Power and Politics

REACTION PAPER NO.5: "LEVEL FIVE LEADERSHIP"

DONABELLE B. SUVA

11 AUGUST 2004

I. SUMMARY

Why is it that a few companies develop from an organization with good results as measured on the stock market to a great one? Jim Collins and his team selected 11 companies from more than 1400 that had been listed in the Fortune 500 from 1965 to 1995. Each of the selected companies had mediocre results for 15 years and then went through a transition point. From that point they out- performed the market by at least 3 to 1 and sustained that performance for at least 15 years. Each of these was compared with companies in the same industry and about the same size. Using hundreds of interviews, they identified the key factors that enable a company to move from mediocre institutions to great institutions. The comparison companies lacked these factors and failed to become great. Perhaps the most important component of the transition from good-to-great is what they called "Level 5 Leadership", from leadership hierarchy so identified:

Level 1 is a Highly Capable Individual who "makes productive contributions through talent, knowledge, skills and good work habits."

Level 2 is a Contributing Team Member who "contributes individual capabilities to the achievement of group objectives and works effectively with others in a group setting."

Level 3 is the Competent Manager who "organizes people and resources toward the effective and efficient pursuit of predetermined objectives."

Level 4 is an Effective Leader who "catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards."

Level 5 is the Executive who "builds enduring greatness through a paradoxical blend of personal humility and professional will." Every one of the good-to-great companies has level 5 leaders in the critical transition phase. None of the comparison companies did. These leaders are described as being timid and ferocious, shy and fearless and modest with a fierce, unwavering commitment to high standards.

Level 5 leaders rely on instilling inspired standards and not inspiring charisma to motivate. They build a culture of discipline. It is not a tyrannical disciplinarian one but one that enables freedom and responsibility: "... but leadership is equally about creating a climate where the truth is heard and the brutal facts confronted. There's a huge difference between the opportunity to 'have your say' and the opportunity to be heard. The good-to-great leaders understood the distinction, creating a culture wherein people had a tremendous opportunity to be heard and, ultimately, for the truth to be heard."

These leaders deliver what they promise. There is no hype, no spin, no excuses; just understated, realistic expectations. The expectations may be challenging but they are met

II. APPLICATION:

What seems to be most remarkable from Jim Collins' study is his debunking a well-entrenched idea of "celebrity" leaders. In fact, he proposes that Level 5 leadership is the antithesis of egocentric celebrity. Describing these leaders as "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 5 leaders 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." They consistently adhere to what Collins calls the Hedgehog Concept, the intersection of three circles: (1) brutally and realistically determining what the company can be the best in the world at and pursuing it; (2) deciding the most effective way of generating sustained cash flow and profitability, and; (3) doing the things they are deeply passionate about, this passion is not stimulated or imposed but discovered.

For Collins, the implications are obvious: "boards of directors and