Firms, investors tend to prosper with founders at the helm

Another hypothesis as to why companies do better with founders:

A company's culture is set by its founder(s). As long as a founder is in charge, the CEO is working with the corporate culture. When an outside manager is brought in, he usually ends up working against corporate culture.

In every company I've worked in, the culture was essentially a reflection of the founder's personality. If there are multiple founders, it reflects a weird amalgam of all the ones that are involved in the daily business. If an early employee tends to run things in the early days, the culture reflects them as much as the founders. Think Intel and Andy Grove, or 3M and William McKnight.

Companies tend to inherit both the best qualities and worst faults of their founders. However, their position in the marketplace usually reflects the best qualities. After all, nobody buys from a company for what it sucks at.

An outsider brings his own strengths and weaknesses to the company, but it's very unlikely that his strengths will line up with the culture and market that the company already has. Think John Sculley and Apple - great executive for cola, not so great for computers. The founder, instead, may have tons of liabilities, but at least he won't be fighting the corporate culture he himself has created.

There's some evidence to back this up, for instance:

1.) It echoes the findings in Good to Great: the turnaround process involves applying the "hedgehog principle" of asking yourself what the company is really passionate about, then getting the right people on the bus and the wrong people off the bus, and only then changing strategy. The hedgehog principle is essentially a question about culture: where does the culture of this organization fit into the overall economy. Then getting the right people on the bus and the wrong people off the bus consists of strengthening the positive aspects of the company culture and weakening the negative ones.

2.) In cases where an outside turnaround CEO has successfully turned around a company, they usually spend a significant amount of time acclimatizing themselves to the existing culture, and only start changing things after they already "fit in". Think Lou Gerstner and IBM. Even then, they often make decisions that mortgage the long-term health of the company by destroying the previous cultural values. Gerstner eliminated IBM's status as an R&D powerhouse, for example, while James McNerney nearly destroyed 3M's innovation culture with Six Sigma.

3.) Companies that survive the departure of their founders usually do so by institutionalizing their culture as a set of company values, bringing in fresh recruits out of college before they've been able to pick up a different corporate culture, and then promoting from within to put in place management who already understands the existing culture. Think GE.

I worked in a factory during college--the founder was long dead, but people were still talking about how wonderful he was...these were cynical blue-collar union types.

Obviously, everybody knows that the founders are the real operators and that subsequent CEOs are basically asskissers and backstabbers. Everyone knows this, and you're bound to get cynicism and disloyalty as a result.

This is true, even of good CEOs. Walt Disney vs. Mike Eisner? Henry Ford versus Robert McNamara? (bad example).

>"It would really bother me to think that in a few years, my successor could weaken something I've spent 35 years building, my entire adult life," says Zimmer, 58. "That would be disturbing."

>When pressed, Mason says it's unlikely that his successor will be as successful.

Of course, because no successor has as large a stake in it as the original founder. Maybe they should do it like a kingship, slightly modified -- where the successor inherits HALF of the founder's equity. You would stand a much better chance of attracting the best people if they were going to get the billions when you stepped down -- subject to vesting and performance. Why would the top people want to join an existing company when the big equity has already been taken out of it?

So, when you retire you vest half of the Founder's stock, if you've been there "long enough". Take a company from $10B market cap to $20B and you've doubled the Founder's share, so you get an amount equal to what the whole thing was when you started, and leave an equal amount to lure the next CEO.

It's late so I may well be missing obvious flaws in the scheme, but some kind of equity retention strategy seems to be needed to promote long-term vitality because the current m.o. is the original founders and investors bleed it all out.

> Amazon's 15-year stock gain: 4,381%

Amazingly they have predicted Amazon's exact stock performance for the next 5 years. Someone over there better hide the electric drills.

I'm all in favor of having founders run the company, but their 4x number not very meaningful. The company doing badly can be a cause of founders leaving, not just as result.

Maybe this will make VCs less eager to kick founders out of their company.

Good article on Usatoday