was already great. Every GE CEO has been to his era what Welch was to his, without exception. It takes 50 years to create a GE. Generations of leaders built it. Whether Welch was a Level 5 comes down to a question we don't know the answer to. Was Welch first and foremost ambitious for himself or for GE? Only he knows that.
Q: Are you shocked at the recent spate of CEO and CFO indictments and disgrace? A: There have always been villains. The whole history of RJR [as laid out in the book] Barbarians at the Gate -- that was a truly disgusting manipulation of our capitalist system. The founder of Columbia Pictures, it was written that when he died, 2,000 people went to his funeral to make sure he was dead. GE had the price-fixing scandals in the 1950s. Monopolistic practices at IBM. The modern corporation is a perfect vehicle for a small number of people to enrich themselves at the cost of everyone else.
Q:What's different this time? A: The scale of compensation. Historically, the giants were entrepreneurs -- Rockefeller, Ford. In a way, you couldn't hold it against them because they did manufacture something out of nothing. The world was different.... Then came the Lee Iaccoca biography in 1985, and that began the rise of the celebrity CEO, the CEO as rock star.
Q: Why were we so quick to embrace that idea of the superhero CEO? A: Because the world became much more complex, and we were looking for something simplistic. Business became mainstream, and we had to write about it in a mainstream way.
Q: Do you think the current outrage will help create a better model or better behavior? A: I'm not particularly optimistic about a substantial correction. I see very few mechanisms in place to correct the system. Increasingly fewer shareholders hold stock for at least five years. Instead, you have share flippers. One of the things we learned from Enron is that boards also are really not a self-corrective mechanism. If boards are relatively weak, it's like a weak Senate [during the Roman Empire vs.] a strong Caesar. Caesar wins.
Q: Do great leaders like their jobs? A: All of the leaders we studied saw leadership as a tremendous responsibility and a tremendous burden. I asked [former Kimberly-Clark CEO] Darwin Smith's sister and wife if he was a happy man. His sister said he lived with the torment of what he knew things could have been. I think of these people as corporate artists. Why are they killing themselves to make this perfect when it's already pretty good? I don't think they're happy, but I don't think Darwin would have changed the way he lived his life.
Jim Collins' Top 10 CEOs of the 20th Century
1. William Allen, Boeing -- Had to cut 80% of his staff after World War II but still revolutionized aeronautics with the 707 jet
2. Sam Walton, Wal-Mart -- Created the largest corporation with the largest employee base in history and handled his succession well
3. Charles Coffin, General Electric -- Thomas Edison's successor. He instituted things that still make the company great, including a focus on management development and industrial R&D
4. Darwin Smith, Kimberly-Clark -- Over much opposition, he sold the company's historic but mediocre business -- paper mills -- to remake it as a consumer-product powerhouse while he simultaneously battled cancer
5. William McKnight, 3M -- Invented the idea of managing invention
6. David Maxwell, Fannie Mae -- Took over a company losing $1 million a day and made it one of the most successful financial institutions in the world
7. George Merck II, Merck -- Created a scientifically driven organization
8. Thomas J. Watson Sr., IBM -- Embraced the idea of corporate culture as a centerpiece of how to build a great company
9. David Packard, HP -- Packard is under reconsideration by Collins, who wonders if the company's recent troubles don't reflect a leadership vacuum on the board the founders may have allowed. But Packard remains interesting as a man who built his company to be a role model of innovation and progressive personnel practices
10. Cork Walgreen, Walgreens -- Took a small family pharmacy businesses on a 25-year run that beat Intel, GE, and the stock market overall by making tough decisions like exiting food service
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