The tale rings a bell — an innovative creator establishes a thriving business from the ground up, but becomes a roadblock to effective supervision as the company reaches maturity. How often we’ve seen corporate drama unfold, leaving impartial board members to ponder: is effective governance of a founder-led corporation feasible?
The daring and initiative of such leaders is crucial in a firm’s infancy; however, overdependence on a single individual, caused by inadequate safeguards and control, may lead to increased risks and ill-informed choices. While failure is sometimes seen as a stepping stone to triumph, it may also incur significant expenses.
The recent tumult at companies such as OpenAI, Tesla, and WeWork exposes the intricate task of harmonising founder influence with the necessary safeguards for a company’s future.
“Every founder CEO should contemplate about transitioning their business from being founder-dominated to founder-inspired,” shares Jason Baumgarten, of the executive search firm Spencer Stuart. With the establishment of an effective board of directors, delineated roles, and cognisance of their significant sway, founders can increase the chances of their businesses’ sustained growth beyond their own leadership.
Successful transition depends on the initiative of the founder rather than being propelled into it by investors or authorities. Albeit, some may maintain authority over crucial decisions and leadership placements through voting rights, which suggests a limited power handover.
Certain founders may exit whilst still retaining shares or lurking in the peripheries, influencing decisions. Howard Schultz, who did not originate Starbucks but spearheaded its major growth, twice returned to leadership , exercising significant control over the board. Peter Hargreaves, co-founder of Hargreaves Lansdown — a financial services firm in the UK — publicly lambasted former management for a downturn in the share price resulting from “a debacle”. Were their moves meant to protect their legacy, the business or their financial stability?
The pros of persisting as a founder rather than shifting to a managing role have been highlighted online, in the wake of an essay titled ‘Founder Mode’ by tech investor Paul Graham. Some in the tech industry acclaim quick-thinking, resolute founders who adhere to their vision, disregarding any opposition. Though such personas may be enlightening and groundbreaking, this style of leadership may engender unhealthy and often inefficient workplaces.
It is essential for firms to house independent boards that both support and inspire founders, whilst also being ready to question their decisions. This may initially involve a chairperson and eventually expand to a comprehensive board of directors.
Rachel Ingram from Cadmium Partners, a firm offering board services, particularly for tech ventures, remarks that founders often worry that the chairperson might oust them. However, picking an experienced chairperson could revolutionise a business if they can provide support and aid in growing the business, she adds. Their success often lies in their ability to comprehend the entrepreneurial mindset, while those with a corporate outlook might find it challenging.
Citing an instance, a director engaging with public and private boards in the UK expressed reservations about joining a company led by its founder, due mainly to the restraint huge egos have on receptivity to advice.
Co-CEO of Board Intelligence, a tech and advisory company, Pippa Begg, counsels directors to conduct thorough investigations and ensure value alignment prior to joining a founder-led board. They should deliberate issues like voting rights and the authority of directors. For instance, if a firm intends to alter its product line or geographical focus, should the board be consulted?
Inspecting the founder’s past interactions with the board could shed light on prospective relationships, she explains. A high churn rate of non-executive directors might indicate an underlying issue in a founder-led business, where the only control directors have is to walk away.
Furthermore, employee evaluations on sites like Glassdoor regarding the founder’s interaction with his team can provide a clear perception of how they might collaborate with directors. Does the founder seem inquisitive, empowering and delegating, or do they lean towards a hierarchical way of managing? The former is likely to appreciate contributions, while the latter may resist it, Begg notes.
Spencer Stuart’s Baumgarten echoes that potential directors need to explore the founder’s motivations for wanting them on board. He recounts how a prominent founder expressed his desire for board members who would be invested in the company beyond board meetings. However, he also observed another founder who merely wanted people who wouldn’t complicate his job. It’s crucial to discern which case you’re possibly joining, Baumgarten adds.
This provides the board members the opportunity to determine if it’s prudent to join the conflict or focus on self-protection should they perceive a likelihood of failure. ©The Financial Times Limited 2024.
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