There are lots of good companies, but very few great ones. These rare beasts earn above-market rates of return over long periods of time, creating more than one dollar of value for each dollar deployed. For example, even after a tough 2008, Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) has generated a book value growth rate of more than 20% since Warren Buffett got involved more than 40 years ago.

In his book Good to Great, Jim Collins takes a very close look at the characteristics that truly great companies like Berkshire seem to share. Some of his findings seem obvious, but others are far more surprising.

The cream of the crop
First and foremost, Collins discovered that truly great companies had magnificent leaders, and noted a common thread among the management style of these "Level 5 leaders." According to Collins, they channel their ego needs away from themselves, focusing instead on building a great company. This characteristic has nothing to do with lack of ego or ambition; instead, Collins wrote, "their ambition is first and foremost for the institution, not themselves."

Names like Buffett and Roberto Goizueta of Coca-Cola (NYSE:KO) are familiar to most investors. But most may not be aware of Coleman Mockler of Gillette, now owned by Procter & Gamble (NYSE:PG); George Cain of Abbott Labs (NYSE:ABT); or Darwin Smith at Kimberly Clark (NYSE:KMB). Each of these individuals turned a good company into a great one.

The best a man (or woman) can get
During Mockler's term as Gillette CEO from 1975 to 1991, the company came under fire from corporate raiders who seemed to think they had all the answers. In 1986, Ronald Perelman, then head of Revlon, offered to pay a 44% premium for the company, or about a $2.3 billion short-term profit. Most CEOs would have caved in and pocketed a nice windfall. Instead, Mockler decided that Gillette was more valuable as a stand-alone company.

Mockler's move proved prescient. If he'd sold the company to Perelman in 1986, one dollar invested in Gillette in 1976 would have been worth $30.40. Instead, one dollar invested in Gillette in 1976 was worth $95.68 through 1996. The same dollar invested in the general market for those 20 years would only have been worth $14.92.

Sadly, Mockler passed away in 1991, but Gillette's success during his two-decade reign directly resulted from his management. Investing in this great company during Mockler's tenure would have given you a return more than six times greater than the general market's.

Don't stop looking
Of course, just because one executive did well with a company doesn't mean that successors will keep up the tradition. Fannie Mae (NYSE:FNM), one of the stocks Collins talks about, has fallen from grace thanks to the mortgage meltdown.

Still, when you find a great company, your investment thesis should be a no-brainer: Back up the truck. Buffett made sure that Berkshire did exactly that with Gillette shares. Even the world's greatest investor knows that opportunities like this come every so often. When they do, Buffett bets big. You should, too.

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This article, written by Sham Gad, was published on Oct. 4, 2007. It has been updated by Dan Caplinger, who owns shares of Berkshire Hathaway. Berkshire Hathaway is a Motley Fool Stock Advisor selection. Berkshire Hathaway and Coca-Cola are Motley Fool Inside Value recommendations. Kimberly Clark, Coca-Cola, and Procter & Gamble are Motley Fool Income Investor recommendations. The Fool owns shares of Procter & Gamble and Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days. The Fool has a truly great disclosure policy.