When should a founder step down as CEO?

'There are not many companies that get to this level. And there are not many founders that choose their company over their own ego. I know we will prove this was the right move,' read an email sent by Twitter co-founder Jack Dorsey to the company and its employees announcing his resignation as CEO, which he also posted on Twitter on 29 November 2021.

Many people were surprised by his departure and the handover of control to CTO Parag Agrawal, as Twitter is slowly transitioning into its next phase following a series of acquisitions to update the platform.  

Why would a founder who laid the foundation of a particular company and built it from the ground up into a thriving enterprise with his time, effort, and money ever step down voluntarily at such a critical time?

Take the transfer of Pathao's CEO position from co-founder Hussain Elius to Fahim Ahmed as an example of a local incident that sparked similar concerns. 

In a press release posted on Pathao's website on November 1, 2020, Hussain Elius stated, "Founding Pathao has been the most exhilarating experience of my life. After six years, the time is right for a new leader."

While there is much to be said about the advantages of having a founder-CEO lead a company, what is also true, and arguments in favour of which hold equal weight, is that perfectly-timed and well-planned transitions from founder-leaders to dedicated successors can propel already successful businesses to even greater heights.

In this context, what happened to Intel after co-founder Robert Noyce handed over the reins to Andy Grove in 1987 is a good example. From 1991 to 1996, he led Intel through a period of remarkable growth, with revenues increasing by 336 percent and a profit margin of nearly 25 percent, transforming the company into a household name in the process. 

However, if the transition is misplaced, delayed, or poorly executed, both the company as well as the founder will most likely suffer.

In this regard, Henry Ford, the founder of the Ford Motor Company, set the perfect example. In 1918, Henry resigned as president and handed over the presidency to his son, Edsel Ford. However, he remained very active in company management, frequently obstructing Edsel from taking bold moves. 

Speaking about how this reluctance to let go of control hampered the company, David Halberstam, in his revered book The Reckoning stated, "Edsel Ford would have improved the company tremendously. But he never got the chance. He was crushed and a whole generation of good men were forced out."

So, this begs the question of when a founder should step down as CEO and how this transition can be made as smooth as possible to ensure the company's survival is not jeopardised in any way. 

As a company grows, the founder's skill set may no longer be sufficient to meet its growing needs. If a founder lacks qualities required to move the business forward, s/he should allow a more qualified candidate to take over as CEO.

Associate Professor Sajid Amit, the Director of Center for Enterprise and Society and Director, EMBA Programme at ULAB, shared his thoughts on this issue, saying, "In the early stages, the founder's personality and charisma is important because they attract young talent to the startup. It aids in the creation of supply chains with the startup. It also helps drive marketing." 

"Once a startup grows bigger, it requires more discipline, regulations, policy, compliance, structure, and better corporate governance. So that is when you will need someone more experienced. That is when a good manager becomes more important than a charismatic leader," he added. 

His stand becomes clearer when viewed in light of the events that unfolded in Google, leading this big tech behemoth to witness greater success. 

When it reached USD100 million in revenue, one of its largest investors expressed concern that founders Larry Page and Sergey Brin did not quite possess the managerial skills required to lead such a fast expanding company. 

Hence, it strongly urged them to appoint an external CEO, and Eric Schmidt was subsequently brought in. Over the next decade, he saw the company through its 2004 IPO, the acquisition of YouTube, and the inclusion of products such as Google Docs and Gmail. 

Indeed, as Sajid pointed out, if the succeeding CEO is financially prudent, smart, mature, has a charismatic personality, is adaptable, and can lead the company well in addition to managing it, s/he can run it as well as, if not better than, the original founder.

As in the case of Andy Grove, he was there with Intel from the beginning and thus was well-trained and acquainted with how the organisation worked, what its strengths and weaknesses were. 

Eric Schmidt, on the other hand, came to Google with a solid engineering background, having served as the CTO of Sun and then the CEO of Novell before joining Google.

However, similar to Pathao's approach in making Elius assume a new role as Senior Advisor following his exit from the position of CEO, the founder can remain with the company in a non-CEO role to mitigate the negative impact that such a transition is likely to have, especially in the early days, because he can still add a lot of value with his experience and connections.

"If the founder happens to step down as CEO, I still think that some of the things that the founder was able to do might not be that easy for the second CEO or the person who becomes the CEO later. If s/he has a charismatic personality," he added, "I believe the startup can still benefit from that and his experience in recruiting people, attracting talent, sponsors, investors, and so on," said Sajid.  

"He can also help the company through his connections. Many startups, for example, require solid suppliers, and this contact and network may be something the initial founder has. Thus, subsequent CEOs may require the founder to use his network to keep the supply side running," he added.

Furthermore, because the founder must, in some way, hand over control to someone else at some point, succession planning must be drawn up and steps must be taken as soon as possible to ensure its proper implementation.

Steve Jobs, for instance, personally hired his future successor Tim Cook and helped train him to eventually take over as CEO. With Cook at the helm, the share price of Apple went up by 1,022 percent.

Speaking about the importance of a sound succession plan, Founder and CEO of Startup Dhaka, Mustafizur Rahman Khan said, "Its significance stems primarily from the fact that it helps avoid any business disruption during and after the transition, as well as ensuring that the baton is passed to a passionate individual who has been groomed in accordance with the needs of the company and is familiar with the vision of the founder." 

"Pathao, for example, did a commendable job in this regard. The management worked with Fahim Ahmed for several years, making sure the company was ready before appointing him as the CEO," he added.