Follow these leaders: thoughts and views from Jim Collins; Jim Collins spoke with Managing Editor Ellen M. Heffes in February--three months before his scheduled appearance as a keynote speaker at FEI's annual Summit in Chicago. The general topic: leadership related to today's business environment.

Jim Collins is the consummate long-term thinker. The former Stanford faculty member who now runs his own research laboratory views his role as "taking a messy world and going from chaos to concept, and then teaching those concepts." Going through this process is his version of being a student.

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"You have to be a student before you can be a teacher," says Collins, who has spent the better part his 47 years both learning and teaching about what separates great companies from good companies, and how good can become great.

Co-author of the mid-1990s blockbuster Built to Last, Collins went solo to write Good to Great in 2001 (which still remains on every non-fiction best-seller list). From there on, it's, as we say, "history." His ideas and his popularity, have soared. Indeed, certain phrases that have become part of the business lexicon over the past decade can be attributed to Collins--such as "getting the right people on the bus" and "BHAGS" (Big Hairy Audacious Goals).

Some of his findings are surprising, and others are downright startling, as he and his research team focus on minute details of company and individual performance to cull information to fit into their very demanding benchmarks. Some findings even seem to crush myths on widely held themes of effective leadership.

Collins doesn't argue with non-believers, but explains that his findings are based on the data his team has accumulated. For instance, for every company that "makes the cut" to be included in a good-to-great study, Collins personally reads everything he can get his hands on that was written about the company for the past 80 or 90 years. So, while he has much knowledge, he is mindful of how he communicates his findings.

Indeed, speaking in the interview, he is careful to frame his comments around "what the data shows," and not a Jim Collins point of view. For instance, while many companies are enamored with changing the leadership ranks by bringing in CEOs from the outside, as well as with employing charismatic leaders, Collins warns of the dangers, saying he's found a "strong negative correlation between outside CEOs and companies becoming great."

Over 90 percent of the CEOs in the good-to-great study, he says, came from inside their companies, and many had what he calls a "charisma bypass." Thus, he concludes, there is an overwhelming weight of evidence suggesting that "the savior CEO model is correlated with mediocrity."

And, while it's hard to define and measure charisma, he argues his studies also found a negative correlation between charisma and building great companies. Sure, a Lee Iacocca (former savior CEO of the then-embattled Chrylser Corp.) certainly had charisma. But Walgreen Co. CEO Charles R. (Cork) Walgreen 3rd, who would probably not qualify as charismatic, built a company that has made it to the list of 11 good-to-great companies highlighted in Collins' book of the same name.

Clearly, he quips, "it doesn't mean if you're charismatic that it's lethal." He points to a few who have been able to "overcome and transcend their charisma to build great companies"--such as Sam Walton, who built Wal-Mart Stores Inc. When Walton passed his leadership on to insider and non-charismatic CEO David Glass, Collins says this proved that the roots of the company established by Walton were in place, and Glass carried on the legacy. "It was Sam Walton's way of proving, 'See, it wasn't my personality in the first place. The company has gone far beyond what I built.'"

So, why is charisma a negative? The way Collins explains it: If you're not charismatic, you have to win arguments over what you think the company should do based on logic, fact, argument, debate, data and evidence. The equations have got to balance or you're not going to win your case.

On the other hand, if you're charismatic, you can overcome data, evidence, argument and logic, because your sheer force of persuasive personality, combined with the power of your executive seat, allows you to get people to do almost anything. So if you're charismatic and wrong, it's a very dangerous combination; if you're less charismatic, you're more likely to make lesser mistakes, because you can't win the arguments as often.

Charisma aside, Collins says the critical factor that is needed to build great companies is based on the leader's ambition, as depicted at the top of his five-tiered leadership pyramid (See Level 5 Leadership Pyramid on page 22). "Those who built the best organizations were ambitious first and foremost for the cause of the company, for the work, not for themselves," he says. "That is a very special kind of humility. It wasn't about them."

Qualities of this type of leader also include the individual's ability to combine humility with a willfulness to do whatever it takes to produce the great results. A "stoic, willful, determined willingness to undertake any brutal decisions on one side, but always in the service of a cause or an organization or something that is much bigger than yourself," is the way he explains those qualities.

Leading by Example

To grasp the true meaning of a Level 5 Leader, Collins cites from the political arena President Abraham Lincoln. "It was about the nation. Yet, at the same time, in order for that nation to live, Lincoln endured 600,000 Americans dead--including, in the end, his own life." Collins is in awe of the will it took Lincoln to persist through the Civil War in honor of his "higher cause that the nation must endure."

