Leadership is a process by which one person influences the thoughts, attitudes, and behaviors of others. Leaders set a direction for the rest of us; they help us see what lies ahead; they help us visualize what we might achieve; they encourage us and inspire us. Level 5 leadership refers to the highest level in a hierarchy of executive capabilities that we identified during our research.
Leaders at the other four levels in the hierarchy can produce high degrees of success but not enough to elevate companies from mediocrity to sustained excellence. And while Level 5 leadership is not the only requirement for transforming a good company into a great one—other factors include getting the right people on the bus (and the wrong people off the bus) and creating a culture of discipline—our research shows it to be essential. Good-to-great transformations don’t happen without Level 5 leaders at the helm. They just don’t. (Traylor, 2001)
The Level 5 leader sits on top of a hierarchy of capabilities and is, according to our research, a necessary requirement for transforming an organization from good to great. But what lies beneath? Four other layers, each one appropriate in its own right but none with the power of Level 5. Individuals do not need to proceed sequentially through each level of the hierarchy to reach the top, but to be a full-fledged Level 5 requires the capabilities of all the lower levels, plus the special characteristics of Level 5. (HBR, 2001)
It differs from other leadership styles as the leaders come from the grass root of the organization. Meaning, it is the leader who has grown and developed from the ground level of the organization and has gradually escalated towards the top most level. This allows an employee to go through all phases and nurture to the top level of the organization i.e. CEO level.
A few years ago in Strategy & Leadership, Michael Raynor debunked the premises on which the shareholder-first model rests, and a few months ago Michael Porter criticized the current belief that looking beyond the business is bad for business. In the January/February Harvard Business Review he argues that companies should be considering other stakeholders, and so generates economic value by creating societal value.
These respected thinkers offer another answer to the question about the purpose of a business: the firm should see itself as an interdependent part of a community that consists of multiple stakeholders whose interests are integral to business success. In this view, an enterprise can be seen as a system of long-term cooperative relationships between affected parties. (Collins, 2001)
These include the firm’s managers and employees, customers and clients, investors, suppliers, the towns, states and nations where the firm is located or sells goods and services and even future generations of stakeholders. In such a system, stakeholder influence generates pressure for the organization to behave in ethical and environmentally and socially responsible ways, and in turn, this interdependency helps the firm be sustainable and resilient.
This alternative approach to leadership is variously referred to as ‘‘sustainable,’’ ‘‘Rhineland’’ or ‘‘honeybee’’ leadership. By sustainable we don’t just mean a firm is being green and socially responsible. Research and observations in over 50 firms around the world, including in many listed corporations, suggest that sustainable leadership requires taking a long-term perspective in making decisions; fostering systemic innovation aimed at increasing customer value; developing a skilled, loyal and highly engaged workforce; and offering quality products, services and solutions. (Caroselli, 2003)
In 2005, Lee Scott, ex-CEO and President of Wal-Mart Stores and now Chairman of its Executive Committee, announced that the company would essentially adopt sustainable leadership principles going forward, although he did not use that term. Financial performance was solid, but the company was the target of many complainants – employees, local communities, suppliers, and environmentalists. Scott decreed that Wal-Mart, one of largest Fortune 500 corporations, would become more ethical, and more socially and environmentally responsible. The company would use its political might to benefit ordinary Americans in healthcare and energy savings, and make people’s lives better.
Scott even advocated paying more for products from ethical suppliers – an extraordinary reversal by an enterprise built around a low-cost strategy. In the years since, Wal-Mart has experimented with environmentally-friendly stores and other socially-responsible measures. Interestingly, its bottom line has not suffered during this process, posting net sales increases for the past five years, according to Wal-Mart’s 2009 annual report. In recent months, in a move to improve the healthiness of its products, the firm announced plans to reduce the fat and salt in its house brand groceries and cut prices on fresh produce. (Shaw, 2005)
A considerable body of evidence shows that sustainable practices are more likely to enhance business performance than the shareholder-first approach. First, various writers have examined and compared the Anglo/US system with its Rhineland counterpart, concluding that Rhineland principles are more sustainable and lead to better outcomes than the shareholder-first approach. Second, Avery and Bergsteiner have gathered extensive evidence for each of the individual practices in their pyramid model, showing how they are more likely to contribute to positive business outcomes than their counterparts under the shareholder-first model.
