Many entrepreneurial boards have all but abdicated oversight in fear of their founders. People wonder how Theranos founder Elizabeth Holmes managed to hide massive fraud from a marquee board and why the tough VCs on Uber’s board were so tolerant of indiscretions by Travis Kalanick, but these governance pathologies are common oversight fumbles at founder- led firms.
Consider December 3, 2019, the day Tesla founder Elon Musk marched into court over a completely avoidable, distracting defamation lawsuit for recklessly libeling a heroic British navy diver who helped save 12 boys trapped in a Thai cave for 18 days. When the mini submarine Musk offered was derided by many of the rescuers as impractical, he fired back a series of tweets, one labeling the diver “pedo man.”
This epic misjudgment came just a year after sanctions from the SEC for reckless email exchanges. Aren’t there better ways for the CEO of Tesla—who also runs Space X, the Boring Company and Solar City—to spend his time?
That same day we also learned that Jack Dorsey, founder of Twitter and Square, planned to relocate from his California headquarters to live in Africa for sixth months the next year. To be fair, the market opportunity is intriguing: Nigeria alone has a population of 180 million, with only 10 percent on mobile money because of regulatory and technology policies that Square could help address. Ghana has a 25 million population with over 6 million users already on mobile money. Ethiopia, with 120 million, will soon open up the market.
Great opportunities, but Dorsey is the CEO of two multi-billion dollar enterprises. With vast pool of talent from which to draw, couldn’t he find a competent business development, sales and technology executive to lead expansion in those markets? Entrepreneurs who attempt to build their global empires personally risk the fate of Pan American World Airways founder Juan Trippe—who ultimately destroyed his own enterprise.
On that same day still, we learned of Comcast’s Universal Pictures plans for a film about the spectacular pre-IPO meltdown of Adam Neumann, founder of WeWork, the office-sharing juggernaut. The saga portrays a charismatic founder who gets away with egregious self-dealing and overstatement until the implosion of a planned $40 billion IPO finally forced him out—pocketing a nearly $2 billion payout to leave.
Flash back to last month, when a new spotlight beamed down on Facebook founder Mark Zuckerberg with the European Commission’s announcement of a preliminary investigation into how Facebook gathers and sells personal data. That same morning, Zuckerberg appeared on CBS This Morning, doubling down on his company’s refusal to take down political ads that contain demonstratively false information in opposition to the position of other media platforms. Meanwhile, two federal agencies and 47 U.S. states and territories are examining whether the company engages in anti-competitive behavior.
These fumbles offer valuable lessons for boards:
1. Rather than fear your founders, help them. Dell’s Michael Dell, Microsoft’s Bill Gates, The Home Depot’s Bernie Marcus and other great business builders leveraged experienced directors who could help them anticipate challenges of new life stages.
2. Provide direct constructive feedback, not sycophantic flattery. Failing to name an interim leader when a CEO is going on leave is reckless. There are constant strategic, technological, staffing and financial decisions that cannot adequately be addressed remotely.
3. Creativity does not require control. Some founders may not be able to grow with their business but can still be great contributors in scientific, design or ambassadorial roles.
4. Provide rules of conduct. Enforce guidelines that limit impulsive Musk-like tweeting, Zuckerberg/Holmes-like filtering of key risks or sexually abusive behavior as at American Apparel.
5. Prepare a backup—lest you be held hostage by the founder. The boards of Chipotle, Papa John’s, American Apparel and Lululemon, led by monarch-like founders, were sluggish to take action due to inadequate succession planning.
Founders so identify with their creations that they often fail to see where to draw boundaries. When they do, it’s up to boards to remind them of the accountability that comes with taking other people’s money.
