Bad to Worst
A Review of Good to Great
#dmingml #goodtogreat #dminlgp

I work all night, I work all day, to pay the bills I have to pay
Ain't it sad
And still there never seems to be a single penny left for me
That's too bad

—Abba, Money, Money, Money

I just couldn’t quite get past it.

There is a lot to appreciate about the phenomenal research of Jim Collins and his team in their series of “business books” that include Good to Great and Good to Great and the Social Sectors, but to be brutally honest, Collins lost me almost immediately when he provided both his list of eleven dominant companies and his reasons for deigning them “Great” companies. Just so you know, his list in this 2001 book includes Abbott Laboratories, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreen, and Wells Fargo.

What makes these eleven companies stand out from the pack?

In short, the standard for greatness in the Good to Great scenario is entirely about stock performance. Period. It’s right there in black and white.

The Good, the Bad and the Ugly: The Ugly

First, let’s revisit just a handful of those eleven “great” companies:[2]

·         Circuit City. Circuit City went bankrupt and liquidated all of its stores in 2009, just six years after “Bloody Wednesday,” when almost 4000 of its most capable sales reps were laid off and its entire employee base was converted from commission to a strict hourly wage structure, intended to save the company $130 million annually at the risk of its reputation as the electronics store offering the best customer service. This risk did not pay off.

·         Fannie Mae. The Federal National Mortgage Association (FNMA), aka “Fannie Mae,” was created during the FDR Administration as a government sponsored enterprise helping Americans obtain mortgage financing. During the 60s the link between the FNMA and the government became more tenuous when it gained status as a publicly traded company. Through the high-rolling 1990s and early 2000s, the agency “gamed” its numbers and eventually imploded in the mortgage crisis of 2007. The government has accused company executives of maximizing their bonuses at the expense of taxpayers, and offering favored loans to high ranking political officials.

·         Kroger. While Kroger is not necessarily the “Great Satan” of supermarket chains, it is much more ubiquitous than most people realize. For example, here in the Pacific Northwest where I live and work, there are no stores with the Kroger label. But consider the following list of Kroger chains operated under other names in the region: Food 4 Less, Fred Meyer, Fry’s, QFC and Ralph’s. It operates nearly 2000 pharmacies and 1000 gas stations nation-wide. In 2007 it got into selling financial products directly to consumers, including MasterCards, mortgages, home equity loans, insurance and identity theft products—just in time for the great recession of 2008.

·         Nucor. Nucor is a huge steel conglomerate that has purchased several other steel companies through the years. “In 2000, Nucor settled with the U.S. Justice Department and the United States Environmental Protection Agency to resolve allegations that it had not adequately controlled the emission of toxic chemicals into the air, water, and soil of Alabama, Arkansas, Indiana, Nebraska, South Carolina, Texas, and Utah. The $98 million result was ‘the largest and most comprehensive environmental settlement ever with a steel manufacturer.’ The University of Massachusetts' Political Economy Research Institute in 2002 ranked Nucor as the fourteenth-largest corporate contributor to U.S. air pollution, with a toxic score of 152,421 (pounds released × toxicity × population exposure) due to the release of 760,000 pounds of toxins into the air yearly.”[3]

·         Philip Morris. Widely known as the largest tobacco company on the planet, Phillip Morris became legendary for stonewalling and offering disinformation about the health risks of its tobacco products. In addition, it has become the second largest beer company in the world and it owns one of the world’s largest food consortiums, with its purchase of Kraft and General Foods. It has changed its name to Altria Group to disassociate its products from the tainted name of its tobacco-based predecessor.

So within a decade after these eleven companies were designated “great” by the standard of the original book, several had faltered in significant ways, and in several cases it became clear their success was based on a false premise of one sort or another.

The Good, the Bad and the Ugly: The Bad

There are several methodologies that might be used to determine a “great” company. Collins’ approach is absolutely foolproof, in the sense of basing the rankings on the hard numbers of stock performance. But it doesn’t take an Enron to realize that many companies have been “cooking the books” over the past decade, often sacrificing the long-term health of their companies for the compensation that executives gain with high performance in the short-term. Indeed, during the post-Reagan era, executive pay has shot up from a ratio of 35:1 ca. 1980 (comparing CEO compensation with that of the average worker) to a high of almost 300:1 in 2000. That ratio has mitigated some—first when the internet bubble burst ca. 2001 and again during the recent recession. But it is once again on the rise and was 243:1 last year.

[4]

This baldly flies in the face of one of Collins’ most astounding findings in Good to Great:

In fact, many economic theorists mark a significant turn from Keynesian economic theory to Friedman’s economic theory in the Reagan era. Until that time, government regulations in both Republican and Democratic Administrations kept the size and reach of corporations under check. Many corporations couldn’t operate across state lines (like banks, for example) and multi-nationals weren’t able to easily move jobs overseas. There was a balance between Big Labor and Big Business that kept each in check. The American Middle Class sold its soul—family-wage jobs, benefits and general job security—for a lottery ticket in the Brave New World of deregulation and “supply side” economics.

It worked. For a while. There was a plethora of lower paying jobs and easy credit that led to a massive housing bubble. Individual retirement accounts, replacing the company-funded pensions customarily offered prior to Reagan, shot into the stratosphere as multi-nationals moved into new markets all around the globe.

All that was before 2008.

Good to Great, published in 2001, includes the top-performing companies from the Reagan era to the earliest days of George W. Bush. There are many other ways to look at what might make a company “great.” Fortune magazine, in March, 2011, offered its list of “The 10 Most Socially Responsible Companies in the World.”[6] Not a single member of Collins’ “Class of 2001” was part of this list of “great” companies.

The Good, the Bad and the Ugly: The Good

All that said, I still find hope in Collins’ work—and especially in his accompanying monograph, Good to Great and the Social Sectors.

Collins’ five basic concepts are phenomenally useful and utterly transcend his weak measuring stick for greatness:

·         Level 5 Leadership: For Collins, truly great companies have a CEO with humility and a will to succeed. They have the long-term health of the company in clear view.

·         First Who …Then What: The right people in the right positions is essential to organizational health.

·         Control the Brutal Facts: It is important to be absolutely honest and objective.

·         Hedgehog Concept: Based upon the ancient Greek parable: “The fox knows many things, but the hedgehog knows one big thing,” successful businesses excel at “the one thing.”

·         Identify your core competency, focus on it and boil it down to a single, simple and clear concept. Truly great organizations resist the temptation to diversify beyond their means and expertise.

·         Culture of Discipline: Disciplined thinking leads to disciplined action.

In essence, all of these boil down to the character of the leadership. My doctoral colleague from Australia, Glenn Williams, is in fact focusing on this very thing in both his important research project and his everyday work as a leadership consultant. I am looking forward to Glenn’s conclusions about the relationship of leadership to the leader’s ethics and character. I have a suspicion—as Collins himself seems to presage—that truly great companies have deeply ethical leaders at their helm who understand the “bottom line” for a sustainable company over the long haul is about much more than maximizing this year’s profits and bonuses. Truly great companies have leaders who watch out for the people of their company, the people in the communities where they live and work and, ultimately, the people and all the other inhabitants of the planet.