Founders are the closest thing the corporate world has to gods. John Pierpont Morgan, Henry Ford and Steve Jobs are all members of that starry pantheon which excites the imagination and inspires imitators to this day.
Less remembered are those entrepreneurs who succeeded initially but then failed to come up with a succession plan — or worse, stayed on so long that they became an embarrassment or a hindrance to the company.
The US pizza chain Papa John’s last week provided an object lesson in how not to handle the departure of a troublesome founder. John Schnatter started the Kentucky-based company in 1984 in the back of his father’s tavern and built it into the world’s third-largest pizza delivery group. Its marketing campaigns have centred on Mr Schnatter’s outspoken and outgoing personality and his picture was part of the Nasdaq-listed company’s logo.
That choice became problematic last autumn, when Mr Schnatter blamed his company’s falling sales on the failure of the National Football League to stop its players from kneeling in protest while the US national anthem played. (Papa John’s was a sponsor of the American football league, so lower television ratings for games meant fewer viewers for its ads.) The remarks alienated investors and customers who supported the players’ right to protest, sending Papa John’s shares down 15 per cent in a week.
The company responded by easing Mr Schnatter out of the chief executive role last December, but left him in place as spokesman and chairman. Last week, the company had reason to rue its forbearance, when Forbes reported that Mr Schnatter had used a racial slur during a training exercise designed to prevent him from generating more adverse publicity. He has apologised, but that did not stop four professional baseball teams, including the New York Yankees, and the University of Louisville from cutting ties to the company.
This time, the board did not blink — Mr Schnatter resigned as chairman and the company cleaned out his office and announced plans to remove his picture from their logo.
Papa John’s is far from the only company to struggle with this issue. Clothing chain American Apparel tolerated years of controversy before dismissing founder Dov Charney in June 2014. And the board of ride-hailing app Uber agonised last year over the role of founder and controlling investor Travis Kalanick as he presided over claims of corporate espionage and a toxic culture. When he finally stepped down, the new chief executive, Dara Khosrowshahi, moved quickly to change the tone and defuse regulatory fights .
Focusing a company around a charismatic founder makes a lot of sense early on. It can help create a compelling story that attracts top-quality staff as well as customers, says Noam Wasserman, a University of Southern California professor, who studies founders.
But there are also “heightened risks [that] come when the infallible founder has strong control of company decisions, with no real checks on him”, Prof Wasserman warns. Without a board willing to say no, a founder who is losing touch can easily stray into trouble, either through poor strategic decisions or personal behaviour that angers employees and investors.
The sudden fall of WPP’s founder, Martin Sorrell, is a case in point. He built the media group from nothing and his resignation in April after allegations of personal misconduct left it scrambling for a new chief executive. Three months on, WPP is still being led by its chairman and was recently beaten to an acquisition by Sir Martin’s new venture.
Corporate governance experts regularly tout the benefits of succession planning for all kinds of roles, but it is hard to imagine a task more important than planning for the replacement of a chief executive who serves not just as the company’s manager but also as its pitchman and inspiration.
Prof Wasserman, author of The Founder’s Dilemma, argues that the smartest course is to plan for a staged withdrawal, much as the big private equity firms Blackstone, Carlyle and KKR are starting to do with their founding partners. Each firm has elevated likely successors and is giving them time to settle in.
All of which brings us to Elon Musk, the Tesla and SpaceX founder. He is a much younger man than Sir Martin, Mr Schnatter and the private equity luminaries, so there should be no rush. But Mr Musk has had a series of weird public confrontations recently. He called equity analysts “boneheaded” for asking financial questions that are at the heart of their jobs. He also lost it when Thai cave rescuers questioned the practicality of his plan to send in a kid-sized submarine. He went so far as to launch an unsubstantiated Twitter assault that referred to a British cave diver as “pedo guy”.
Mr Musk’s promotion of electric cars and reusable rockets has been truly visionary, and his many fans are rooting hard for him to continue to succeed. But what happens if these outbursts aren’t an aberration? A smart board ought to be thinking about a back-up plan.
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