Level 5 leadership is essential for turning a good company into a great company. "Good-to-great transformations don’t happen without Level 5 leaders at the helm. They just don’t." The American researcher Jim Collins found this in thorough research of company histories and published part of the results in Harvard Business Review (issue January 2001). "People generally assume that transforming companies from good to great requires larger-than-life leaders." They’re wrong. Level 5 leaders are extremely humble and have an intense will. They are "a study in duality: modest and wilful, shy and fearless". Ego on the other hand can bring a company down. "In more than two thirds of the comparison companies, we noted the presence of a gargantuan ego that contributed to the demise or continued mediocrity of the company."

Their humility brings Level 5 leaders to the idea that good luck is at the basis of their results. On the other hand, leaders at the comparison companies blamed their situations on bad luck. Collins calls this ‘the window and the mirror’. Level 5 leaders look out the window, to factors outside themselves, to explain their success. At the same time, they look in the mirror to blame themselves if things go wrong. It’s the other way around at the comparison companies: look in the mirror to explain success and out of the window to blame outside factors. A Dutch author has called this ‘Management by El Nin~o’.

Level 5 leaders sit on the top of a hierarchy, writes Collins. His hierarchy is: "Level 5 – Level 5 Executive Builds enduring greatness through a paradoxical combination of personal humility plus professional will.

Level 4 – Effective leader Catalyzes commitment to and vigorous pursuit of a clear and compelling vision; stimulates the group to high performance standards.

Level 3 – Competent manager Organizes people and resources toward the effective and efficient pursuit of predetermined objectives.

Level 2 – Contributing team member Contributes to the achievement of group objectives; works effectively with others in a group setting.

Level 1 – Highly capable individual Makes productive contributions through talent, knowledge, skills, and good work habits."

One of the differences between Level 4 and Level 5 leaders is that the former "often fail to set up the company for enduring success – after all, what better testament to your own personal greatness that that the place falls apart after you leave?" They don’t carefully select their successors.

Collins is very careful in this article to answer the question if Level 5 can be developed. His preliminary hypothesis is "that there are two categories of people: those who don’t have the Level 5 seed within them and those who do. The first category consists of people who never in a million years could bring themselves to subjugate their own needs to the greater ambition of something larger and more lasting than themselves. The great irony is that the animus and personal ambition that often drives people to become a Level 4 leader stands at odds with the humility required to rise to Level 5. When you combine that irony with the fact that boards of directors frequently operate under the false belief that a larger-than-life, egocentric leader is required to make a company great, you can quickly see why Level 5 leaders rarely appear at the top of our institutions. We keep putting people in positions of power who lack the seed to become a Level 5 leader, and that is one major reason why there are so few companies that make a sustained and verifiable shift from good to great." Collins is not sure which factors can develop the seed of Level 5 leadership. Significant life experiences – called ‘crucibles’ by Warren Bennis – are amongst them. "But to provide ‘ten steps to Level 5 leadership’ would trivialize the concept."

Level 5 leadership is essential for taking a company from good to great, Collins writes, but it’s not the only factor. Other key findings of the research are: - Good-to-great leaders don’t start with vision and strategy, but with people. "They got the right people on the bus, moved the wrong people off, ushered the right people to the right seats – and then they figured out where to drive it." - They face the facts – no matter how brutal – and maintain absolute faith that they will prevail in the end. - They slowly build up the process until their flywheel hits a breakthrough point, "and the momentum really kicks in". - They have a "simple, hedgehog-like understanding of three intersecting circles: what a company can be best in the world at, how its economics work best, and what best ignites the passions of its people". They eliminate virtually anything that does not fit in the three circles. - They have a paradoxical relationship with technology: they stay away from the hypes, but are willing to invest boldly and far-sightedly in technologies that are linked to their three circles. - They have disciplined people, disciplined thought, and disciplined action. "When you have disciplined people, you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls."

In their research, Collins and his team looked for companies that followed the average return on the stock market for 15 years, then experienced a transition point, after which cumulative returns were at least three times the market over the next 15 years. The research started with the 1,435 companies that appeared on the Fortune 500 from 1965 to 1995. They found 11 companies that went from good to great. Not more. The good-to-great companies "averaged cumulative stock returns 6.9 times the general stock market for the 15 years after the point of transition. To put that in perspective, General Electric under Jack Welch outperformed the general stock market by 2.8:1 during his tenure from 1986 to 2000."