Board Directors Find Founder-CEOs a Challenge

Results of a Lonergan Partners/SVDX Survey

Mark Lonergan, September 23rd, 2021

In prepa­ra­tion for the Sep­tem­ber 23 Sil­i­con Val­ley Direc­tors Exchange pan­el on Board Gov­er­nance in Founder-Led Pub­lic Com­pa­nies,” my firm con­duct­ed a sur­vey of cur­rent and recent board direc­tors to assess their beliefs about Founder-CEOs. Over 75% of the respon­dents report­ed hav­ing served on a pub­lic board with a Founder-CEO, giv­ing them some first-hand knowl­edge of the issues.

Most of our sur­vey respon­dents (83%) said the role of direc­tor at a Founder-led pub­lic com­pa­ny was MORE CHAL­LENG­ING than ser­vice at a com­pa­ny led by a pro­fes­sion­al/out­side-hire CEO. Some of the com­ments pro­vid­ed to explain this answer were as follows:

  • You need all the same skills but you need to do them 10x better”
  • Soft skills and high­er EQ are need­ed gen­er­al­ly — coach­ing, nego­ti­a­tion, and persuasion”
  • Com­plex founder psy­chol­o­gy and their per­son­al feel­ings about the com­pa­ny can com­pli­cate the board direc­tor’s role”

The respon­dents did not nec­es­sar­i­ly agree with the com­mon notions that com­pa­nies led by Founder-CEOs are more inno­v­a­tive (only 35% agreed) or mis­sion dri­ven (only 39% agreed).

In addi­tion, 68% of respon­dents felt class­es of stock with supe­ri­or vot­ing rights under­mine good gov­er­nance and should be elim­i­nat­ed, with anoth­er 5% advo­cat­ing for sun­set pro­vi­sions on these pro­grams at min­i­mum. These stock struc­tures (often called DCSO, or dual class stock own­er­ship) are very com­mon when founder-led com­pa­nies go pub­lic, and as a result many founder-CEOs enjoy vot­ing pow­er that vast­ly exceeds their actu­al stock ownership.

While each CEO (founder or oth­er­wise) will have his or her own unique strengths and weak­ness­es and will not to con­form strict­ly to a type,” we asked our respon­dents to tell us what they gen­er­al­ly believed to be true about Founder-CEOs. While the fol­low­ing state­ments are not pre­sent­ed as facts, we do share them as inter­est­ing insight into what our respon­dents expect­ed to find work­ing with Founder-CEOs:

  • 91% agreed Founder-CEOs don’t know when to hand over the reins” to some­one new
  • 83% agreed Founder-CEOs micro-man­age more than out­side hires
  • 75% agreed Founder-CEOs are less accept­ing of con­straints placed on them by the board than out­side hires
  • 70% agreed Founder-CEOs sur­round them­selves with sup­port­ers less like­ly to chal­lenge them
  • 61% agreed Founder-CEOs have few­er checks on eth­i­cal­ly ques­tion­able behav­ior than out­side hires
  • 57% agreed com­pa­nies led by Founder-CEOs are less effec­tive in grow­ing top talent

As a way of sum­ming up the respon­dents’ views, we asked them if they had a pref­er­ence for Founder-CEOs when choos­ing their next board ser­vice, or in invest­ing their own mon­ey. For the most part, the direc­tors did NOT have a pref­er­ence in favor of a Founder-CEO in either case. In fact, the pro­por­tion of respon­dents who said they were INDIF­FER­ENT was in both cas­es the num­ber one response, as you can see in the graph­ic below:

How­ev­er, there was a notice­able minor­i­ty of respon­dents (31%) who said they would pre­fer NOT to serve with a founder-CEO in their next role.

For our pan­elists’ tips and insights into ways to work effec­tive­ly with Founder-CEOs, please check back on our web­site the week of Octo­ber 4 for a link to the webi­nar video and a sum­ma­ry of some of the key learnings.