For example, a major difference between shareholder-first and sustainable practices lies in whether they retain people or lay them off when times get difficult. Staff retention is regarded as a foundation element in the pyramid because conditions aimed at keeping staff can be initiated at any time. However, retaining staff supports various higher order outcomes in the pyramid; it allows knowledge to be retained, and supports quality, trust, and innovation, for example, and enhances financial performance, as well as staff and customer satisfaction. Similar cases can be made for the other 22 elements. (Cooke, 2008)
What senior executive would reject these as legitimate goals for an enterprise seeking to both thrive and endure? To some cynics, sustainable leadership – a management approach aimed at delivering better and more sustainable returns, reducing unwanted employee turnover and accelerating innovation – sounds too good to be true. They dismiss it as just another form of humanistic management, merely good management practices, or as following old-fashioned values. There is some truth in each of these characterizations. Certainly, sustainable leadership embraces aspects of humanistic management in that it includes valuing people and considering the firm as a contributor to social well being.
The individual practices of sustainable leadership are not new: B Warren Bennis advocated recruiting, training, and employing an effective top leadership team rather than just relying on the heroic CEO. He also proposed that firms become financially transparent as a step to becoming more ethical. B Peter Drucker wanted managers to promote change and allow innovations to come from all over the organization, thereby enabling ordinary people to make extraordinary things happen.
B Stephen Covey urged using the knowledge and engagement of a firm’s employees. What is new is the understanding that these practices form a self-reinforcing leadership system that enhances the performance of a business and its prospects for survival. What is also significant is that sustainable leadership practices are diametrically opposed to the typical shareholder-first approach, which business schools, management journals, the media, and many practitioners continue to promote. (Branson, 2010)
Sustainable leadership in practice Sustainably-led organizations have been identified across different sectors, countries, institutional contexts, and markets. Examples of successful enterprises that consistently embrace sustainable leadership principles abound, particularly among privately-held firms and SMEs. Unlisted companies displaying virtually all of the 23 characteristics of a sustainable enterprise include: in the USA, WL Gore & Associates (Goretexw and other products) and SAS (software); in Germany, Giesecke & Devrient (bank notes and securities) and Ka¨rcher (cleaning solutions); and in Switzerland, Endress & Hauser (flow technologies) and Migros (retail conglomerate).
However, it is likely to be more difficult for listed corporations or private equity groups to operate on sustainable principles because of the pressures on them to achieve short-term performance goals. Yet numerous listed enterprises manage to operate sustainably, if necessary by standing up to or managing their relationships with the financial markets. Well-known examples include Germany’s Munich Re from the finance industry; Colgate (consumer goods) based in the USA; Britain’s BT Group (telecommunications); the Thai construction corporation, Siam Cement Group, and its competitor from Switzerland, Holcim. (Streshly & Gray, 2010)
There are many obstacles in changing to sustainable leadership. First, sticking with conventional wisdom is comfortable and easy – it’s business as usual. Second, change is disruptive and initially creates both financial and intangible costs, although as the Wal-Mart case shows these may not slow growth and profits. Third, most people disregard hard evidence and make their decisions on the basis of ideological beliefs. Managers are no exception to this human foible despite their training and experience in decision making. Fourth, major change involves risks, bringing with it the chance of a drop in short-term performance, so stakeholders need to be prepared to focus on the long term.
Finally, radical change can take a long time to embed and then maintain. A major Australian bank converted from a shareholder-first strategy to a sustainable leadership model. The change took a decade to take hold, with outstanding results, but unraveled in only a few years to under a new CEO with a different agenda. The choice to adopt a more sustainable strategy, one that research and practice show leads to higher resilience and performance over the long term, remains in the hands of each executive team.
Unfortunately, executives remunerated on a short-term basis may have no incentive for seriously pursuing long-term change, to the detriment of shareholders and other stakeholders. This is where the fundamental short-term focus of the shareholder-first or business-as-usual model begins to destroy shareholder value and endanger a firm’s very survival. (Brown, 2005)
Branson, D. M. (2010). The last male bastion: gender and the CEO suite in America’s public companies. Taylor & Francis. Brown, M. T. (2005). Corporate integrity: rethinking organizational ethics, and leadership. Cambridge University Press. Caroselli, M. (2003). The business ethics activity book: 50 exercises for promoting integrity at work. AMACOM Div American Mgmt Assn. Collins, J. C. ( 2001). Good to great: why some companies make the leap–and others don’t. Harper Business. Cooke, P. (2008). Branding Faith: Why Some Churches and Non-Profits Make a Difference and Other’s Don’t. Gospel Light. Shaw, K. A. (2005). The intentional leader. Syracuse University Press. Streshly, W. A., & Gray, S. P. (2010). Leading Good Schools to Greatness: Mastering What Great Principals Do Well. Corwin Press. Traylor, P. S. (2001). IT Takes Two. CIO Magazine , Vol.15, No.4, November 15