C Gopinath

Founders’ frailties

C Gopinath | Updated on August 01, 2018 Published on August 01, 2018

Promoters and their ‘exit’ problems

Business founders understandably have a hard time letting go of their creation. Founders of small firms continue long past their sell date and the firms remain small but with the boss in control and perhaps not doing as well as it can. Their dominance is so strong that the firm often does not survive the founder. Some like Elon Musk, founder CEO of SpaceX, keep it private as long for the control. When it comes to large, publicly traded companies, founders are not always in control.

A recent case of a founder being thrown out is John Shnatter, Chairman of Papa John, a US- based global pizza chain. The trigger for his exit was his use of the word ‘nigger’ in a conference call. The term is generally considered offensive and an epithet, although African-Americans use it to each other and rap stars routinely use it in their songs. The company’s performance had been slipping and Schnatter, who owns 29 per cent of the company, was planning to evict a recently appointed CEO. The board instead turned around and asked Schnatter to leave. If the company’s performance had been good, the matter would have passed with an apology from the company and the CEO’s personal hand-wringing.

Several founders of large companies have kept a tight rein on their creation. Jeff Bezos of Amazon owns 17 per cent but the growth and dominance of the company is enough to guarantee him his seat for a while. Bezos had acquired Wholefoods, a grocery chain, whose co-founder and co- CEO John Mackey was happy to continue as the CEO after sale.

Uber’s founder and ex-CEO, the brash Travis Kalanick, was good at getting into controversies and busy challenging governments around the world. With only 10 per cent of the equity, the board easily fired him in 2017. Steve Jobs, although co-founder, was not thought CEO material by the Apple board since he was notoriously difficult to work with. He left in 1985 although he had about 11 per cent ownership, but came back to a glorious innings in 1997.

Seeing all these people, Mark Zuckerberg of Facebook made a smart move. Although he owns about 28 per cent of the equity, his shares account for about 60 per cent of the voting rights!

Bill Gates must shine among the founder CEOs who gracefully stepped down and let others run the show. He continues to serve on the board and retains the title of ‘Technology Advisor.’ But he must be giving his advise very politely for he now owns only about 4 per cent of the stock.

Phil Knight, co-founder of Nike had a great run of 52 years at the company and stepped down from the board and Chairman’s role in 2016. Like academic institutions, Nike called him Chairman Emeritus and said he is always welcome to attend board meetings. Apart from his contributions to the company which made them rightfully effusive, he and his family probably own about 15 per cent of the equity. And he would quickly hear if they need him back; after all, his son is a director of the company.

Meanwhile, Shnatter of Papa John is planning to run for election at the next annual meeting and is seeking company documents to strengthen his case.

The author is a professor at Suffolk University, Boston

Published on August 01, 2018

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