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- Founder influence can support early growth but often creates tension as companies scale and governance requirements increase.
- Independent, empowered boards are critical to prevent founder dominance, ensure accountability and manage leadership transitions effectively.
- Proactive succession planning, based on capability and started early, is essential for smooth transitions, although outcomes vary widely depending on governance strength and execution.
Founder influence can be a source of strength or strain. As companies mature, boards must find ways to preserve entrepreneurial drive while maintaining both independence and a credible succession plan.
When Michael Heine decided to step down as managing director of Netwealth Investments in 2022 – a company he had built from scratch into a hugely successful, ASX-listed platform – it likely came as little surprise to those around him.
Heine and the board had already drawn up a viable succession plan to seamlessly hand over the reins to his son, Matt, who has worked at the company since its earliest days.
“I was approaching the age of 75, which provided a good opportunity to consider the future and what it should look like,” Heine tells Company Director from his Melbourne home.
“I was also very fortunate to have a successor who is highly capable and well placed to take the company forward… the fact the successor was my son is based on his ability rather than him being my son.”
The growth phase as point of tension
Heine seamlessly vacated the top job and is now a non-executive director with the company, but he notes that without a “strong governance structure and an independent board”, the process would not have been so smooth.
There is no doubt that a firm founder influence can be a huge boon for company culture and growth, but without correct governance frameworks, it can expose weaknesses over time.
“A lack of independence among board members can result in a founder exerting undue pressure to remain in their position and not recognise the need for change and regeneration,” says Heine.
“Egos need to be dealt with, especially by founders, who too often consider themselves irreplaceable.”
Larissa Cook FAICD is the co-founder of legal, commercial and governance advisory service, Baker Cook. She notes founder-board relationships often come under strain once companies grow big enough to demand a rigorous governance framework.
“When a company is starting up, the founder is often the executive chair and it’s often a leaner operation in which the founder is crucial to the growth of the company,” she says.
Once a company grows, so too does the need for best-in-class governance frameworks, which founders may support in principle, but struggle to adopt in reality, notes Cook.
“They may think, ‘Oh God, do I really have to jump through all these hoops? And who are these people? They haven’t sweated for 30 years in this business. Why are they telling me what I should do and how I should do it?’”
Founder transitions can be destabilising for companies and investors alike, especially if sudden.
Magellan Financial Group went through a turbulent period in 2022, around the time co-founder Hamish Douglass stepped down from the board. The company faced falling funds under management, share price pressure and a leadership reset.
Magellan once held around $120 billion in funds under management, but that figure is now around $40 billion.
The vital role of the board
Nevertheless, a successful founder transition is possible. Late last year, Mike Davis, co-founder and CEO of SaaS company Felix Group, stepped down into an advisory role as part of a planned transition. In a statement at the time, the company said the decision reflected “a mutual view with the board that Felix’s next phase of growth will be best supported by a Brisbane-based CEO”.
What was clear from the statement is the equal footing of both board and founder, a crucial aspect of a well-functioning company, says UQ Emeritus Professor, experienced board director and chair of strategic advisory firm Strategic Governance, Geoff Kiel FAICD.
“Too often, founders surround themselves with less-than-effective directors,” he notes.
“Ensure the board contains non-executive directors with extensive contemporary governance and management experience in similar organisations.”
Boards also need to be given real decision-making power.
“Unless you have established for the board what the board decides, then the board is only acting as a rubber stamp for the founder,” says Kiel.
While it’s not uncommon for founders to take on both chair and CEO roles, Kiel maintains an independent chair is ideal.
“Many (founders) do not have the skills and personality to act as both CEO and chair in a board meeting and they often dominate the debate,” he says.
Cook adds that the hallmark of board dysfunction in a founder-led company is when the “real conversation happens outside the boardroom”.
“You can’t just be a seat warmer,” she says. “Once you’re there, once you’re around that table, you have the same voice, the same entitlements, the same obligations as everyone else.”
Proper succession planning
Some runaway corporate success stories are still very much founder-led.
Design platform Canva is an example of founder influence as a company matures. Co-founders Melanie Perkins, Cliff Obrecht and Cameron Adams remain closely involved in the company’s leadership and strategic direction, with the trio’s founding mission still central to Canva’s identity.
Indeed, both Cook and Kiel agree there is no single right moment for boards to propose founders to step back. However, Kiel argues boards should conduct substantive annual CEO assessments, which “should be designed to give appropriate feedback, including when it might be time for the founder to consider stepping down”.
“This should be conducted by the non-executive directors, possibly with external assistance,” he says.
Proper succession planning should also start well in advance, with strong potential successors identified early on.
“I once saw a statement that succession planning should start on the first day the new CEO starts the job... the thought behind it is actually very true,” says Kiel.
Cook points out boards should challenge the notion that founders must automatically stay on in some capacity.
“It doesn’t always work (for the founder to stay on) and sometimes having that clean break is best,” she says. “Have your long-term succession plan, but when you get to the point of stepping down, I think that’s when it’s time to go.”
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