The Hindu Business Line : Founders and managers

Some time ago, I visited my son’s old school to meet the principal. She was very busy organising the school’s annual founders’ day function, but graciously spent some time with me. As parents, we all know that this is a very important event in any school’s calendar when the vision and the achievements of the founders and the school are celebrated. Speeches are made, progress reports are read out and pledges taken to continue the good work.

Companies, as much as schools, also celebrate annual days when much the same thing is done. It is a time to take stock, feel good and look to the future with renewed vigour. In many older, well established companies, the founders are remembered with pride and respect. In younger companies, especially in the so called sunrise sectors, most of the time a sense of informality prevails and there is no overt focus on the founders. Many a time, this informality actually hides a more complex reality.

When companies are formed, it is but natural that those who found it deserve the right to be termed founders. However, it is also a fact that this title, in most cases, gets attached only to those who own the initial equity in the company. In some ways, this sets up a subtle caste system in the company which can lead to unfortunate consequences as the company matures. Most certainly, all this depends on how the founders carry themselves. In a couple of the companies that I have worked with, the founders were very clear that they would go by the principles of inclusion and equity in their actions. They led by example and over a period of time later entrants into the system came to value this trait and began to respect them.

Another difficult issue that comes with owning equity as a founder pertains to running the company as a meritocracy. While at a philosophical level it makes for a good sound bite, it is a very difficult thing to practise. For example, it often happens that the fact of being a founder seems to anoint that person with a senior managerial mandate. This naturally comes in the way of being able to attract senior professionals when the company starts growing. If the founders do not accept the reality of getting the right senior people to come in at the appropriate times and if necessary even report to them, the company is most likely to pay a big price. Growth will be constrained by the limitations of the founders’ abilities.

There is another level of issues that crop up when the founders are also the directors on the board of their companies and in many cases, misinterpret their mandate. There is confusion about their roles as board members and their roles as managers. This can create difficult situations on a daily basis as their interactions with others is coloured by their membership of the board.

As the company grows and matures, it is imperative that the founders ensure that principles of meritocracy, inclusion and equity are practised and even more critically, are seen to be practised. This will ensure that the focus shifts away from who founded the company to who owns the company. Ownership, in this case, being defined as the ultimate feeling of taking pride in the company’s achievements and feeling the pain of the inevitable downswings that accompany any company’s journey. Ultimately, this sense of ownership is what makes companies successful and equity ownership is only incidental.

Often, there comes a time in the company’s growth when, painful as it might be, it may become necessary for the founding group to step aside and let some others take the company to the next level. This calls for a tremendous sense of maturity and unemotional analysis of the ground realities — easier said than done. In many ways, this represents the ultimate challenge for founders, when they will in reality cease to be founders or even participants in the new reality. Such actions will separate those who subsume their all to the realisation of their vision and those who don’t. In a sense, letting the ‘big picture’ govern all their actions.

Such people are founders in the truest sense of the term — those who know how to keep their equity locked up at home when they come in to work every day

(The writer is advisor to 3i Infotech, Blue River Capital and IDFC Pvt Equity.)

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