Darwin Smith Case Study: From Good to Great

Darwin Smith's Qualities as a Leader

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. 

Leadership: Born or Made

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. 

Nature of Darwin Smith's Leadership Style

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.

Question 2:

Leaders are Born / Leaders are Made.  Justify your understanding From your analysis of the personality of Darwin Smith,

Question 3:

What in your understanding is the nature of the leadership style exhibited by Darwin Smith ?

Question 4:

What are the types of skills that will be required of a person to be a leader, if one has to be in the genre of Darwin Smith?

Question 5:

Is it possible in today’s context to have leadership qualities possessed by Darwin E. Smith?

Assignment 2

The Reluctant Executive: Sustainability, Surfing, and Leadership Style at Patagonia:

Yvon Chouinard was an accomplished mountain climber in the 1960’s,successfully ascending Peaks throughout the world. To support his climbing activities, he began selling mountaineering equipment out of the back of his car. This endeavour evolved into Chouinard Equipment, a full? service climbing gear manufacturing and sales operation located in Ventura, California.

Skills Required for a Leader like Darwin Smith

Chouinard increased sales volume by importing rugby shirts, gloves, hats, and other clothing From Europe and New Zealand. Soon, the focus turned to manufacturing clothing, and in 1973 the Patagonia clothing company was born. The business struggled at first, but by themid?1980s sales began to increase, growing from$20million to over $100million by 1990.

Today, sales volume at Patagonia is around $250million per year, and the company makes a wide range of products from outdoor clothing and travel gear to fishing equipment. Chouinard never aspired to be an executive, but he soon found himself facing business challenges as the founder and owner of an expanding company.

Despite the growth, he held fast to the values of teamwork and camaraderie he had enjoyed as a mountaineer. Employees at Patagonia dress as they please (often in t?shirts and shorts, sitting barefoot at their desks); surf when the conditions at nearby beaches are good (the daily surf report is prominently displayed in the lobby of the corporate headquarters, and employees can take advantage of the liberal flex time policies); and enjoy company?sponsored ski and climbing trips; a cafeteria serving high quality, healthy food (including a wide range of vegetarian options); a subsidized on?site day care center; and the option to take leave of absence from work for up to two months at a non?profit of their choice, while still receiving their full pay from Patagonia.

These benefits make the company a highly desirable place of employment—on average some 900 people apply for every open position.  The company is highly committed to environmental causes and a corporate philosophy to “do no harm.” Chouinard and each of Patagonia’s 1,200 employees try to make decisions based on the impact that will be felt 100 years from now. That approach requires asking tough questions about manufacturing processes and making the right choices, even if production costs increase.

In the early 1990s,for example, an environmental audit revealed that the chemicals commonly used for growing and harvesting cotton made it one of the most damaging fibers used by Patagonia. Cotton farming, Chouinard discovered, consumes 25 percent of the world’s pesticides on just 3 percent  of the world’s farmland. As a result, the company switched its entire product line to organic cotton, a decision that ultimately improved profitability.

More recently Patagonia decided to shift from the traditional kind of polyester used to make its fleece jackets to a new type of polyester made from recycled soda pop bottles. It takes 25 soda bottles from land fills to make a jacket; between 1993 and 2003 Patagonia diverted 86million soda bottles from landfills.

How does Chouinard lead the company and drive this environmental mission? Through a hands?on directive approach? No, he uses what he calls his MBA theory—management by absence.  Chouinard travels the globe developing and testing Patagonia products and serving as a crusader for environmental issues. To run his business, he hires employees who will question authority—challenging bad decisions and working with others to seek out the best solution.

As he explains, “the best democracy exists when decisions are made through consensus…decisions based on compromise often leave the problem not completely solved with both sides feeling cheated or unimportant.” And the most effective leaders, Chouinard argues, are those who can communicate their ideas to others, not via email, but by talking face?to?face to work out collaborative agreements.

To support this democratic approach, there are no private offices at Patagonia—everyone works in open rooms with no doors or separations. When Chouinard is at the Patagonia headquarters, he does not have a reserved parking spot(such spots are reserved for those who drive fuel?efficient cars) or special perks or office space; he considers himself no more important than others in the organization.

Such treatment would only damage the democratic spirit of the company. Chouinard believes, “find the right balance between the management problems that come with growth and maintaining our philosophy of hiring independent?minded people and trusting them with responsibility is the key to Patagonia’s Success.

Question 1:

What in your understanding is the nature and personality of Yvon Chouinard?

Question 2:

Do you feel it is possible to become a leader when confronted with situations?  What are the skills required of a person to become a leader?

Question 3:

What are the situations and factors that are to be taken into account, if one were to exhibit the leadership quality exhibited by Yvon Chouinard?

Question 4:

In today’s globalized, competitive world, do you feel the leadership practices followed by Yvon can be applied?

Question 5:

What do you feel are the advantages and disadvantage of following Yvon’s leadership approach?