When Creators Build Cults

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Poor governance practices make it much easier—and more costly—for founders to flounder.

Social philosopher Eric Hoffer’s 1951 book The True Believer warned that the pathologies of cults include a fanaticism that erodes the judgment of leaders and followers as a “great cause begins as a movement, becomes a business, and eventually degenerates into a racket.” When it comes to the dramatic business crises of Elon Musk, Mark Zuckerberg, WeWork’s Adam Neumann, Theranos’s Elizabeth Holmes and fallen crypto- king Samuel Bankman-Fried of bankrupt FTX, that sounds about right.

Founders can flounder for many reasons, as I pointed out in a Chief Executive article bearing that name five years ago. I highlighted the pathologies that tripped up Snap’s Evan Spiegel, Twitter’s Jack Dorsey, Uber’s Travis Kalanick and Groupon’s Andrew Mason. The lessons included failing to appreciate new business life stages, the need for top-level mentors, the lack of a culture of self-criticism, and the loss of mission alignment.

The governance traps that allowed these business to become cults include:

• FOMO Frenzy: No enthusiast ever saw the scientific proof that Theranos’s pinprick blood sampling for hundreds of diagnostic analyses actually worked. But a contagious fear of missing out nurtured by Holmes sucked in millions from investors hoping for an early shot at the next Apple.

Skeptics of FTX’s crypto Ponzi scheme were openly ridiculed, as in the company’s humorous, Larry David-starring aSuperbowl ad that spoofed those who questioned prior disruptive advances such as the inventions of the wheel, fork, indoor plumbing and democracy as akin to questioning FTX’s business model.

•Marquee Name Shields: Not only was skepticism preempted by FOMO but early celebrity endorsements and opinion-leading financiers bought in as apostles led those with quiet suspicions to fear being labeled as heretics. The normal good judgment of sophisticated investors stumbled in failing to question WeWork’s repositioning of its over-leveraged, simplistic approach of carving up massive leased spaces into shared workspace agreements as a genuine technological revolution because of the coffee machines, recreational games, distressed-wood flooring and beanbag furniture. Why? Because backers included JPMorgan Chase CEO Jamie Dimon and Softbank CEO Masayoshi Son.

Theranos’ all-star board included former secretaries of state Henry Kissinger and George Shultz and former U.S. Sen. Bill Frist. FTX’s early investors included Sequoia Capital, BlackRock and football star Tom Brady. If they were in on it, it must be amazing, right?

• Accountability Escape: The CEO at each of these enterprises was considered genius who should not be harnessed by traditional good governance controls. Bewilderingly, for example, despite such sophisticated investors, FTX had no CFO, no board of directors, untrustworthy financial reports and a third-tier renowned auditing firm with a troubled PCAOB record.

• Media Showmanship vs. Mercurial Leadership: Charmed by laudatory, drama- seeking media, these attention-driven CEOs captured the public’s fascination. Each one eagerly chased TV interviews and conference stages and immersed themselves in charismatic on-stage, engagement business promotion as superb pitchmen.

Backstage, their styles have been characterized as defensive, vindictive and tantrum-driven—firing honest critics, suing whistleblowers and attacking naysayers on social media with childlike, defensive ad hominem insults.

• Emperor-for-Life Imperial Eccentricities: Boards were held hostage by these founders, as their staffing models had them at the center of their own solar system with founders’ shares protection. Musk, supposedly leading four other businesses— Solar City, Neuralink, the Boring Company, SpaceX—in addition to the troubled Twitter, is spread ridiculously too thin and is the public face of each firm.

If he worked an 84-hour week (12-hour days, seven days a week), Musk would still have less than 90 minutes a day for each complex enterprise coping with fluid technologies, production challenges and competitive markets. Yet, he, like Zuckerberg, Neumann, Holmes and SBF, has been trusted to call the shots, with the rest of the team invisible.

By contrast, business founders like Microsoft’s Bill Gates, Amazon’s Jeff Bezos and Dell Technologies’ Michael Dell all built cultures of leadership talent that promised cultural renewal and strategic flexibility. As Dell told me once, “A business must stay fresh and change with the context. It is not a religion to be worshipped.” Amen to that.

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