When Twitter's (TWTR) Jack Dorsey stepped down as the company’s CEO late last month, he became the latest example of the tech sector's CEO-founder governance model outliving its usefulness.
As big tech companies amassed more scale and influence, these companies have faced pointed questions from investors and regulators about how they’re being run – and whether their larger-than-life leaders are really acting in the best interest of workers and the marketplace.
Dorsey himself – who was once forced out of Twitter only to boomerang – was critical of the founder-CEO role. In his resignation letter, he said the model was “severely limiting to a single point of failure. I’ve worked hard to ensure this company can break away from its founders and founding.”
Twitter has been under pressure from activist investors to accelerate the platform’s development and improve its finances – something that illustrates the shortcomings of having founders stay too long at the dance, according to critics.
“There’s definitely a shelf life to founder CEOs,” Travis Howell, assistant professor of strategy at the University of California, Irvine, told Yahoo Finance in an interview.
“They're great at the beginning and for a while, but after they IPO, their value to the organization declines precipitously,” the business professor added.
'A rare breed'
MIAMI, FLORIDA - JUNE 04: Jack Dorsey creator, co-founder, and Chairman of Twitter and co-founder & CEO of Square speaks on stage at the Bitcoin 2021 Convention, a crypto-currency conference held at the Mana Convention Center in Wynwood on June 04, 2021 in Miami, Florida. The crypto conference is expected to draw 50,000 people and runs from Friday, June 4 through June 6th. (Photo by Joe Raedle/Getty Images) ·Joe Raedle via Getty Images
However, sometimes the founder’s willingness to completely vacate the C-suite has a lot to do with their side interests. Dorsey, Amazon’s Bezos and Microsoft’s (MSFT) Bill Gates, have handed off their power to others to pursue passion projects.
With tech’s size and scale, there is a growing push in Silicon Valley to groom a new breed of successors to run companies in a more traditional way, focusing on shareholder value and growth rather than being distracted by passion projects.
As Dorsey described in his letter, at times founder CEOs outstay their welcome, which was largely the case with Uber's Kalanick and Adam Neumann at WeWork. Both men had outsized personalities that ultimately had a negative impact on company culture — attracting bad press that upset investors and stakeholders.
In his widely-cited book “The Founder’s Dilemma,” Yeshiva University’s Noam Wasserman explained why entrepreneurs who create a successful company must ultimately choose a priority: to get rich or to be king.
Successful founder-CEOs “are a very rare breed,” Wasserman wrote.
His research of start-ups that sprang up in the 1990s and early 2000s found that most founders relinquished control before their companies floated shares for the first time. Of the ones still in control, most were gone by the fourth year of being public.
“We remember the handful of founder-CEOs in corporate America, but they’re the exceptions to the rule,” Wasserman added.
It was kind of an experiment with having founders stick around for a while and I think we have seen it blow up a few times. There's just a lot more scrutiny now in terms of public perception and regulatory perception.Travis Howell, University of California, Irvine
To get rich, founders sell equity, which dilutes control. But holding onto shares – which maintains control over the company and the board – makes their wealth illiquid, undiversified, and at risk if something happens to the company’s value.
“It depends on how responsible the founder or the founding team is. They're almost like a Monarch, the king or queen of their organization,” Howell said. His research suggests that founders are critical to the success of their companies, based on their mastery of the smallest details, a vision few others share.
Seemed like a good idea at the time
Still, venture capitalists haven’t always retained founders, with the objective being to replace founders with experienced CEOs to “professionalize” the organization in preparing for the company to go public.
“It was kind of an experiment with having founders stick around for a while and I think we have seen it blow up a few times,” he told Yahoo Finance. “There's just a lot more scrutiny now in terms of public perception and regulatory perception.”
“I think we will go back to the way things were. I don't think it will be immediate, but I think that's where we're going,” he added.
One possible solution, according to observers, is to keep founders around in a non-CEO advisory role, like CTO or board director. In Google’s early days, Page and Brin brought in experienced tech hand Eric Schmidt to lead the company through its public offering and massive growth.
“With tech, early on, what you need is innovators, big thinkers, people with big ideas, products, people who understand what people want,” Howell explained.
“Those are very different skill sets from running a large company, what you need is managerial skill sets, operational capabilities and everything,” he added.
Back in 2018, Salesforce appointed then-president and COO Keith Block to co-CEO, who only lasted two years on the job. This time around, it’s unclear how much power Benioff intends to relinquish, and whether it’ll move the needle on governance changes – especially because Taylor will still report to Benioff.
“Salesforce has had an evolving leaders substructure several times, as we have also had tremendous success previously with the co-CEO structure,” Marc Benioff said on the call.
“I'm very excited about the co-CEO structure, these jobs are big jobs and being able to have a partner that you can share with makes it a lot easier,” the co-CEO added.
In a research note last week, Jefferies called Salesforce’s reshuffle a positive, but did not expect there would be significant change to the company’s course.
Yet Howell said power-sharing among CEOs “never really works, it's just confusing for everybody about who's in charge and who's doing what.” Howell said.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv
