Jim Collins and twenty-one of his associates at his research management firm in Boulder, CO declared level 5 leadership to be one that builds and sustains enduring companies. They determined this after five years of studying data on companies that fit a certain criteria. The study conducted was of 1,435 publicly traded companies and their performance in the stock market over a 40 year time period to choose companies that went from good to great. The results of this study were published in the New York Times 2001 bestselling book by Jim Collins entitled, "Good to Great: Why Some Companies Make the Leap...and Others Don't."
Jim and his associates did not go into this study with the goal of determining what attributes and qualities these good to great companies had, but to determine what was different from failing or average companies. To consider a company "great" the company had to have exceeded the general stock market average by at least three times for over for a 15 year time period, and this success had to be unique to the industry. (Collins, 2001) These great companies had to demonstrate a prior period of good performance with a transition point and resulting great performance. Additional parameters for the companies they chose were that it could not be a start up company and the "great" companies must have been in business at least 25 years prior to the transition. The company must have also been publicly traded for a minimum of 10 years. Both of these requirements were to insure they had enough financial data and news clips to extensively compare the companies. Last, the company had to continue to be showing an upward trend at the time Jim and his associates picked them.
Out of the 1,435 companies examined only 11 companies fit all of the criteria. These eleven companies included: Abbott Laboratories, Fannie Mae, Kimberly-Clarke, Nucor Corp., Wells Fargo, Kroger Co., Walgreen's, Circuit City, Gillette Co., Philip Morris Co. and Pitney Bowes. (Collins, 2001) The companies were diverse in their industry ranging from financial services to electronic goods. After these good to great companies were determined, Jim Collins and his crew poured over books, articles, case studies, annual reports, financial analysis, interviewed with senior management, board members, CEOs, and HR reps reviewing compensation plans, lay offs that occurred during this time, media clips, and researched types of technology used by the company. After all this prodding into the company's inner workings there was still no clear cut similarity to these eleven companies which pointed to their success other than one item: their CEOs. Jim Collins specifically notes in his Harvard Business Review article that his colleagues were determined to look beyond CEO's to find something more groundbreaking and fresh. Despite their insistence on doing so it became clear at the end of the study that the biggest similarly remained the CEO's of these companies, their attitudes toward and about the company and their approaches to work. The three things that Collins and his associates found did not work to motivate a company and produce great results were motivating employees with high salaries and stock options, using fear as a tactic, and using superb technology in comparison to your competition. None of these items worked to bring a company from good to great.
The two characteristics that distinguished level 5 from level 4 leaders were humility and dedication to the company. Level 5 leaders are motivated by the success of their company rather than for their own personal success and ego. In fact, most of the CEOs interviewed from these companies all admitted that they never envisioned themselves as CEO material. At least one of the CEO's attributed "luck" to the cause of the companies success under his leadership. The sense of dedication and the personal relationship that these CEOs had with the company also distinguished them from "good" leaders. It was noted in Jim Collins Harvard Business Review article that the level five CEOs cared so deeply about the success of the company over their personal success that they took great measure to pick and groom their successors, while other more ego-centric CEO's would view the company collapsing after their departure as the greatest evidence to their worth to the company. While a level 4 leader can be successful and run a successful company it is believed that it will never rise to the level of greatness without these two attributes in senior management and held by the CEO.
One of the first things that a level 5 leader did upon entering the role would be to first make sure that the company had employed individuals whom were hardworking, intelligent and qualified for the job, but most importantly employees with a common goal or vision that the company tried to uphold. After making sure that the proper type of people were employed than level 5 leaders took the time to determine the direction of the company. More commonly, this process is done in the reverse way when a new CEO succeeds another. Collins likened these level 5 leaders to a "Turtle and the Hare" type concept in which he called the "Hedgehog Concept". This concept emphasized the forward thinking of level 5 leaders and their dedication and perseverance to work toward accomplishing the goals for the company in the long term. In a society today where the bottom line is satisfying the shareholders many CEOs make quick and decisive decisions in order to raise the worth of the company, but these decisions may only temporarily placate the stockholders and not be concerned with the companies worth in the long term. On average it was found that it took the CEO of a good to great company took approximately four years in order to turn the company to the powerhouse these examples were. Four years is a long time for shareholders and board members to wait in a get rich now, lose 30 pounds in 30 days society.
In the book Good to Great, Collins and his associates also revealed three pivotal questions that a level 5 leader asks himself about his company: 1. What can we be the best in the world at? 2. What is the economic denominator that best drives our economic engine? And 3. What are our core people deeply passionate about?
There are several criticisms that have come to light in recent times about Jim Collins level 5 concept from other experts or researchers on the topic of leadership. In a January 2006 article for BusinessPundit.com, author Rob May points to some of the leading issues many had with the study at the time. The first was that Collins and his team didn't research companies who did go from good to great and failed nonetheless to compare their leaders and look for other causes. Some even speculate that this study was a victim of "survivorship bias" which is basically a theory that out of a large sum of items being observed that naturally some have to succeed and rise to the top purely by chance. Rob May also questioned whether simply performing financially well made a company "great" and for example a "good" company that had a large and lasting impression on an industry (like Microsoft) might be considered great regardless of their financial performance.
The most glaring argument about this study today is clear from reading the list of the eleven companies chosen as models of good to great. Of those great companies in the early part of 2009 all the companies had declined by 43.12%, compared to the average of 41.5% for the S+P average. (Hankins, 2009). Additionally, Gillette Co. was sold to Proctor and Gamble, Circuit City filed for bankruptcy and is currently liquidating its stores, and Fannie Mae was bailed out by the government because it was in such financial strains. In fact, in the 2001 book, Good to Great: Why Some Companies Make the Leap... and Others Don't Jim Collins said this about Fannie Mae:
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