A founder CEO, often written as founder / CEO and also as founder & CEO is an individual who establishes a company as a founding CEO and holds its chief executive officer (CEO) position.[1] If the firm's CEO is not a founder or the founder CEO has succeeded, the firm is said to be led by a non-founder CEO or successor CEO.
Research has highlighted differences between the founder and non-founder CEOs that influence firm performance. These differences include: stock performance, equity stake in the firm, managerial incentives, research and development investment, and outlook towards mergers and acquisitions.[1][2][3][4][5]
According to scholars such as Rüdiger Fahlenbrach, founder CEOs outperform their non-founder CEO counterparts in both stock performance and market valuation. They tend to take a long-term view and consider their firm their lifetime achievement, resulting in them holding a larger equity stake in their firm than non-founder CEOs.[2] Darius Palia, S. Abraham Ravid, and Chia-Jane Wang developed this idea further, concluding that founder CEOs become less influenced by managerial incentives as they continue to devote resources to their firm, whereas the opposite is true for non-founder CEOs.
Non-founder CEOs are less invested in their company and are more likely to tailor their performance according to managerial incentives.[3] Scholars such as Joon Mahn Lee, Jongsoo Jays Kim, and Joonhyung Bae, concluded that founder CEOs continually invest in new projects and explore new knowledge to benefit the firm in the long-term. This suggests that a link between founder CEOs and a greater innovation investment.[5] In terms of mergers & acquisitions, Fahlenbrach, along with other scholars, concluded that founder CEOs partake in a greater number of acquisitions within their core business line each year, as they have a greater risk tolerance.[2] it is suggested that this additional risk taken on by founder CEOs stems from overconfidence at the CEO level, which some scholars have measured through their tone in tweets, regarding both earnings calls and personal statements, and their option exercise behavior relative to non-founder CEOs.[4]
Founder CEO succession can occur through both voluntary and involuntary means. American academic Noam Wasserman found that in the majority of founder CEO successions, the founder is forced to step down by investors. Founder CEOs who successfully execute new product development or enter into negotiations with potential outside investors for additional capital have a higher likelihood of being replaced than those who are not as successful with product development and/or do not to raise additional capital. Indicated by several scholars, like Wasserman, as the CEO becomes successful in product development, the needs of the firm expand and a mismatch between the current skills of the founder CEO and the new skills needed for the firm's success is likely to occur, thus increasing the probability of succession. Founder CEOs are generally succeeded by someone from outside of the firm.[6] Founder CEO comebacks have occurred whereby the founder CEO was replaced and later returned to their role as CEO.
Eleven percent of the large capitalization firms in the United States are led by founder CEOs, including well-known companies such as Facebook, Netflix, FedEx and Amazon.[2]
A person or several people can be founders of a firm. The founders earn the 'founder' title only once the firm becomes operational, at which point their founder role ends. Founders do not have a particular role once the business is established, but their influence inevitably continues as they designed the firm's blueprint affecting structures and decision-making.[1]
- ^ a b c Nelson, Teresa (2003-08-01). "The persistence of founder influence: management, ownership, and performance effects at initial public offering". Strategic Management Journal. 24 (8): 707–724. doi:10.1002/smj.328. ISSN 1097-0266.
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