And for a business example of a leader who demonstrated that drive that is greater than personal ambition? Think of Katherine Graham, who had The Washington Post thrust on her shoulders following a family tragedy, and who turned a good newspaper into a great newspaper. She rose to the occasion, he says, and took The Post to a whole different level--in the 1960s, when "women didn't run things like that." In fact, he says, reading her book, Personal History, is like "climbing inside the head of a Level 5. She has that classic humility-and-will combination."

Another example of this type leader is Bill Allen, the former corporate counsel at The Boeing Co. in 1945, when Boeing lost over 90 percent of its revenues overnight. Talk about tough times. Allen not only saved the company, but transformed it into a commercial company where, under his watch, it built the 707, 727, 737 and 747.

Okay you may think, enough from the past. Give me some current role models. That's not so easy, since Collins says a CEO's record isn't really ready for assessment until about 10 years after he or she is done. "The signature of a Level 5 leader is that the company continues to be great, or to improve, after you depart." So, yes, you have to be a great leader while you're at the helm, but, he says, "the real litmus test is your legacy."

So, who are candidates for greatness? Could Lou Gerstner, former CEO of IBM Corp., be considered? Collins agrees, and in fact, he describes Gerstner as somebody who rose to Level 5 during his career. Perhaps Gerstner started out as a Level 1 (highly capable individual) when he was an analyst at McKinsey & Co.; he systematically rose to level 2 (contributing team member); then Level 3 (competent manager); then Level 4 (effective leader), while at RJ Reynolds Tobacco Co. and American Express Co. He went to IBM to "save the company," and, again, Collins recommends Gerstner's book, Who Says Elephants Can't Dance? The clincher is a line in the book, where Gerstner states, "But along the way, something happened--something that, quite frankly, surprised me. I fell in love with IBM."

At that moment, Collins says, Gerstner rose to a Level 5 executive, recognizing that he was responsible for IBM--a national institution--and, in an almost "Lincolnesque" way, he was elevated. He's handed the position off to Samuel Palmisano, who has so far built strongly upon the momentum created in the Gerstner era. This is not a turnaround that died with Gerstner; it keeps right on going.

A second living candidate is John Morgridge, the man who architected what later became Cisco Systems Inc. He took over from the founders, and the current CEO, John Chambers, took the helm from him.

To be a true leader, you need people to follow--willingly. Collins has written "the exercise of leadership is inversely proportional to the exercise of power." He says people often confuse power and leadership. For example, holding a gun to someone's head and getting them to do something is exercising power. Conversely, "If I don't have power over you, and I can get you to do something, I'm exercising persuasion and perhaps, even, leadership."

In today's corporate world, he explains, we have something that is very unusual in social systems, where executives and chief executives have concentrated executive power. This is not the case with most university presidents, government or non-profits. "What often looks like leadership is, in fact, just executives exercising power," but, he says, there's a catch, since we are moving towards a world where, ironically, even CEOs have less power over people. "The best knowledge workers and most talented people that you want in your organization have lots of options. They can go do something else."

In such an environment, he warns, the power of the chief executive role may be becoming more complex and diffuse and, therefore, you will need more of the ability to lead, rather than just relying on the "cudgel of power." After all, he adds, "you are only leading if, and only if, people follow you when they have the freedom not to."

Great Companies' Secrets Revealed

On what it takes to build a great company, Collins offers two perspectives. First, interestingly, a few of the executives whose companies were highlighted in the book expressed discomfort, and one even quipped that he would be more comfortable with the company not being included at all. Why, you might think? After all, they were being featured very positively.

Collins says he learned from this experience that truly great companies focus always on what they can do next. "The hidden secret is to realize that it is a constantly dynamic process," he explains. From this, he's concluded: "You will never become great unless you embrace the idea that you are always only good relative to what you can do next."

The second perspective of great leadership is that the drive to get better is internal; it's a creative desire to make something better, because it can be better. It's not because of fear of competition, threats from outside your business or how much money you can make. It's an unquenchable, inner drive that Collins refers to as being "productively neurotic."

And, it never stops, he says. "You're just never, ever satisfied." Indeed, he says, a high-ranking officer at Wal-Mart once told him, "to really understand what Sam [Walton] instilled in us, we're the world's largest company with the world's largest inferiority complex!"

Now, if that drive could only be engineered into the DNA of the company. Collins says it's the purpose of his research to answer the question: What is it that takes these "individual neuroses" and builds them into self-sustaining organizations--weaving it into making an organization? He says if he had one overall answer to his own question, it would be: "It all begins with getting the right people."

