An Rx for floundering founder’s syndrome
Eight tips for company owners looking to pass the baton to the next generation are highlighted.
Floundering founder’s syndrome (FFS)—it’s one of the most pernicious ailments that plagues the industry. It occurs when firms should be transitioning in an orderly, agreed-upon manner to the second generation of leadership and ownership. But instead, the board room and leadership team dynamics resemble an episode of HBO’s dark comedy Succession.
1. Don’t leave me this way: When a firm’s Founders stick around too long, bad things tend to happen. The firm’s performance and culture suffer. Relationships become unhealthy. These changes don’t happen overnight. The degradation happens so slowly and subtly to be almost imperceptible. But everyone—including the Founders themselves—are aware of the drift. Unfortunately, most of the time leadership teams are not equipped to stop the slide. That’s why two-thirds of design and environmental firms fail to transition beyond their Founders.
2. Everyone’s not equal: We love our Founders—we wouldn’t exist without them. You only have to check out the “About Us” or “History” pages of the websites of the ENR 500 to see just how much reverence is paid to the (mostly) men who founded the firms 30, 40, or 50 years ago. So, we are more than willing to treat Founders in a special manner (e.g., Ford Explorer leases for managers, Mercedes leases for Founders). There’s a codified set of rules for a firm’s managers and employees. And then there exists another set of protocols—largely unwritten—for the firm’s Founders. Founders have a special place in our hearts, which translates into a healthy respect and deference. This generally works for most of a firm’s initial existence. But when Founders overstay their welcome, this dynamic can become unhealthy, and a firm begins to experience FFS.
3. The “Founder’s Card”: The first hint that a firm has FFS is when Founders begin to overplay their Founder’s Card. You’re familiar with the Founder’s Card, right? It’s like a special hall pass that only the Founders have. Need to take a call from a family member during a board meeting? Heaven forbid a non-founding manager like you would pick up and say, “Hello, my darling!” But the firm’s Founder sure can do it. That’s an example of the Founder’s Card being played. When the Founder’s Card gets overplayed in governance, strategy, and operations, it’s a recipe for dysfunction and sub-par performance.
4. Governance: Intentional or not, floundering Founders play an outsized role in corporate governance. The Founder’s Card is typically overplayed at the board level either in voting mechanisms (voting by shares owned vs. one person, one vote) or composition (packing the board with hand-picked “yes-people”—either internal or external—or family members). This type of behavior is a manifestation of Founders believing that the firm is “theirs,” that it belongs to them because they founded it—even when they themselves may own less than a majority of the shares. Most non-founding minority shareholders and next-generation leaders have neither the experience, capabilities, nor short-term incentives (“I don’t want to challenge this situation as the Founder sets my annual bonus. I’m no fool.”) to challenge the Founder’s Card when it’s played this way. This opens the door to poor governance decisions, and the rot sets in.
5. Strategy: When Founders stick around too long—especially when they have enough money in the bank to not worry anymore—and particularly when they don’t have enough going on at home to keep them grounded or occupied, it can lead to some serious strategy implications. In our consulting work we’ve seen it all. Founders passionately driving bizarre strategic initiatives (“OK, I know we are a transportation engineering firm and all that, but I believe we should buy multiple architecture firms to allow us better access to clients.”). Founders capriciously reneging on commitments made through good-faith and oftentimes contentious leadership team meetings. (“Yes, I know we agreed to invest in a technology partnership with that AI firm at our last board meeting, but now I’m not so sure, so let’s defer.”) When the Founder’s Card is overplayed in setting firm strategy, it leads to poor investments that drain a firm. It also erodes trust and confidence among leadership teams.
6. Operations: The Founder’s Card, when played at the governance or strategy levels, is hidden from employees. But at the operations level, it’s visible to everyone. This happens when a Founder lets personal bias undercut agreed-upon management decisions or protocols (“Let’s keep working for this client. I know they don’t pay us well, but I’m friends with the CEO’s mother. If your division director finds out and is upset, tell him I told you it’s OK.”) or is unable to recognize how business has changed (“Value pricing? That will be the end of us! Figure out the hours it will take and add a 5% profit. That’s how we do business here.”). When this happens, the dysfunction at the top of the firm becomes manifest to all. It’s lousy for morale.
7. Transition deferred/destroyed: When Founders flounder and hang around too long, they place the transition to a next generation of leaders and owners in jeopardy. Their persistent presence can delegitimize those who would be the next leaders. Their overplaying of the Founder’s Card in governance, strategy, and operations serves only to undercut and demotivate next-generation leaders.
8. Great brand, lousy performer: The sum total of FFS is a bizarre asymmetry between brand and performance. It’s shocking how many firms we see that should be consistently generating profits of 20%+ given their brands that are barely breaking even because of FFS.
Rx for FFS? The only medicine for FFS is a strong, cohesive, and skilled next-generation leadership. This team needs to make it clear to the Founders the terms under which they will commit to transition in terms of goals and timing. They need to acknowledge the special role and position of the Founders, while also making it clear what is acceptable and unacceptable behavior. They must call out the Founder’s Card when it’s played. Sounds easy, but it’s not. Transition is about dealing with power, mortality, risk transfer, and legacy relationships. It takes the Founders working in concert with the next generation to make it work smoothly. The longer Founders linger, the harder it gets.
Original content can be found at Morrissey Goodale.