When one charts the stock performance of Southwest Airlines, Dell or Walmart over the last five years, the results are very impressive. Dell is up nearly 600 percent while Walmart is up 400 percent and Southwest is up more than 300 percent. All three have trounced the S&P 500, which has gone up a modest 50 percent in the same period (see Figure 1).

All three companies compete in very challenging industries where it’s tough to earn a double-digit return on equity, yet they’ve outperformed the S&P 500 average on the order of six to 12 times. Let’s take a look at Dell. Selling PCs is a very tough business. You’re essentially selling a commodity, and price is a big driver. Yet Dell has consistently outperformed its industry peers, Gateway and Compaq, which have both lagged the S&P 500 over the last five years and netted investors a negative return over the same period (see Figure 2).

The contrast in performance between retailers Walmart, Sears and K-Mart is especially stark. Retailing is a tough way to make a buck, and among the most transparent of industries. Trade secrets are virtually non-existent. Competitors can uncover Walmart’s strategy just by walking through its stores. All the data one would care to know — pricing, product lines, merchandising strategy — is displayed on the shelves. Yet, while K-Mart has decimated all shareholder value with its recent bankruptcy filing and Sears is simply treading water, Walmart has delivered spectacular returns to shareholders (see Figure 3).

Warren Buffett jokes that if he ever gets the urge to buy an airline stock, he dials an 800 number to reach Airlines Anonymous to talk him out of his delusion. After living through the gyrations of his US Air investment, he learnt his lesson and will probably never buy an airline stock again. The basic economics of the business are very bad. You have organized labor that believes a pilot making $300,000 is underpaid and can choke off your entire revenue stream with a strike. Add to that the high fixed costs of airplanes and finally, pricing that is determined by the moves of your dumbest competitor, who’s only trying to recover marginal costs. The combination can be lethal!

Not only have Delta and United not earned a dime for their shareholders in the last five years, they’ve proceeded to lose some of the principal as well. But Southwest has more than tripled investors’ original stakes in the same period. Indeed, Mr. Buffett should note that had an investor invested an equal amount in Berkshire Hathaway and Southwest Airlines in 1990, he would have made a stunning 15 times his original investment with Berkshire Hathaway, but Southwest would have given him more than 29 times his original investment. So much for all airlines being a crappy investment! (See Figure 4).

How does one explain the wide difference in performance between Southwest, Dell and Walmart and their respective competitors? There is no discernible difference in the direct-sales strategies of Dell and Gateway. Nor is there a difference in the discount- retailing model of Walmart and K-Mart. United’s Shuttle operation in California was an exact replica of Southwest’s model of going point to point, turning planes around rapidly and flying only Boeing 737s, except that United lost tens of millions of dollars in the endeavor and eventually folded not only California’s, but its entire U.S. Shuttle operation!

The difference between Southwest, Dell and Walmart and their competitors lies in their leadership. The CEOs of these three companies are fairly similar to their counterparts in capability and intellect. But they possess other qualities that give their companies a competitive advantage.

I recently read three unrelated books that provide deep insights into how fundamental differences in business leadership styles, unrelated to competency, can become big drivers for dramatic performance differences between companies: Power vs. Force by David Hawkins, Matsushita Leadership by John Kotter and Good to Great by Jim Collins. All three are exceptional and provide many of the answers.

It is impossible for me to capture these three books in a few paragraphs. I’d strongly recommend that the reader delve into all three. To summarize, it turns out that shareholder value can be significantly enhanced by certain traits in a company’s leader. Companies, even in challenging industries, will do far better than their competitors if, in addition to competence, the CEO possesses the following traits:

No ego. A singular focus on truth. Truthful CEOs do not send “messages” to shareholders, employees or customers. They speak core truths that they deeply believe in. None would ever even think of “delivering a tailored message.” This is a very critical characteristic, and the definition of truth is very broad and deep. They are deeply in love with their companies and their stakeholders. Their primary motivation comes from this dear love. The company is their temple.

If you have more query about magazine please send mail to

May 12	April 12	March 12	Feb 12