With the right people, you then need to create the systems within which they can operate. So, he says, when people ask about what kind of incentive system will attract the people with the kind of values you want to stand for and what you want to accomplish, Collins says, "You can never incentivize, motivate, discipline or manage the wrong people into the right people. You have to find the right people and hang on to them."

Further, he continues, you need to "populate your company with people who share the values and type of environment you want to create. It's as hard and as easy as that!"

Following that are the details, which involve discipline. "It's disciplined people, who in engage in disciplined thought and who take disciplined action." This, adds Collins, "is the framework for turning good into great." However, he emphasizes, "Far and away, hands down--it's first who, first who, first who--and then what!" So we're back to one of the things that Collins is known for: getting the right people on the bus.

Greatness Amidst Uncertainty

We live in an unpredictable world. We in the U.S. have survived a bursted bubble, a spate of corporate scandals and ethical lapses, 9/11, executive compensation packages that are going through the roof and a slew of other unplanned events. How is a company to survive, as well as thrive, amidst such uncertainty?

Here, again, Collins says his research provides perspective. Studying about 70 companies in great depth--from their roots, across 16 decades of history--has given him a "sweep of how the history of American business has unfolded." With that knowledge, a few things stand out to him.

First, there have always been unpredictable times. "It was very unpredictable in the 1920s, the '30s, as were the fuel shocks and the interest rate shocks in the '70s." Nobody predicted 9/11 or Pearl Harbor. So, Collins says he's not convinced, based on historical evidence, that the 21st Century is any more unpredictable or volatile than it was in the past. However, there are some differences now.

The first fundamental change he finds disturbing is that it used to be that you could get entrepreneurial rewards only if you took entrepreneurial risk. "The reason why people would make, and then usually end up giving away, hundreds of millions of dollars is because it was risk-adjusted. They started a company," he argues.

He points to a Walt Disney and a Bill Hewlett and David Packard, who all started businesses in their garages. Intel began as a "small group of renegade engineers." These people all created something out of nothing. The odds that they would succeed at that level were so low, and yet they did anyway. As a result, he says, they have risk-adjusted returns that are very high.

With the modern stock option, Collins says, we've created an environment that allows people to reap entrepreneurial rewards without taking entrepreneurial risk. While relatively new in American economic history, he says, "near as I can tell, it is deeply dysfunctional, and I don't know how we're going to correct for this." Also, he believes this mentality has contributed to part of a larger ethos that developed in the '90s that he's labeled the difference between "built to last and built to flip."

While in prior generations, we wanted to build companies and great products to last, he explains, by the '90s, instead of building shareholder value to last, it was building share price to flip, along with shareholders shifting to a "share-flipper mentality."

He cites Enron Corp. as an example of increasing the value of the share price independent of the value of the underlying enterprise in a way that would benefit a few people. That's an extreme version of "built to flip," and while it doesn't represent the norm, it was "a natural extension of the pendulum swing." Essentially, he argues, we have bouyant capital markets, plus liquid shares, plus stock options, etc., all of which have made this more possible than in the past.

How can we correct for it? Collins says really hard questions have to be asked about how we create our compensation so that it truly connects with creating long-term value. Also, he notes, his research shows no relationship between executive compensation and long-term performance, nor between big mergers that just increase the size of things. "Never in the history of the Fortune 500 have two big mediocrities joined together to make one great company," asserts Collins. "Never did a good-to-great transformation begin with a merger or acquisition. You can accelerate a greatness that already exists, but I don't think you can create greatness with just buying it--at least it hasn't happened in history."

So, concedes Collins, "We have some dysfunctionalities. That's the bad news." The good news, however, is that he's deeply hopeful. He says he meets lots of executives who are in the "built-to-last camp." These people are asking, "What did I create?" "What did I contribute?" "What is my legacy?" "How is the world different and better because I was here?"

For every dark story--for every Enron or WorldCom--he says there is an unknown company out there (meaning unknown in the media) that is, indeed, going about the business of building a great company.

Level 5 Hierarchy

LEVEL 5     Level 5 Executive
            Builds enduring greatness through a paradoxical blend of
            personal humility and professional will.
LEVEL 4     Effective Leader
            Catalyzes commitment to and vigorous pursuit of a clear and
            compelling vision, stimulating higher performance standards.
LEVEL 3     Competent Manager
            Organizes people and resources toward the effective and
            efficient pursuit of pre-determined objectives.
LEVEL 2     Contributing Team Member
            Contributes individual capabilities to the achievement of
            group objectives and works effectively with others in a
            group setting.
LEVEL 1     Highly Capable Individual
            Makes productive contributions through talent, knowledge,
            skills and good work habits.

Reprinted from Good to Great, 2001, with permission.