UK: COMING UP FAST - REMOVING THE FOUNDER.

UK: COMING UP FAST - REMOVING THE FOUNDER. - DILEMMA - A successful company has outgrown one of its founders. Although well-liked, the executive lacks the skills or the motivation to help lead the business through its next period of change and expansion.

by PATRICK DUNNE, who works with 3i.
Last Updated: 31 Aug 2010

DILEMMA - A successful company has outgrown one of its founders. Although well-liked, the executive lacks the skills or the motivation to help lead the business through its next period of change and expansion.

ISSUES - Most fast-growth companies are eventually faced with this dilemma and the problem is often exacerbated when the founder is also chief executive, chairman or a majority shareholder. Succession is one area of boardroom behaviour where we can learn much from animals. When tension mounts in a chimpanzee pack, the stronger members become less tolerant of the weak.

Similarly in business, past triumphs are overlooked and bloody battles become hard to avoid if the matter isn't dealt with swiftly. There is little to be gained from waiting until it is clear to all that the executive is out of his depth or underperforming.

The art is to turn the departing founder into an advocate of the business when he leaves, rather than an adversary. If negotiations are mishandled, the business may become the subject of a messy and protracted sale.

ACTION - Adopt at least one clear, common objective - even if it is simply not to destroy the business.

- Don't allow senior management to become distracted from running the company during negotiations.

- Involve a non-executive director or trusted adviser. A little informed objectivity may help to identify and defuse a potentially damaging problem. Advisers should be familiar with the business.

- Deal with the problem when there is plenty of cash to purchase the executive's equity and before overall performance and cash-flow have been affected. Raising external funds will be harder if and when the board is at war. A pre-agreed, formal method for valuing the equity of the exiting shareholders is essential. Without it, arguments ensue over process as well as value.

- Co-ordinate and control the way in which employees, customers or suppliers are told that the executive is leaving. Rumour can be damaging, causing the founder and the business to lose face or confidence, and resulting in internal conflict, poor motivation and even business downturn.

- Take care to appoint a successor who will take the business

forward. Consider internal candidates. While an external appointment can be risky, a recruitment agency, well-briefed, can help to find the right candidate.

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