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By: Di Rifai – Published by Board Agenda
September 14, 2020
While the innovation and brilliance of tech “star founders” and their revolutionising companies have undoubtedly delivered great rewards for many of their stakeholders, they also bring new and uncharted challenges in the boardroom.
Just as public scrutiny is now being focused on some of the more insidious impacts of such companies’ dominance, investors likewise, should be paying much closer attention to how effectively (or otherwise) boards are wielding influence on their behalf.
One of the most significant risks is the increasing complexity of company ownership structures, which could, if unchecked, erode the role of tech firm boards to that of (merely) adviser, without any real clout to intervene in the worst-case scenarios —including removal of a wayward founder. In this way, star founders effectively take on the mantle of “emperor”, enabling autocratic rule and the ability to override any decision made by the board.
GETTING BOARDS BACK IN THE DRIVING SEAT
History has provided repeated cautionary tales, granting that absolute power, and its corrupting effects, are to be avoided at all costs. Now that we have the tools and connectivity to hold organizations properly, and publicly, to account, it is vital that we do so. Yet we also operate within a complex, semi-virtualized ecosystem of stakeholders, which renders the art and science of non-executive leadership far more difficult and nuanced – yet even more critical than ever before. CFU proposes four key areas that boards might consider:
- Innovative Recruitment: The methodology by which non-executive board members are selected needs a radical shake up, so founders and senior executives’ influence is better balanced by that of common shareholders
- Coalition forming: Institutional investors have some influence – if they mobilize to form powerful blocs; this happened with the failed WeWork IPO (where Adam Neumann was attempting a controlling, dual-class structure) and is a posterchild for how such coalitions can expose weaknesses when investors do challenge
- Early Intervention: Future IPOs and their shareholder agreements should be challenged by incoming, public markets investors. It’s far less complex to ensure adherence to the rules of sound governance at an IPO event, than to be forced into restructuring the capital tables in the midst of a meltdown, as happened with Uber’s Travis Kalanick
- Regulator backing: Regulators need to keep an eye on this space and where possible (not in a fundamentally interventionist manner), put guardrails in. Ideally, boards will prudently elect robust self-governance before regulators are pressured into enacting regulations that may be less nuanced and burdensome
CFU believes that robust Digital Age governance, distributed decision-making, and truly independent board members who can viably challenge these founders – while also bringing the intellectual heft on which their appointments are often made – are all critical to tackling this issue.