Reference no: EM132262504

In 1981, a seemingly ordinary man named Darwin E. Smith was named chief executive of Kimberly-Clark, a stodgy old paper company whose stock had fallen 36% behind the general market over the previous 20 years. Smith, the company’s mild-mannered in-house lawyer, wasn’t so sure the board had made the right choice a feeling that was reinforced when a Kimberly-Clark director pulled him aside and reminded him that he lacked some of the qualifications for the position. But CEO he was, and CEO he remained for 20 years. What a 20 years it was. In that period, Smith created a stunning transformation at Kimberly-Clark, turning it into the leading consumer paper-products company in the world. Under his stewardship, the company beat its rivals Scott Paper and Procter & Gamble. And in doing so, Kimberly-Clark generated cumulative stock returns that were 4.1 times greater than those of the general market, outperforming venerable companies such as Hewlett-Packard, 3M, Coca-Cola, and General Electric. As noted in a Harvard Business Review article, Kimberly-Clark is one of eleven companies on the Fortune 500 since 1975 that has been elevated from good to great and has maintained its transformed status. Mr. Smith was recognized for making this accomplishment possible. Mr. Smith achieved this transformation by building strength within the company. He redefined and raised corporate goals. To reach this end he persistently examined the company’s leadership group, winnowing those who did not meet his specifications and promoting those who did. Mr. Smith also increased the geographical diversification of Kimberly-Clark’s facilities. The emphasis he placed on consumer products was exemplified by the money he allotted to research and development ($111 million in 1987) and his decision not to give up on the fledgling diaper business, against much opposition. His vision helped lead HUGGIES® diapers to its rank as the number 1 brand in the country today. Additionally, he strengthened the company’s position in the tissue segment of the paper industry, pushing both Kimberly-Clark and its competitors to improve and strengthen their tissue technology and facilities. The financial strength of the industry’s tissue segment today is testament to his efforts. During Mr. Smith’s tenure as chairman and chief executive officer, Kimberly-Clark stockholders experienced returns of 19.6% annually, generating cumulative stock returns that were 4.1 times greater than those of the general market and outperforming venerable companies including industry rivals. It had been a welcomed change from the 20 years prior when Kimberly-Clark stock had fallen 36% behind the general market. Mr. Smith was the type of leader who gave credit for success to the employees, the managers, his predecessors, and the customers. Smith’s turnaround of Kimberly-Clark is one of the best examples in the twentieth century of a leader taking a company from merely good to truly great. Smith is an individual who blends extreme personal humility with intense professional will. According to a five-year research study, executives who possess this paradoxical combination of traits are catalysts for the statistically rare event of transforming a good company into a great one. Darwin Smith was identified as the one who has the highest level in a hierarchy of executive capabilities in the research. Leaders at the other levels in the hierarchy can produce high degrees of success, but not enough to elevate companies from mediocrity to sustained excellence. Darwin Smith’s leadership qualities not only transformed a good company into a great one but he was able to get the right people on the bus and the wrong people off the bus and creating a culture of discipline. Good-to-great transformations don’t happen without Level 5 leaders at the helm. They just don’t. Level 5 leadership is counterintuitive. Indeed, it is counter-cultural. People generally assume that transforming companies from good to great requires larger-than-life leaders big personalities like Iacocca, Dunlap, Welch, and Gault, who make headlines and become celebrities. Compared to those CEOs, Darwin Smith seems to have come from Mars. Shy, unpretentious, even awkward, Smith shunned attention. When a journalist asked him to describe his management style, Smith just stared back at the scribe from the other side of his thick black-rimmed glasses. He was dressed unfashionably, like a farm boy wearing his first J.C. Penney suit. Finally, after a long and uncomfortable silence, he said: “Eccentric.” Needless to say, the Wall Street Journal did not publish a splashy feature on Darwin Smith. But if you were to consider Smith to be soft or meek, you would be terribly mistaken. His lack of pretence was coupled with a fierce, even stoic, resolve toward life. Smith grew up on an Indiana farm and put himself through night school at Indiana University by working the day shift at International Harvester. One day, he lost a finger on the job. The story goes that he went to class that evening and returned to work the very next day. Eventually, this poor but determined Indiana farm boy earned admission to Harvard Law School. He showed the same iron will as CEO of Kimberly-Clark. Indeed, two months after Smith became CEO, doctors diagnosed him with nose and throat cancer and told him he had less than a year to live. He duly informed the board of his illness but said he had no plans to die anytime soon. Smith held to his demanding work schedule while commuting weekly from Wisconsin to Houston for radiation therapy. He lived 25 more years, 20 of them as CEO. Smith’s ferocious resolve was crucial to the rebuilding of Kimberly-Clark, especially when he made the most dramatic decision in the company’s history: sell the mills. Shortly after he took over, Smith and his team had concluded that the traditional core business coated paper was doomed to mediocrity. Its economics were bad and the competition weak. But, they reasoned, if Kimberly-Clark was thrust into the fire of the consumer paper-products business, better economics and world-class competition like Procter & Gamble would force it to achieve greatness or perish. And so, like the general who burned the boats upon landing on enemy soil, leaving his troops to either succeed or die, Smith announced that Kimberly-Clark would sell its mills even the namesake mill in Kimberly, Wisconsin. All proceeds would be thrown into the consumer business, with investments in brands like Huggies diapers and Kleenex tissues. The business media called the move stupid, and Wall Street analysts quickly downgraded the stock. But Smith never wavered. Twenty-five years later, Kimberly-Clark owned Scott Paper and beat Procter & Gamble in six of eight product categories. In retirement, Smith reflected on his exceptional performance by saying simply, “I never stopped trying to become qualified for the job.” Question 1. From your understanding of Darwin Smith, in the case study, brief his qualities as a Leader. Leaders are Born / Leaders are Made. Justify your understanding From your analysis of the personality of Darwin Smith,