By Ron Close
It is quite common that an entrepreneurial Founder/CEO of a successful and rapidly-scaling company will eventually find her/himself challenged to meet the changing needs of a growing firm. The skills required to launch a business include entrepreneurial traits such as top-down energy, curiosity, resilience, strategic thinking, individual results, wearing multiple hats, communicating with passion, and networking. While the need for those talents never vanishes, sooner or later the need for operational skills and talents emerges more fully. These capabilities include bottom-up energy, attention to process and control, incentive design, leading leaders, functional focus, and marshalling larger teams. This growth continuum can, at times, feel bumpy and relationships can get strained. What does a leader do when she/he begins to feel this tension? What should the Board of Directors do?
Two things can conspire to make this situation untenable in an otherwise successful and growing company. First, the Founder/CEO might lack the self-awareness necessary to properly judge her/his own skill set and could either be oblivious to or dismissive of the problem. Secondly, the Board could be unduly harsh in its assessment of the CEO’s skills or ability to learn and grow with the company.
Effectively addressing both of these likely conditions is key to getting over this challenging governance hurdle. Both are likely present. Founders will almost always be late to admit they aren’t enjoying or excelling at their job anymore. Too often they will continue to feel uniquely capable to lead, aided and abetted by the respect they receive due to the inherent stature and power of their existing role. But Boards for their part will often be early to criticize and even condemn the executive in a rapidly-changing environment. Directors often view the CEO as their only lever to pull to fix what is wrong with the company. To their credit, Directors are always listening for that squeaky wheel, hence their seemingly insatiable appetite for dashboard data, evidence and fact. But that predisposition can feel more like excessive criticism if not articulated with care.
Both sides of this coin must be addressed.
There are plenty of tools and techniques available to help Founders gain self-awareness. Use them. One of the more common is 360-degree feedback. A well-implemented 360 will get honest perspectives from all angles about any gap between the real needs of the company and the honest capabilities of leadership. That is the task at hand. The 360 report serves as a platform for honest and private discussions between select Directors and the Founder. The discussions are neither passionate nor personal. They are analytical and fact-supported leaning on and respecting the common opinion and perspectives of fellow leaders. And they are done in the spirit of caring.
On the other side of the coin are the Directors who may jump too early to negative conclusions or who may unreasonably doubt the ability of the Founder to grow with the changing needs of the firm. If a Board finds itself in this predicament look in the mirror. Earlier and more honest and clear communication would almost always have helped even if only to make the inevitable decision easier to deliver and digest. Boards should be thinking ahead about leadership needs, metrics, barometers, challenges, and intervention requirements should things go south. Be clear about what you would expect to see in the data if the company were properly managed at the top. Think holistically about results: Revenue, Cashflow, Capital Efficiency, Customer Satisfaction, Employee Engagement, Social/Community Involvement. When a Director begins to feel uneasy about the capacity of the CEO to grow with the needs of the company what evidence is he/she looking at? What data would give an early indication of underperformance? Is employee-satisfaction shrinking? Are we losing market share? Is our customer churn rate growing? Are we having trouble keeping or attracting talent? Are we consistently missing commitments? Think about this in advance. Discuss it openly but privately with the Founder. This pre-emptive approach to intervention would go a long way towards healthy Board-Management relationships and discussions.
It’s not too late.
If you are a Founder/CEO who increasingly feels criticized by your Board get out in front of it and drive your own 360 exercise. Flush-out the perceptions as they exist. Understand the points of view and face the facts. You then can either disagree and stand your ground against internal opposition or you can agree and step aside for a better candidate. But there is a third option. You could accept the input and design your own get-well-fast program. It might involve further education, finishing school, an industry tour, joining YPO, getting a coach, or delegating certain tasks that fall into your weaker areas. Take the bull by the horns and manage your destiny.
If you are a Director of a Board that is having discussions about CEO competency recognize that you are speaking about a perceived gap between the capabilities of the current leadership and the true needs of the company. Be much more scientific and data-driven in your discussions and opinions. What data can you lean on to support your pending conclusion that change is needed? What facts and evidence would you need to see to change your mind? Share that position openly and fully with the Founder.
Realize as a Director that the leadership needs of a company do not always have to be fully met within a single person. Other senior team members can often augment the limitations of the Founder. A CMO can often serve as a company’s prime external spokesperson. A COO can cover for an introverted CTO in outside speeches and conferences. A CFO can tag-team with the CEO in external discussions and presentations. Even Lead Directors can lean-in to reinforce soft areas for a CEO when agreed.
Changing leadership is a last resort. The loss of a Founder/CEO can have severe consequences on the morale and focus of a team that he/she created. Treating it as a last resort will make the process and the outcome much more open, honest, transparent and accepted by all.
Ron Close is Senior Leadership Advisor at Sagard Holdings and Portag3 Ventures.
We empower and invest in visionary financial entrepreneurs. Learn more about Portag3 Ventures at p3vc.com.