At Planlogic, our culture of continuous learning means that we are constantly looking at ways to become better managers of our business. In an industry as complex as financial planning, we are fully aware of our responsibilities to not only just our advisers but also to their clients; and this is why we are always on the lookout for ways to run our business in the best way possible.
In our most recent learning sessions, Planlogic’s management shifted their focus towards ‘Good to Great’, an exceptional book by Jim Collins which explores the underlying factors that led to companies making the shift from being good…to great. From effective leadership, to having the right people and confronting the brutal realities of business, the book uncovers the key factors that helped 11 companies beat some of the most venerable companies of the world and deliver exceptional results.
In this article, we focus on effective leadership – or as the book calls it, ‘Level 5 Leadership. From extreme personal humility to intense professional will, the traits of the leaders that led companies to global success can be very unassuming.
What is Level 5 leadership?
The concept of Level 5 leadership is an empirical finding, not an ideological one. In his study which began with 1,435 companies, Collins identifies Level 5 leadership as a common trait among leaders who were at the helm of the 11 companies that made it from good-to-great. In the end, Collins realised that each of these leaders had a specific combination of personal humility and professional will.
He then introduces a hierarchy of leadership levels that progress from the bottom to the top, with Level 5 reserved for those who take the company from good to great.
Extreme Personal Humility
A Level 5 leader is determined to make the company succeed. At the same time, they are very modest and don’t let their ego get in the way. Essentially, they want to make sure that the company is a great success long after they have left the helm and they achieve this by setting up their successors for success. To quote Collins in his book, he says the following regarding Level 5 leaders:
“Level 5 leaders channel 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, not themselves.”
In contrast, Level 4 leaders have little interest in the company after they have left and will focus on achieving a high level of performance during their reign. This can lead to a downfall of the company after they have left.
Collins notes that David Maxwell, the former CEO of Fannie Mae, requested that part of his retirement package be donated to a fund for low-income housing because he worried that public opinion of the large payments would damage the company’s reputation.
Intense Professional Will
In addition to being humble and modest, Level 5 leaders display a relentless drive, to do whatever that needs to be done to for the success of their companies. Whilst striving for excellence, they never sought personal glory. Darwin Smith, the CEO of Kimberly Clarke, sold off the company’s main focus and core business – paper mills. He chose instead to focus on dominating the consumer paper products industry and transformed the company from a 36% fall in stock value to a company that generated cumulative stock returns 4.1 times the general market.
Be it firing their relatives, betting the company and selling off its core business – no matter how painful or emotionally stressing the decision has to be, they will do it.
The Window and the Mirror
When it comes to success, Level 5 leaders attributed it to factors such as luck, great colleagues, successors and predecessors which can be traced back to their humility. In good times, they look out the “window” to credit those who made the company great, and in bad times they look in the “mirror” to determine when something went wrong.
Level 5 leaders have truly transformed their companies from good to great. They have outperformed venerable companies, led their companies through various threats, and set their successors up for success. And still you would find them say, “There are a lot of people that could do a much better job than me”.