Having a founder as the CEO can present a significant roadblock when the board is looking to make governance changes.
An entrepreneur’s success is often underpinned by a strong belief in their capabilities and decision-making ability, unwavering determination and a willingness to upend orthodox thinking. But these same factors can present governance challenges for boards of founder-led companies, as the recent problems at WiseTech Global and Mineral Resources (MinRes) demonstrate.
Both companies have come under critical observation from regulators and investors — and suffered share price falls. For MinRes, trouble came following news that founder Chris Ellison had not disclosed revenue generated by overseas entities to tax authorities. MinRes said Ellison would pay financial penalties and step down as MD in 2026.
At WiseTech, the governance crisis was triggered by reports CEO Richard White was embroiled in a civil court case over allegations he had reneged on a business deal with beauty entrepreneur Linda Rogan. Four board members resigned. Having stepped aside when the scandal initially broke, White returned to the company as executive chair in February.
“The WiseTech and MinRes scandals demonstrate how unchecked power can lead to poor decision-making and governance failures,” says Cilla Robinson, a partner in the King & Wood Mallesons’ employee relations and safety team.
Founder folly
There is a potential tension at the heart of the relationship between a founder CEO and a listed company board that wants to raise governance standards. Founders can take the view they’ve made a series of good decisions that have brought the company to its current point and now the board wants to question their future decisions.
Natalie Botha MAICD, managing director of enterprise management consulting firm Janellis, points out that founders can also have a higher risk appetite than their investors and need to find a common ground.
“They typically have had a long history of making intuitive, instinctive, high-quality decisions,” says Botha. “They might have made some decisions that failed, but overall they’ve made enough good decisions to get to that place. So when they’re... following their instincts, it’s difficult to get to a place where a group of people challenge them on how they’ve done that.”
Botha suggest boards implement a critical thinking framework that supports intuitive, instinctive decision-making, but also puts words around it to explain how these decisions have been reached.
The founder can outline their assumptions and the risks around a decision to the board so the board can challenge elements of a plan.
“You're not going to get every decision right, but having a framework in place allows for challenge in a way that’s not personal,” she says. “It’s constructive and also draws upon the brains trust of not just the CEO, but the other executive leaders and also the board members.”
Robinson suggests boards implement a balanced scorecard for decision-making, incorporating both financial and non-financial metrics to help founders make more informed decisions by considering a broader range of factors.
Regulator scrutiny
Regulators are placing more emphasis on board oversight of chief executives. In a February interview with the Australian Financial Review, Australian Securities and Investments Commission (ASIC) chair Joe Longo warned CEOs caught up in scandals that their companies will face greater scrutiny. He noted personal misconduct is often a sign of governance problems, criticising directors for underestimating how CEO behaviour reflects corporate accountability.
“I have been very disappointed by the number of matters that have been brought to ASIC’s attention, which started with poor personal behaviour,” said Longo.
Susan Forrester AM FAICD, who has served on the boards of five founder-led companies during their initial public offerings, notes that board members often consider themselves experts on governance, but not on behavioural management. It can be challenging for a board to persuade founders to comply with corporate policies, as there is a tendency for avoidance or believing the policies don’t apply to them. Similarly, founders of private companies may not have needed to understand conflicts of interest, which must be protectively managed in a public environment. Boards need to have upfront conversations with founders about the role of the board and management.
“When role clarity is clear, you establish respect,” says Forrester, a member of the federal government’s Takeovers Panel, chair of Jumbo Interactive and a non-executive director of financial services software company Iress. “This is the first element in the virtuous cycle of trust, respect and candour, which [Yale School of Management senior associate dean] Jeffrey Sonnenfeld wrote about many years ago. That is, if board members and founders respect each other, then slowly trust is earned and it continues to build. When you trust each other, you can be honest, and that’s when you can have the tough conversations.”
Forrester says she has learned the importance of “not gold-plating governance” with founder-led teams. Again, trust is important in fostering an environment where the entrepreneurial spirit that created the business can still thrive, but also reflect a contemporary governance framework.
Independent and objective
A board with a majority of independent directors must provide objective oversight and not be beholden to the founder. While it can be difficult for a director to express a different view to a CEO of a company after 20 years of success, non-executive director Kate Spargo FAICDLife says they are obliged to do so where necessary. As companies change and grow they need different attributes in their leaders. But this isn’t always possible when the founder is a major shareholder and isn’t interested in the views of the directors.
“That level of ownership can be challenging, especially for new, incoming non-executive directors in the face of a company that’s been quite successful,” says Spargo, currently a non-executive director of CIMIC Group.
The challenge for non-executive directors is to demonstrate they have something to contribute to the company and hope that appeals to the founder. “You’ve got to take into account whether you think you can make a difference,” she says of directors contemplating joining the board of a founder-led company. “If you think you won’t be listened to, no matter what the circumstances, I would think again.”
Crisis collateral damage
The steep decline in the WiseTech and MinRes share prices following their governance crises is not an isolated instance. Corporate share prices drop an average 35.2 per cent and take 425 days on average to recover from a crisis, while some never recover, according to research by reputation consultancy SenateSHJ.
The Crisis Index 300, a study of over 300 corporate crises around the world over the past 40 years, reveals that on average, corporate crises result in a 68.6 per cent drop in earnings per share (EPS), wiping out billions in shareholder value overnight. The index shows that 121 of the companies’ share prices never recovered, with 33 of these delisting due to bankruptcy, acquisitions or privatisations.
Mismanaged companies get punished more severely in a share price drop and take more time to recover, compared with those that suffer an environmental disaster, for instance.
“Mismanagement can often be a case of the board knew about it, the executive team knew about it, but did nothing about it for ages,” says Craig Badings, a partner at SenateSHJ. “Therefore, you were remiss as an exec team or a board that you didn’t act on it sooner.”
Seventeen Australian companies across eight sectors appear in the Crisis Index list, with those companies’ share prices falling nearly 55 per cent.
Learning to get along
Rob Newman, an organisational psychologist specialising in meeting dynamics and executive coaching, outlines several factors that can make founder CEOs difficult for boards to work with. They are by nature and necessity overconfident, sometimes to the point of intellectual arrogance. “It’s what makes them capable as founders but dangerous as partners,” he says.
The “fail fast” mentality of some founders is the anthesis of good governance with its emphasis on policies and procedures. Founders have typically invested their entire working life to their enterprise and struggle to share control. They can feel personally attacked when directors question their decisions and seek to exercise more control.
On the flip side, directors who represent investors in the business can also be subject to hubris. “Investors come onto a board with the assumption this guy can’t make it to the next level without our money and expertise,” says Newman. “So we’re here to play a role that actually involves quite a lot of control.”
The first step in overcoming the problem is to recognise the dynamic. Then for the board to recognise the CEO’s expertise and the CEO to recognise directors also have expertise.
“The relationship between chair and CEO is fundamental, because the founder is one of the core risks in this process. The chair will need to support this, the founder to realise [he or she is] a bit overconfident and needs guidance.”
This article first appeared under the headline 'Shaky Ground’ in the May 2025 issue of Company Director magazine.
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