What happens when founding CEOs go bad

Founding CEOs often outlive their effectiveness. Boards seem reluctant to carry out their primary function: hiring and firing the CEO.

Bill Gates is one in a million. Most founding CEOs eventually become a liability that can destroy shareholder value faster than you can say Bernie Ebbers. They're fine for a while, and then, without warning, they go bad on you. Why not just fire them? Good question, but it's not that simple. It almost never is.

For one thing, CEOs don't come with expiration dates stamped on their foreheads. They're kind of like coconuts. Just the other day I cracked one open and it was all moldy inside. On the outside it looked perfect. But coconuts are kind of hairy so it's hard to tell. This one must have had a tiny crack somewhere, so it rotted. Who knew?

Short of cracking their heads open with a hammer and chisel, how do you know if a founding CEO has gone bad? Well, it's up to the board of directors to make that determination. And therein lies the rub. Boards are notoriously squeamish about dumping what was once a nice, ripe executive in the corporate compost heap.

It's ironic, because hiring and firing the CEO is a board's primary function. Didn't know that? That's exactly my point. Boards are so ineffective at it that lots of folks are not even aware that it's their job.

Why is that, do you think? I don't know, but maybe some directors are rotten too. I'm just thinking out loud here, but you know what lots of ex-CEOs do? They become directors of other companies. Are you starting to see a pattern here?

Did you know that lots of board directors are hand-picked by founder CEOs? I know, it's not supposed to be that way. But it is, all too often. I'll bet those directors do quite a bit more rubber-stamping than overseeing.

I sometimes get the feeling that boards get a little too personally attached to their founding CEOs, especially after the company goes public. It would be rude of me to suggest this, but maybe it's out of gratitude for all the dough they made in the IPO. Could that be true of some venture capitalists (VCs)? I mean, their firm's partners got their 10:1 return on investment, what do they care about public investors. No, that can't be right.

VCs aside, whose idiotic idea was it anyway to populate boards with tired old rich men who could give a s--t, pay them peanuts, and actually expect them to do something? Don't even get me started on this.

They call it corporate governance, but I say it's just one big rotting food-chain.

That said, there is another side to the story. There are lots of reasons to exercise caution when considering terminating a founding CEO. Boards run the risk of alienating employees and losing operational momentum. And good leaders are hard to find.

Still, my anecdotal experience suggests that, in general, boards are often less effective at their primary function than they should be. Maybe public companies should consider stamping expiration dates, i.e. term limits, on their corporate officers. After all, it works on milk.

 

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