I'd imagine that Jim Collins' Good to Great is a tough read for people in his target demographic. The book is full of hard-to-swallow truths that might not sit well with the Fix Me Quick breed of managers who are most likely to pick it up at the bookstore. But for us investors, it's a veritable gold mine.
Good to Great is the product of Collins' quest to answer questions raised by his earlier work, Built to Last. The first book showed how a great company could sustain its level of excellence, but said nothing about how to become great.
So Collins set up some stringent criteria to identify the cream of the crop -- businesses that rose from mediocrity to awesomeness very quickly, and then stayed there for at least 15 years. He filtered out industrywide and marketwide superior gains to discover individual companies that did well, without a boost from their entire sectors. In the end, he had a short list of just 11 good-to-great transitions.
If you think it's an exciting bunch, you probably like scoreless football games and reliable station wagons, too. There isn't a classic high-growth screamer in the bunch; these are the stocks you'll find in well-managed value and income funds. That said, you'll leave this book with a newfound respect for each of these businesses, along with some new ways to evaluate management quality in other companies.
Take consumer paper-products giant Kimberly-Clark (NYSE: KMB ) , for example. Before Good to Great, I would have said, "No, seriously -- take it!" But now I know about the company's rebellious past -- it was a real Rule Breaker back in the days of ex-CEO Darwin Smith -- and the courage, patience, and dogged optimism that went into the titan we see today. Kimberly-Clark sold all of its bread-and-butter paper mills to confront powerhouse Procter & Gamble (NYSE: PG ) head-on in the consumer market, to get every employee emotionally invested in the business they were doing. It worked.
How does that help me?
I'm not rushing off to buy shares in Kimberly-Clark today; that turnaround already happened. It's now a fine company, but I'm much more interested in finding firms on the verge of taking off, like Collins' paragons once did.
That's why I'm fascinated by the hauntingly consistent stories they have to tell. It's not about rock-star CEOs coming in from the outside to change everything overnight. It's definitely not about managing earnings to meet short-term expectations, or about yielding to challenges if there's a safer (but less rewarding) path to take.
Collins' book is chock-full of brilliant little anecdotes about patience, courage, and honesty of Brobdingnagian proportions, starring businesses like Wells Fargo (NYSE: WFC ) , Nucor (NYSE: NUE ) , and Walgreen (NYSE: WAG ) . They're contrasted with pratfalls and myopic thinking from these companies' direct competition. Their closest comparable peers just lacked the same qualities that brought market-thumping excellence to the lucky 11.
I find myself recalling these anecdotes and the principles they illustrate as I read through current news releases, interviews, and financial blogs. They color my thinking about what makes a great management team, and I'm often trying to decide whether a given manager would cut it at Walgreen or Kimberly-Clark. A select few probably would, such as Costco (Nasdaq: COST ) CEO Jim Sinegal and Cisco (Nasdaq: CSCO ) leader John Chambers. But they're a rare breed.
Can you help, Fool?
Sure we can! Our newsletters are based on principles that would sound very familiar to Jim Collins. You could say that Built to Last is about Motley Fool Income Investor selections, and that Good to Great describes our Hidden Gems. But the qualities of great management apply equally to any long-term investment opportunity. Even a Rule Breakers fan like me can use the basic lessons learned here in everyday research.
So dig through CEO interviews, CAPS comments, reports from company insiders, and candid PR materials with Good to Great in mind. These are the places where you'll find the signs of brilliant leadership with a long-term vision -- or evidence to the contrary.
Dig deeper, Fool:
Take any of the newsletters mentioned above for a free 30-day trial spin. Or, just sign up for a fun, free CAPS account and start learning from your fellow investors today. Costco is a Motley Fool Stock Advisor recommendation.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is always good-to-great.