Founder-CEOs Who Defeat The Purpose - Can Nothing Be Done?

26 Dec 2014. Robert E. Kaplan, Jennifer Farrer

Only the convinced and bold who aren’t shy about exercising power get a new venture off the ground and keep it there. Yet, ironically, that indispensable solo force puts the venture at risk if too much power is concentrated in the top person’s hands.

Power sticks to founders like glue.

First, their strengths are formidable—whether force of intellect, force of personality, commanding knowledge, a work ethic that sets a forbidding example, that impressive ability to see around corners, or their white-hot passion for the enterprise.

Second, their special status as founder confers power. Founders have a certain mystique. Other people may even attribute a god-like quality to the founder: “After all,” we hear, “without her, this company would not exist.”

Third, success goes to the founder’s head. If with success comes wealth, only more so. They come to feel, “I can do no wrong. Other people said it couldn’t be done—why listen to them now?”

Fourth, there’s a sense of ownership that is only matched by a parent’s attachment to his or her children. It’s mine and I can care for it as I please. If there’s also literal ownership, the founder-CEO-owner has virtually total control.

Founder-heads act as if they make the rules. They take prerogatives—rights and privileges—exclusive to them. They act like it’s their prerogative to monopolize discussions, their prerogative to skip levels while usurping the authority of leaders in between, their prerogative to hire people without consulting HR, their prerogative to keep people waiting signaling their time is more valuable than others’, and, much more seriously, their prerogative to dominate decision making. By the way, the words prerogative and arrogance derive from the same Latin word.

It is easy to fixate on the individual, colorful and maddening as he or she might be. But the risk of failure or a tragic fall hinge not just on their properties of the
individual. It hinges at least as much on the governance structure, which they do so much to create—the host of formal and informal practices by which decisions are made, behavior is shaped, and energy is channeled.

Without adequate checks and balances, the founder-CEO can easily become a sort of monarch, the one true power in the organization. That is literally true if the founder owns more than 50 percent of the company or controls more than 50 percent of the voting shares. The individual can become the executive branch, the legislature and the judiciary rolled into one. In his 1832 book, Democracy in America, Alexis de Tocqueville wrote, “In absolute monarchies…any measure which takes away the counterweights, [designed] to balance royal power, is radically bad, even though its effects may long seem negligible.”

Naturally, there are plenty of grounded founder-CEOs who build in counterweights to check their judgment and keep their worst tendencies in check, as well as do a pretty good job of keeping themselves in check. However, we also encounter those whose own flaws are matched by a flawed governance structure, one that lacks checks and that lacks balances.

A lack of checks is a serious governance problem. The founder-head’s destructive tendencies—we all have them—go uncurbed. As the novelist Anthony Trollope wrote about a potentate in one of his novels, “He was placed almost above penalties by wealth and status.” We worked with one founder-CEO who “launched” into people for not knowing or doing what he expected, often yelling “What’s wrong with you?!” He felt justified in coming down on people because in his mind it is they who are at fault. But he overlooked his own responsibility—for hiring those folks in the first place and for the performance culture in which they operated. Eventually, the head of R&D and his CFO, charter members of his team, resigned in protest on the same day.

A lack of balances is also a serious governance problem. Some founder-CEOs can’t be budged—can’t be made to introduce needed change. Take the founder-heads who fight “process” of any kind, viewing it as bureaucracy that means the death knell of the company’s entrepreneurial spirit. Or take those who, despite their own limited operational ability not to mention inclination, balk at the appointment of a COO. Outrageously, there are founder-CEOs who bypass forums designed to influence their decisions. One such individual who held a large stake in her company willfully disabled her board. The board was made up of three independent directors and four “cronies.” According to a member of her team, “The CEO held the official board meeting, adjourned it and then held the real board meeting.” 

Heroic figures, founder-CEOs are always at risk of becoming tragic heroes. It’s a slippery slope. Fallible like the rest of us, those who operate in a top-heavy governance structure will eventually fall or cause their organization to fall, if not completely then certainly non-trivially. Sole reliance is not sustainable.

Founder-CEO, it’s your baby, and who can match the devotion of a parent for their own child. Understandably, you are ambitious for your brainchild and protective of it. So by all means, continue to be the visionary, the thought leader. Continue to retain ultimate decision-making authority on big issues. But don’t put the enterprise in harm’s way by monopolizing its care and feeding.

Allow outside influences. One founder-head started out with a board made up exclusively of friends. With success he gradually restocked the board with independent and independent-minded directors. That came in handy when he was about to act on a “cock-eyed idea” for kick-starting growth: he allowed himself to be talked out of it by the board. It had been said about him that “it was always an uphill struggle to get him to do things.” Indeed, it was an uphill battle for the board as well as senior staff to convince him to change the entire business model. Yet as steep as it was, the hill ultimately was taken.

Purposely create situations to challenge your thinking and get new ideas. Another founder-head, headstrong, hugely wealthy and used to having his way, nevertheless eventually saw the value of instituting a formal process to vet new-business opportunities. According to an insider, “He’d have his top people—R&D, sales and marketing, plus domain experts—debate whether to start or kill a new product or product extension. He enjoyed seeing the gladiators come to blows and it helped him to gut-check his own views. Typically he was looking for validation of his view so he was not easily swayed, but if someone made a convincing case he would change his mind.”

We sympathize with founder-CEOs called upon to modify their role and unable or unwilling to heed the call. Equally, we sympathize with the plight of those who are convinced the role needs to change and feeling themselves powerless to do so. In the end they may have no recourse but to force the issue.

One thing they must not do is to fall into a trap of their own making—by complaining endlessly about “him” or “her,” by taking a long bath in a bubbling pool of frustration. But founder-bashing is a waste of time and a sign of an unacknowledged defeatist attitude. Yet there’s always at least an outside chance of influencing the situation for the better if those other parties put the onus on themselves. Board and staff alike must get busy finding or creating openings—to act as a check or serve as a counterbalance. They must talk well among themselves about fraught matters. And as long as they choose to remain in the situation, they must never give up on the founder-CEO and they must never give up on themselves.